the existing employment relationship. Under Internal Revenue Code section 102(b)(1), income subsequently derived from any property received as a gift is not excludable from the income taxed to the recipient. In addition, under Internal Revenue Code section 102(b)(2), a donor may not circumvent this requirement by giving only the income and not the property itself to the recipient. Thus, a gift of income is always income to the recipient. Permitting such an exclusion would allow the donor and the recipient to avoid paying taxes on the income received, a loophole Congress has chosen to eliminate. History The gift tax is a backstop to the United States estate tax. Without the gift tax, large estates could be reduced by simply giving the money away prior to death, and thus escape any potential estate tax. Gifts above the annual exemption amount act to reduce the lifetime gift tax exclusion. Congress initially passed the gift tax in 1932 at a much lower rate than the estate tax, a full 25% under the estate tax rate, while also providing a exemption, separate from the exemption under estate tax. The benefits were clear: a gift would be taxed only , effectively only 23.0%, well below the estate tax rate. The intention was to rapidly generate revenue in the Great Depression, effectively encouraging avoidance of the estate tax by doing so, while lawmakers at the same time publicly, and in both House and Senate, proclaimed the exact opposite objective. Moreover, this was directly at the expense of state tax revenues, as well as of future federal tax revenues. The primary beneficiaries were the wealthiest citizens, whom the estate tax was supposedly designed to target, since only they had enough money to freely make large gifts. This was the express intention. See also GRAT SOGRAT Uniform Gifts to Minors Act Crummey trust References External links IRS article, Estate and Gift Taxes IRS publication 950, Introduction to Estate and Gift Taxes IRS publication 950, Introduction to Estate and Gift Taxes IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return Instructions for Form 709, Instructions for Form 709 Instructions for Form 709, Instructions for Form 709 Infographic on Gift Tax Is There Tax On Gift Cards? Personal taxes Inheritance Taxation in the United States Tax terms