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globalguy · Oct 16, 2008, 01:08 PM

Dear IntlTax:
A little twist on the subject. Mother is a US resident but no property or income in the US. She purely spends several months here to visit children. She goes back home and sells off a property that in effect is inheritance of the children. She now wants to wire the proceeds to the US citizen children. Is still a foreign bank and the idea of gift to child be applied here with no tax implication?

AtlantaTaxExpert · Oct 16, 2008, 01:53 PM

Calviny:

Despite what is often projected by the media and scare ads by tax representation firms, the IRS is NOT all-knowing and all-powerful. They have NO WAY of monitoring transfers of fund between foreign banks. The laws of many foreign nations specifically prohibit the banks from revealing transfer information to the tax agencies of other nations.

This being the case, the IRS cannot tax money transfers about which they know nothing.

IntlTax · Oct 16, 2008, 06:20 PM

Globalguy, If mother is a U.S. resdient she will be taxed on her worldwide income in the U.S. regardless of whether the money is transferred to the U.S. She may or may not be considered a resident of the U.S. for gift tax purposes. This depends on whether she is domiciled in the U.S.

kimoC2008 · Oct 18, 2008, 12:49 AM

I became recently US Citizen, before I came to USA 10 years ago, I had invested $20 k in a Foreign Bank's CD, and due to the ongoing worldwide banking crisis, I would like to transfer that money to my accounts in US.
1- Are there any Tax implications or fillings necessary to my situation?
2- Would the scenario be different if my father US Citizen -who is owns with me in that acct.- Wires the money as a Gift.
Thank you in advance for your help.

IntlTax · Oct 18, 2008, 07:11 PM

You should have been reporting the interest income from the foreign bank account on your U.S. tax return and you should have been filing Form TD F 90-22.1 to report the existence of the foreign bank account. You may have a currency gain when you bring the money to the U.S.

You should speak with a tax advisor to determine whether you or your father are considered the owner of the account. Likely the person who put the money in the account would own the account, for gift tax purposes.

LA Simpleton · Oct 25, 2008, 08:19 PM

IntlTax,

You are very knowledgeable, and your comments are always clear.

If the money is in a joint account, between mother (non US resident) and son (us citizen) in a European Bank account. The overseas account was recently (say 1 year ago) made into a joint account, prior to which it was in the Mother's name only, however, no 3520 filing was done since then, because of lack of knowledge of such a requirement. What are the ramifications and measures to rectify?

Also, for financial safety reasons, specifically due to the global financial crisis, they now want to transfer the money to the US, what specific steps would you recommend, given the lack of 3520 filings earlier and the desire to rectify. Does it matter if the amount is large, say $500K+?

LA Simpleton · Oct 26, 2008, 08:26 PM

Originally Posted by LA Simpleton

IntlTax,

You are very knowledgeable, and your comments are always clear.

If the money is in a joint account, between mother (non US resident) and son (us citizen) in a European Bank account. The overseas account was recently (say 1 year ago) made into a joint account, prior to which it was in the Mother's name only, however, no 3520 filing was done since then, because of lack of knowledge of such a requirement. What are the ramifications and measures to rectify?

Also, for financial safety reasons, specifically due to the global financial crisis, they now want to transfer the money to the US, what specific steps would you recommend, given the lack of 3520 filings earlier and the desire to rectify. Does it matter if the amount is large, say $500K+?

Any thoughts... Anyone?

AtlantaTaxExpert · Oct 27, 2008, 04:33 AM

If your mother is NOT a U.S. citizen living abroad, then reporting the transactions late should not be a problem.

However, making the bank account a joint account probably makes the earnings of that account subject to U.S. income taxes under the son's name.

The larger the account size, the more likely the IRS will take notice.

IntlTax · Oct 27, 2008, 12:54 PM

LA, The penalties for failing to simply report various transactions to the U.S. IRS can be huge. As a result, I usually err on the side of over-disclosure so that an IRS agent is less likely to feel that you are trying to hide something.

