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Receiveing money, Logistics and tax question
I need to know how would you approach the following scenario.
You have a friend that owes your family some money, so he will be giving you 50k. He has the money in his bank account.
Logistics wise, would it be better that he just wires the money to my bank vs going to a local branch and depositing the check into my personal checking at my bank? what would you choose?
What are the implications for me for depositing such amount? Would that be considered a profit? He is not a us citizen, whereas I am. I know abut the gift tax, but if he does not report taxes in the US, why would he pay any for this gift right?
Will I have the IRS asking me how or why I got this money? What if the amount was 120k? would that make a difference?
Anyone?
I am not a tax attorney, but here's my best guess...
Regardless of whether he deposits the money directly or wires it, the bank will be required to report the transaction to the IRS (generally they report anything over $10K in one day).
That said, there is nothing specific about doing a $10K+ transaction that is illegal or would necessarily incur any tax penalty. So, while the IRS would have this information, unless they audited you, they likely wouldn't do anything with it.
Now, if you did get audited (and my pure guess is that having this transaction reported may increase your risk of getting audited), the IRS would want to know what the money was for. They'd be looking for some type of documentation that the money was the repayment of a loan -- and clearly if it were a loan, there should be some record of the money going out at some point.
Now, here's the rub:
- First, if you can't provide some proof that the money was a loan, it's going to look like a gift to the IRS, and you'll likely be on the hook for taxes;
- Second, if the loan was made by someone else in your family but is getting repaid to you, it may appear to the IRS as a gift from the family member who made the loan to you (in fact, that's exactly what it is). So, you may be on the hook for taxes there anyway.
Again, I'm not a tax professional, but this is my assumption based on my limited knowledge of tax law and my personal common sense...
There is no gift tax on a gift from a non-resident alien to a U.S. citizen if the gift is made outside the U.S.. This means a foreigner can give you as big a gift as he wants. The gift has to be of property outside the U.S. though, which means a wire from abroad (or foreign check given to you when you are abroad) of any amount will be fine.
It is really important that you pay attention to the place of the gift. In this thread and your other thread, I get the feeling that you are not understanding the important of that.
Jason, banks are only required to report cash transactions (or cash equivalents) of $10,000 or more. A wire transfer or check does not have to be reported. Banks also have to report other suspicious activities to FinCEN, but a gift from a foreigner, by itself, is fairly common in the immigrant communities and will not raise suspicion.
Vikram is correct .... atleast, that is what I was told both by my bank (BofA) and my CPA.
CASH Transactions over $10,000 are reported (whether that be withdrawal or deposit) Wires/Cashiers Checks/Personal Check's over $10,000 aren't reported UNLESS the bank feels something "fishy" might be going on.
And I really feel, the only reason they report cash is for 1 main reason.
Drug Money/Money Laundering
EDITED TO ADD: But ... Again ... YMMV. Talk to a CPA or Tax Accountant you trust, and also try speaking with someone at the bank.
Originally posted by Vikram C.:
Vikram, thanks for adding to the thread. I understand what you are saying, however you keep referring to the gift when it comes from outside the US when I have stated in this thread and previous post that In my situation the money from the foreigners is in the US already sitting in their bank accounts. So, assume that these monies were initially wired from overseas' banks into the US. From there to my bank account and hence I want to know how to minimize any unnecessary risks with uncle sam and how to best do this. I will have a friend and my father wiring me different amounts and need to be prepared and cover all my basis to avoid any trouble for me and them and carry out the necessary documentation. That is why I ask how would you, seasoned investors, set this up or do this if you were me and would be getting this amount of money from a friend and now I add, your father. thanks
JM, is it that hard for your dad and your friend to wire the money back to their foreign banks and then start all over again the correct way? This should be very easy, to be honest. If their country makes it hard to send the money back out, then have them open bank accounts in Canada, Singapore, the U.K., or any country other than the U.S. Have them send the money to that new account. And then start the right way as I have explained earlier.
Is that going to be a problem for your dad and your friend?
Originally posted by Vikram C.:
Is that going to be a problem for your dad and your friend?
Hi Vik,
yes that would be a problem for them as they went through a great deal to get the money to the US in the first place, sorry, but what is the problem that you see in wiring money from their US accounts to mine? issues for them and me?
My concern is U.S. gift taxes. I think your donor will be exempt from gift tax as long as the gift is not tangible personal property or real estate, but I am not completely sure about this. You may wish to consult a cpa or lawyer to figure this out.
Agree its best to consult a CPA, but AFAIK, there is no such thing as a "gift tax" for either the giver or the receiver. There's never any tax for the receiver. For the giver, there are tax implications, but it deals with inheritance taxes. Any gift over some limit ($12,000, I think, but it may be a bit higher now) reduces the amount the giver can pass tax free in their estate. If the giver splits the money up and gives it to different people and stays below that limit, there are no tax implications. If the giver is actually a couple, the husband can make a gift and so can the wife, each up to the limit.
Now, if there's something untoward going on, there's always a possibility you might be questioned. But large account to account wire transfers are routine. Certainly doing transfers to title company accounts happens on a daily basis.
Jon, there IS a gift tax and an estate tax in the U.S. They are subject to a common unified credit and so people often think of them as the same thing. But the gift tax will apply if you give a gift in excess of the unified credit (and a small annual allowance).
For non-resident-aliens, the situation is a little different. They do not get the benefit of the unified credit, so all their gifts, minus some exemptions, are subject to a gift tax. However, gifts made outside the U.S. are not subject to any gift tax.
There are also special rules with respect to gifts from a NRA to a U.S. taxpayer and vice versa.
