This can be illustrated in many ways. But for the sake of a concrete example, let's assume a sample scenario: We have an employer (Mr-A) and his employee (Mr-B) also happens to be his "good friend". The annual wage is $x which naturally is subject to income taxes. Here's the catch though: $x is a low number by "normal standards" (e.g. ~$5 annual wage, or ~$50 or ~$500 or ~$5000.. it doesn't really matter).
However, Mr-A gifts his friend items and cash amounting to below $14k, or let's just put it at below $10k annually. This can be ~$9000 or below but it doesn't really matter. Mr-A does not expect to get anything in return from Mr-B, so it is a "true gift". (Though perhaps if Mr-B decides to stop working, Mr-A may also arbitrarily decide not to continue his gifts to Mr-B.)
On top of that, Mr-A's spouse also gifts Mr-B items and cash amounting to below $10k annually, and each of Mr-A's other friends and relatives also gifts Mr-B items and cash amounting to below $10k annually.
In other words, in total Mr-B could've received "true gifts" amounting to over $20k, $50k, or even over $100k a year in cash and items.
Is such a thing legal?
Are there any ways to work around it? (akin to the irish tax loophole used by Apple and Linkedin for corporate taxes which used to work)