For U.S. tax purposes, simply making your mother's non-U.S. bank account a joint account between her and you is not treated as a gift. See Reg. 25.2511-1(h)(4). The gift would be made when/if you withdraw cash from the account.

Form 3520, Part IV is intended to report gifts received by U.S. persons from non-U.S. persons generally in excess of $100,000. Thus, unless you have withdrawn over $100,000 from the account during any year, you would not need to file Form 3520. Having said this, I would likely still report the transaction with an explanation of the circumstances on Form 3520 (in the spirit of over-disclosure). As ATE indicates above, reporting on Form 3520 late is often not a problem.

Even though a Form 3520 may not technically be required, a Form TD F 90-22.1 (FBAR) would be required. Again, reporting late is often not a problem.

Importantly, moving the bank account to the U.S. could be a problem. If no gift has occurred until you withdraw cash and you withdraw cash from a U.S. bank account, the gift may be treated as having occurred in the U.S. and your mother may be subject to U.S. gift tax to the extent the gift exceeds the annual exclusion ($12,000 for 2008 and $13,000 for 2009).

Your mother, as a nonresident alien, will not qualify for the $1,000,000 life-time gift exclusion. U.S. gift taxes can get very high very fast.

LA Simpleton · Oct 27, 2008, 07:48 PM

Wow! You guys are good and know your stuff. Many Thanks.

IntlTax, continuing on your thoughts/suggestions if the money is transferred to the US to buy a property in a joint name (mother & son) does that help towards the non-disbursement to prevent the gift occurrence you mentioned? Also, if the mother were to become a permanent resident, would she then be eligible for the life-time gift exclusion?

Also, it was suggested that the money could best be moved into a corporation owned by the mother (and the son held a minority stake) then there would not be any gift tax event. Would you agree?

Incidentally, this is for a friend (really!) but for simplicity - pun intended - if you would like to assume it is me, we can continue with that assumption...

AtlantaTaxExpert · Oct 28, 2008, 02:59 PM

Note to LA Simpleton:

This will be my last post, because IntlTax's expertise on these issues far exceeds mine.

That said, making your mother a permanent resident just to get the lifetime gift exclusion seems to be NOT the best reason to try to become a resident alien in the U.S. because, once residency is established, ALL world-wide income becomes subject to U.S. taxes.

Definitely something to consider!

JohnnyCasher · May 8, 2009, 12:37 PM

Originally Posted by IntlTax

There is a risk that the gift could be treated as though it took place in the U.S. and that the gift was not a gift of intangible property. If this circumstance exists, then your mother would be subject to U.S. gift tax on the amount in excess of $12,000.

This risk can be avoided by you opening a foreign bank account, having your mother transfer into your foreign account, and then you wire transfer the funds to your U.S. account. This approach requires that you have a foreign bank account and therefore you must file Form TD F 90-22.1. Because gift taxes can be significant, you should seriously consider this approach.

IntlTax: I have a virtually identical situation to the original poster. It looks like the safest way is to stay under the (now) $13,000 limit. My question: if the gift amount exceeds $13,000, how about if I, my wife, and my kids each receive $13,000 gifts from the same person (my parents)? Or is the limit per family and not per individual? Would it be safer in this case to have separate bank accounts for the different receivers?
An additional question: If we also want to receive an additional, independent gift from my parents-in-law, is there any problem? (They are even from different countries.)
Thank you very much for your support.

AtlantaTaxExpert · May 8, 2009, 01:00 PM

There is NO reporting requirement for the transfer of funds from mother to son in a foreign country under a foreign account.

Once the money gets transferred to the U.S. account, some reporting is required, but that should be inconsequential.

IntlTax · May 8, 2009, 01:04 PM

ATE, not sure what you mean - no reporting for gift to son's foreign account. A gift that takes place outside the U.S. is not a gift for U.S. tax purposes? Why not?

IntlTax · May 8, 2009, 07:33 PM

Johnny, gifting amounts less than $13,000 to each person per year is fine. If you want to rely on the annual exclusion of $13,000 for multiple persons, the gifts should be wired into each person's own bank accounts. Gifts made independently from parents and from parent-in-law should be treated separately.

