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My sister-in-law (SIL)currently lives and works overseas. She has for several years, and intends to stay there for several more years. She also currently has a US bank account, with a balance of $40,000+. She wants to transfer the money to myself and my wife (her sister) in order to protect it from a potentially draining litigation she is named in, while at the same time avoiding any serious (or even not-so-serious) tax penalties.

Is this even legal? Is a gift the proper way to do this? I have envisioned a few scenarios, and am unsure of the applicability of any of them:

1) SIL gifts each of us the money, in $10G increments ($10G in 2000, $10 in 2001). Is there some deadline in Jan/Feb 2001 for a gift to be considered as being given in 2000?

2) SIL gifts one of us the money. I'm sure there are tax implications in this scenario, but I don't know what they are or where to find them. I have tried searching the message board for this topic, but wasn't able to find anything relevant. What is the reporting mechanism for such a gift, and what are the implications of not reporting it?

3) Some other arrangement where the money can no longer be legally associated with her.

I do know that she does not want to transfer the funds to her overseas account.
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