Also, the reason I was asking the OP to consult an expert is because this is actually a more complex area of the law than most people think. For example, a gift of tangible personal property is subject to the gift tax while intangible property is not subject to the tax. There have been cases where a check was considered tangible property while a note or an interest in a corporation (shares, llc membership interest) is considered intangible. So you can get around the gift taxes by giving your gift to an LLC and then transfering the LLC interest to the donee. But then you could run into a situation of a "deemed gift" in the instance in which you transferred the asset to the LLC.
In other words, this is a complex area and will require a few thousand dollars in legal fees to get it all done perfectly and safely. The OP will probably find it easier to have his dad and friend open a bank account in any number of countries where it is easy to open such accounts, send the money there, and start again in the proper manner. There are both income tax and gift tax benefits to doing it that way.
Maybe I'm missing something important here, but is this a mole-hill being made into a mountain?
It's a $50,000 check, not a $500 million check. No one at either bank is going to care, and neither will the IRS.
The only thing semi-unusual that will happen is that the maker's signature will absolutely be verified (banks have different levels for where they do this, but I'll wager none is higher than $25,000), but outside of that, this is a run-of-the-mill deposit.
If you get a wire, the funds will be available immediately, but the bank will sting you for $30 for the privilege of processing an electronic transaction that cost them about three cents to administer.
If you get a check, there will likely be a considerable hold until the funds have absolutely cleared, unless your account routinely has checks in these amounts going in an out and the bank is comfortable giving you credit sooner.
If you get a wire, I would ask for a short letter from the sender that says this is a loan repayment. If you get a check, ask that this be put in the memo section of the check ("loan repayment"), then make a copy of the check before you deposit it.
Originally posted by DeuceSevenOff:
It's a $50,000 check, not a $500 million check. No one at either bank is going to care, and neither will the IRS.
The only thing semi-unusual that will happen is that the maker's signature will absolutely be verified (banks have different levels for where they do this, but I'll wager none is higher than $25,000), but outside of that, this is a run-of-the-mill deposit.
If you get a wire, the funds will be available immediately, but the bank will sting you for $30 for the privilege of processing an electronic transaction that cost them about three cents to administer.
If you get a check, there will likely be a considerable hold until the funds have absolutely cleared, unless your account routinely has checks in these amounts going in an out and the bank is comfortable giving you credit sooner.
If you get a wire, I would ask for a short letter from the sender that says this is a loan repayment. If you get a check, ask that this be put in the memo section of the check ("loan repayment"), then make a copy of the check before you deposit it.
Thank you, that would take care of the logistics of the transaction. I called Citibank international banking to find out the fees involved in a wire and it isn't expensive to wire the money for the sender, just $18.00.
You are right that the amount is not that much, but it still is a considerable amount and wanted to have the tax questions cleared before proceeding. Citi advised I call the IRS directly to find out.. why didn't I think of that before? LOL... I will report back.
thanks
The recipient will incur a fee as well. Count on it.
And best of luck getting correct "advice" from the IRS...
Paul, this is not about the banking aspects of things. There's really no issue with moving the money. It is the tax aspect that needs to be considered.
If the guy wants a gift from a non-resident alien, it is complicated. If he wants a loan, it is easy but the lender will be better off if the loan comes from abroad.
So it is a small mountain, not a molehill.
He said it was a loan repayment, though, not a gift. Perhaps I missed the reality of this transaction.
And if the maker's bank is US-based and the check is denominated in dollars (and assuming likewise for the recipient), I don't think this transaction will draw any scrutiny from anyone, anywhere.
Yeah, there is no issue of bank scrutiny.
He has two parties, one related and one unrelated, who have money in the U.S. while they are not U.S. taxpayers. He wants to know whether they can just write him a check for it. He also wants to know whether the related party money can be a gift.
The answer, of course, is that they can write him a check for it. But that would not be the smart thing to do tax-wise. My posts were trying to address the gift tax and income tax angles to this transaction.
I was on the phone with the IRS and they transferred me to a higher level rep only to be told that I have to contact a tax advisor with experience in foreign gifts?? I know I have to, but how do you find such professional? Advise on that please..
OK, I have to admit being wrong about the gift tax. Doh!
JM, Welcome to the IRS. Anyway, not sure why they would tell you to consider Foreign Gifts laws because this is not a gift. If you did not have a properly executed note, I think you should draft a promissory note signed by both parties and possible notarized. Then when the loan is repaid either through wire transfer, direct deposit, etc, Officially do a note cancellation by writing cancelled accross it and you can get it re-notarized and a copy goes to the debtor. This kind of evidence substantiates and issues that may arise in the face of an IRS audit. Unless you think this was not a loan but a true gift, then you need to think differently. see rules here http://www.irs.gov/businesses/article/0,,id=200722,00.html
Originally posted by WBCPA:
Thanks for your reply. It is a gift, but apparently even though it is a gift, I might be better off doing the note. Not sure yet, as I have interviewed about 5 CPAs and NONE has been able to advise on this as they have no experience in foreign money transactions. Very frustrating.
JM most CPAs are not that familiar with estate & Gift tax issues. Vikram is right. Gifting is not going to result in taxes for you. It would be much better for your Dad & friend to gift from outside of the US because they would no be subject to US estate & gift tax rules. For citizens and resident aliens it is not much of an issue. For non-resident aliens it becomes an issue because they don't have many of the exemptions.
Typically estate and gift tax returns are prepared by estate attorneys. They will be familiar with these rules and might offer some other suggestions. Some attorneys at larger firms will prepare these but they will charge quite a bit and may not have the experience you are looking for.
Jm, please email me if you want to discuss this further. I am familiar with gift and estate tax returns although I have not prepared the foreign gift tax returns before. I have prepared the regular gift tax returns. [EMAIL REMOVED]