Let's call the "someone" in your hypothetical, "X", for convenience, and individual members shall be called. "M", As long as: (1) each M who makes payments to X does not pay more than $14,000 in any calendar year; and
(2) X does not make any payment to any individual M in excess of $14,000 during any calendar year; and
(3) there is no express or implied agreement that X must pay any M any particular amount in exchange for any particular M's payment to X, then all transactions are nontaxable gifts, which do not have to be reported to the IRS, because they are less than the annual gift tax
exemption maximum amount.
There is one way that this transaction could raise the IRS' radar: X may receive a lot of money in this transaction. If X is audited, because X's bank reports to the U.S. Treasury that X has received all of this money in a short period of time (i.e., under Patriot Act as a "suspicious transaction"), then X will have to explain how so many of these wonderful M's gave X a substantial gift out of "affection, respect, admiration, charity or like impulses," which is the definition of a nontaxable gift, under the landmark ruling in Commissioner v. Duberstein
, 363 U.S. 278, 285 (1960). And, if X 's explanation doesn't satisfy the IRS, then it may just decide to audit
every single M to see what happened with the transaction. And, if the result of that audit is that it appears that X and the collective M's had some sort of agreement to move money around between themselves, then the IRS could argue that the transaction was not a gift at all, but rather some sort of contract, where the parties received some benefit in exchange for their respective payments.
If all of that were to happen, the gifts would be ruled taxable income
, and the M's would be relatively screwed. X might be prosecuted for tax evasion, depending upon the amount of money transacted. I have no idea how much is involved, but if it exceeds $25,000, I'd start worrying, and if it exceeds $100,000, I would say that an audit is practically certain.
Obviously, if all of these transactions were to take place in cash, then unless someone were to file a whistleblower complaint with the IRS, the entire "shell game" would probably go unnoticed.
All of that having been said, I cannot encourage you to do what I've just hypothesized. Not only because of the possibility of being caught -- but also because there is something about the transfer of a lot of money in cash that causes people who the day before, were completely trustworthy, but all of a sudden, they decide that it's payday.
Remember the movie "Psycho?" Janet Leigh stole the dough and ended up being subjected to some really bad Karma by Norman Bates.
I'll leave it at that. Hope this helps.