[weekend_warrior]

Hi there,

I am wondering what the best way to receive money from a family member who is neither a US citizen or resident and that amount would be greater than 100K so I believe I have to fill out a 3520 form on my US taxes.

If I receive the money as a gift all I have to do is fill out a 3520 form to tell the US government where I got the money from and I will not owe and taxes or penalties on this money... Correct? If there is anything else you can tell me please don't hessitate to tell me.

What about if I receive this money as a loan with a small amount of interest on it? Is it treated the same as receiving it as a gift? How do I go about paying it back? (will I be taxed if I transfer more than the allowable gift amount outside of the country?). Can I write off the interest if I use it towards the purchase of a home?

I am trying to figure out how to get this money across the border legitamately without getting into trouble with the IRS. I have spoken to them and they were not able to help me.

Thank you for your help.

WW

[AtlantaTaxExpert]

There are NO transfer taxes, either sending or receiving, so the Form 3520 is the only reporting you have to deal with the gift of over $100K.

[weekend_warrior]

There are NO transfer taxes, either sending or receiving, so the Form 3520 is the only reporting you have to deal with with the gift of over $100K.

Ok thanks for the answer. That's what I though.

Would it be the same if it was a loan?

[AtlantaTaxExpert]

Yes, it would.

[weekend_warrior]

Ok thanks for your answer. I really appreciate your help.

[AtlantaTaxExpert]

Glad to help!

[IntlTax]

I wonder if interest would need to be charged if structured as a loan.

[AtlantaTaxExpert]

The person lending the money is a non-resident alien, so any interest received is NOT taxable by the U.S.

If interest was paid by the U.S. resident, it would be considered personal interest and thus NOT deductible.

[IntlTax]

I wonder if the interest would need to be reported on Form 1042.

[AtlantaTaxExpert]

The family member probably would NOT have a SSN, and there is no reason I could think of for them to apply an ITIN.

There is no tax liability for the recipient of the Form 1042, so what would be the reason for generating one?

[IntlTax]

I wonder if there is a tax liability for the recipient. IRS Publication 519 provides in part:

"A nonresident alien’s income that is subject to U.S. income tax must be divided into two categories:
1. Income that is effectively connected with a trade or business in the United States, and
2. Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later).

***

Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U.S. sources but only if the items are not effectively connected with your U.S. trade or business. *** The 30% (or lower treaty) rate applies to the gross amount of U.S. source fixed or determinable annual or periodic gains, profits, or income. *** Items specifically included as fixed or determinable income are interest ***"

[AtlantaTaxExpert]

Let me review to see if I reading you
Right.

The OP accepts the money in the form of a loan and repays it with intetest.

He generates a Form 1042.

Then the OP pays the 30% tax as the withholding requirement.

Right

[IntlTax]

Yes, that is correct. The 30% withholding is only on the interest portion of the payments. The principal portion of the payments would have no withholding.

[IntlTax]

Of course there may be exceptions to withholding (treaty, portfolio interest), but the general rule is that the 30% tax would apply.

[AtlantaTaxExpert]

It seems logical, which means the OP should have his family member just GIVE him the money rather than loan it to him.

[IntlTax]

Yes, a gift would likely be better.