My dad who is an Non-resident alien would like to gift some amout ~$30,000 from the sale of foreign assets in the foreign country into my foreign bank account, which currently has only $100.00. He will be immigrating to the US during dec'09. For 2009, he will be a Dual status alien, i.e NRA till Nov30th 2009 and RA from Dec 1st -> Dec 31st.

Here is what i want to confirm if my understanding is correct.

1. I don't think my Dad is subject to gift tax bcos at the time of gift he was still a NRA and it non-US asset.

2. Will he have to declare anything on FBAR form for 2010, for period when he as an NRA?

3. I will have to declare my foreign bank account in FBAR for 2010 bcos amount in 2009 as a result of gift exceeded $10K. Should i attach a gift deed along with the form?

4. Are there any other filing documents that i need to send?

MukatA

1. If your dad files dual status for 2009, then he does not have gift tax reporting requirement during nonresident period.
2. Same for FBAR.
3. Yes, you must file FBAR for 2009. You do not attach any document with FBAR. FBAR is not filed with the tax return. Any other Form is generally filed with the tax return.

mad1

Thx for your reply. Have One more question sir

Bcos my parents are dual status residents for 2009 (NRA from Jan -> Nov) and (RA from Nov -> Dec) are they required to file any federal return for 2009. under the following situation.

1. My dad is 70+ and my mom is 63.
1. They only received income from foreign sources (sale of foreign assets) during the non-resident period. They don't have any US assets.
2. No foreign / US income is expected to be received after their entry into the US in Nov 09.



Now w.r.t to filing their income tax returns in 2011

1. Their next income (pension) approx $1.5k/yr + some misc bank interest < $1k/yr , is expected to be received in April 2010. Are they required to file in 2011, even if their un-earned income (pension + bank interest) < $3k for 2010?

2. Can they be claimed as dependent(s) on my tax return in 2011, they would be living with me for the entire year in 2010 and i will be providing all their support.

AtlantaTaxExpert

They WILL have to file a dual-status return for 2009.

1) For the 2010 return, their income level will be so low that NO U.S. tax return should be required.

2) Yes, you should be able to claim them on YOUR 2010 tax return as dependents. They do not even have to live with you.

mad1

Could you please elaborate on what they would file on the dual-status return for 2009.

They have'nt received any income from US sources during the NRA period. They only received interest / dividends from the foreign country in the NRA period. Since all foreign income is exempt in the NRA period, what information should they put in the 1040NR form?

Secondly. during the RA period (nov09 -> dec09) they don't have any income from foreign or US source? What do i fill up on the 1040 form?

MukatA

They do not have income tax return filing requirement.

AtlantaTaxExpert

I disagree with MukatA.

At face value, there seems to be no filing requirement. However, there is no audit trail for the foreign-sourced income, so there is no way for the IRS to determine what IS reportable during the RA period unless you make the effort to report it.

Further, you state "during the RA period (nov09 -> dec09) they don't have any income from foreign or US source."

How is this possible? Did they close ALL of their foreign bank accounts, brokerage accounts and sell all of their stock and other equities before coming to the U.S.? If not, then those accounts continued to pay interest and dividends during the RA period.

If you do not properly allocate the annual dividend and interest payments to the NRA and RA period in a dual-status return, the IRS will do it for you, and they will assume that it is all taxable. Hence, if all of the dividends and interest is sufficient large enough to be subject to taxation, then it is in your best interest to file the dual-status return to properly allocate the money to show that no taxes are due.

Ultimately, it is your decision, but, when dealing with the IRS, it is ALWAYS better to be safe than sorry!

mad1

yes he is closing all his stock accounts. The only thing remaining after he comes here would be a single bank account. The interest will mostly paid in around October. I don't have a problem filing a dual tax return, but just trying out what to fill in the 1040NR and 1040 forms.

Since all income / dividends are foreign source and received in the NRA period, what do i report on 1040NR form.

If they do receive anything in the RA (nov-Dec09) then i can easily put them in the 1040 form. If they don't receive anything in the RA period, should i just put zeros and attach an explanation saying that they have'nt received any income and produce the bank statement that shows that they did'nt receive any interest from Nov - Dec09?

Also i have one more question from the experts here. Since my dad is selling all his stocks / assets and gifting it to me, which option is better so that he never incurs a gift tax. All this will be done before he sets his foot in the US as a "NEW PERMANENT RESIDENT"

1. Wire transfer the proceeds (cash) from his foreign bank account -> my US bank account. I read some articles saying that IRS can deem that it might be treated as a tangible property and they recommened option (2).

2. Transfer the proceeds from his foreign bank account -> my foreign bank account and then I wire the proceeds to my US bank account.

With option 2 i would have to file FBAR form next year. I am just trying to judge which is a better option. Everything is legal here, just want to take advantage of NRA tax benefits before he becomes a Resident alien.

AtlantaTaxExpert

If there is NO U.S.-sourced income during the NRA period, you may be submitting essentially a BLANK Form 1040NR in terms of the financial information. A fair number of the dual-status returns I prepare have no financial data on it, which is why you can use Form 1040NR-EZ as the dual-status statement.

However, the IRS does want the information on Page #5 to be accurate and up-to-date.

mad1

Thank you very much. I will be safe with IRS than sorry. Can you also answer the following question

Also i have one more question from the experts here. Since my dad is selling all his stocks / assets and gifting it to me, which option is better so that he never incurs a gift tax. All this will be done before he sets his foot in the US as a "NEW PERMANENT RESIDENT"

1. Wire transfer the proceeds (cash) from his foreign bank account -> my US bank account. I read some articles saying that IRS can deem that it might be treated as a tangible property and they recommened option (2).

2. Transfer the proceeds from his foreign bank account -> my foreign bank account and then I wire the proceeds to my US bank account.

With option 2 i would have to file FBAR form next year. I am just trying to judge which is a better option. Everything is legal here, just want to take advantage of NRA tax benefits before he becomes a Resident alien.