Personal Injury Check signed over to me

What is the name of your state? California

A friend of mine received a 25,000 check from a personal injury settlement. He doesn't like dealing with banks so he signed the check over to me. I have since put it into my bank account and there it sits.

My question is: Do I have to claim this money on my taxes as a gift? Are there any other liabilities that I might be overlooking?

Thanks for any help... Scott

No, you do not have to pay income taxes on gifted money. You will have to claim the interest as income, however.

The friend will need to file a gift tax return since he gave over $12k, I believe, but will not have to pay gift tax unless he is over his lifetime limit of $1 mil.

Of course, if the money is not a true gift, and you're just holding the money for him, then there is no gift issue.

Thank you for your advice. I appreciate it. I just wanted to make sure I'm in the clear.

One more question.. Does the IRS or Franchise Tax Board automatically get notified when someone makes a large deposit into their account? I'm not exactly Bill Gates so this large of a deposit is unusual.

If it was cash, they'd be notified. Probably not for a check. If the money is going to remain your friend's, I strongly suggest you open another bank account that is just his money. That way you avoid comingling the funds and it's much easier to prove to the IRS that the money was never intended to be yours.

BTW, if your SSN is on the account, you'll have to pay the taxes on the interest unless you 'nominee' it to your friend. To do that, you'll need his SSN.

BTW 2, if this is a gift, make sure you get something from him in writing, so no one can accuse you of misappropriating funds.

National banks must file a "suspicious activity report" (SAR) for transactions at certain threasholds that know or suspect are from criminal activity or money laundering. Doesn't matter if it is cash, check, or electronic transfer. Other financial institutions may have similar rules. For more info see http://www.occ.treas.gov/sar.htm

Although, one threashold is $5000, they may be more suspicious of someone regularly depositing or transferring wads of cash, than a one time check deposit. Just make sure that you have an explaination if somebody (like the IRS) asks.