My earlier comments about setting up a foreign bank account may have been overly conservative. I now think that a wire transfer from a nonresident alien's foreign bank account to a U.S. person's U.S. bank account should generally not be subject to U.S. gift tax because the incoming wire should not be treated as tangible property. If there are any other factors, however, that create uncertainty, I would prefer that the money be transferred into a foreign account of the U.S. donee.

JohnnyCasher · May 9, 2009, 01:02 PM

IntlTax, I am very grateful to your extremely quick responses. Sorry I could not reply earlier.

From your first post I was a little confused. That's maybe because this thread has already taken so many turns and twists. Your second post sounds very promising. Nevertheless, since the matter is very important to me, let me present a few more details.

My mother is not a U.S. citizen and not living in the U.S. I am not a U.S. citizen, but I legally live and work in U.S. and I am considered a citizen for tax purposes. My mother would like to make a gift to me and my family, ideally by wiring money from a bank account. The bank account is in a third country (not in the country my mother lives); I hope this does not provide any additional difficulty.
As the amount exceeds $13,000, we were wondering whether independent gifts below $13,000 made to me, my wife, and our children would allow us to receive the gift without having to pay taxes. Right now, we only have one checking account for the family (the kids are toddlers anyway). So should we better set up independent bank accounts for each of the receivers, so that it looks more plausible to be independent gifts? Would gifts from my mother to my wife (daughter-in-law) qualify as a gift for tax purposes? Is any additional proof required (letters from my mother)?
As we want to buy real estate, soon, my mother-in-law also wants to make a gift from -- believe it or not -- yet another country to my wife (her daughter). This gift would be below $13,000. As I understand this would not be a problem, as the $13,000 is per donor, and not per receiver of gifts per year.
This case may be a little more complicated than usual. I appreciate any help I can get here. I am also willing to pay for counseling if this is indicated in my case. So, where would I find qualified help? Conducting everything legal has the highest priority for me.

I am grateful to your help or advice.

IntlTax · May 9, 2009, 06:03 PM

The fact that the money is coming from a third country should not be a problem. If the amount received by you or any individual in your family exceeds $100,000, you need to report the receipt of the gift on Form 3520, Part IV.

If the gift is really to you and your wife, you should not treat it as a gift to your children. This would be improper and is not recommended. This could be perceived as trying to avoid the reporting requirements (a definite no-no).

JohnnyCasher · Jun 22, 2009, 08:19 AM

IntlTax:
Thank you very much again for your help. I have one more question. My parents are married and have a joint bank account. Can each of them make gifts of $13,000 per year and donee, or are they counted as one person? (Married couples often do taxes jointly, so I wasn't sure whether my parents would count as one or as two persons.) So, for instance would it be possible for me to receive a gift from each of them in the amount of $13,000 / year, even if the money comes from the same account which they own jointly (via international wire)?

Udiny · Sep 7, 2009, 11:05 AM

Hi, Thank you for a great source of information.
We are US residents and filling our taxes here for the past 10 years.
My mother in law is non US resident and lives in the UK and files her taxes there, but have a apartment in FL where she stays few months a year. (but no rent or any other income generated in the US). She also have a US bank account.
Last year she gave us over 1M as a gift to buy a new house, (The funds were wired from third country account to my mother in law US bank account and from there to our bank account), and we indeed used the money and bought a house with it in last year.
We haven't filed our taxes for last year yet. Do we need to fill out 3520? Do we or my mother in law could be subjected to any US taxes on this transfer if reported?
Thanks.

MukatA · Sep 7, 2009, 10:40 PM

Your mother in law stays in the U.S. for a few months in a year. So you must check if she meets Substantial Presence Test or not. If she meets SPT, then she is considered resident of the U.S. and must file gift tax return, and there may be other filing requirements.
Read Your U.S. Tax Return: Substantial Presence Test

If she does not meet SPT, she is nonresident, then you must file Form 3520; there is no choice. Your mother in law does not have any U.S. tax filing requirement.
Your U.S. Tax Return: The U.S. Gift Tax