[bnharbor]

I have seen some similar posts here, but not quite answering what I was looking for... So, thank you in advance.
What documents must be filed with the US Government (IRS, customs, etc) in the following situation? Plus, is there any tax liability or additional fees (beyond the international funds and wire transfer fees from the banks)?
If money between $50K and $75K is transferred from an oversees bank to a US bank (a one-time transaction),
And the recipient is a dual citizen of both countries,
And the money is coming from immediate family,
And the money will be a personal no interest family loan.

[ebaines]

Regarding US tax consequences - the main issue is whether this is really a loan or a gift, and you need be concerned only if the person making the loan is subject to US taxes (US citizen or resident). If the "loan" is at zero percent interest the IRS would say that the person making the loan has provided a gift to the recipient, based on the expected interest rate that should be charged. Further, if the loan agreement does not specify a pay back schedule or due date then the full amount could be considered a gift, not a loan. In either case there may be gift tax and/or estate tax consequences for the person giving the money, but only if that person is subject to US taxes. But given that his is only for $75K, versus the lifetime gift tax exclusion of $1million, it is unlikely that any tax is actually due.

There are no tax consequences here for the person receiving the loan or gift.

[bnharbor]

Thank you for the reply and helpful information. One last follow up question...
Whether classified as a gift or loan, do we need to file any specific form with the IRS when it is transferred or with our annual 1040 return as the receiver of the funds?

[ebaines]

It can get a bit complicated. If the donor of the gift is subject to US taxes (you haven't indicated whether that is the case or not), and if the gift exceeds the annual exclusion of $13K per person, then the donor must submit form 709 as part of his tax return in April. Interest received on the loan by the donor is reported on Schedule B. Since there is a minimum interest amount that the IRS accepts, if the interest rate charged is less than that they consider the difference to be equivalent to the donor actually receiving the minimum rate and then gifting it back. Hence the donor should report the assumed interest as income even though it's a actually 0% loan. The minimum rate that the IRS accepts is called the "Applicable Federal Rate" and is dependent on the duration of the laon, and is updated each month - like I said, it can get complicated. However, since the loan is only $75K, my suggestion would be that the easiest way to do this is to draw up a binding loan agreement with a fixed rate oif interest that exceeeds the minimum - say, 4% - and the donor simply forgives the interest as a gift. Since 4% of $75K is less than $13K, there is no need to file a gift tax form. The donor simply reports 4% as income on schedule B.

The person borrowing the money has nothing to report unless the interest paid is deductible, which may be the case if the loan is a mortgage (and properly secured by the home as collateral), or is used in business, or for investment purposes.

Here's a good article that provides an overview of all this: Loans and Family: Do They Mix?

[IntlTax]

As ebaines indicates, the below-market gift loan is treated as though the foreign lender makes a gift of the amount of the forgone interest to the U.S. borrower and the U.S. borrower is treated as though he paid interest to the foreign lender. The U.S. imposes a 30% withholding tax on interest payments from U.S. persons to foreign persons. If a treaty applies or if the loan is structured so that the interest is "portfolio interest" you may be able to partially or wholly avoid the 30% withholding tax. In either case, however, you would need to file Form 1042 to report the payment of the interest to the foreign person.

[bnharbor]

First let me say... the responses here have been awesome. THANK YOU very much for helping to educate me.
As an FYI, the receive of the funds is a US citizen, but the family lender is not in the US, nor are they a US citizen or have any tax responsibility in the US.
Cheers!

[noviceguy]

Hi,

My question is similar to the above but in the opposite situation i.e. when a US person sends money to a family member overseas as a loan. I understand that it can be made into a binding loan agreement with applicable federal rates etc, however is there anything else that needs to be declared/any forms that need to be filled out etc?

Thanks!

[ebaines]

As noted earlier - there should be a signed loan agreement in writing that specifes the amount and term limit of the loan and interest rate being charged. This agreement does not need to be filed with the IRS but is needed in case of audit. The lender must also report the interest payments he receives on his income taxes.