Gift Tax to a corporation

[nazee]

California:
Hello,
I received a gift from my aunt who is not a US citizen and lives overseas. I am in the process of transferring this money from my personal account to a corporation account which is shared between I and my two brothers (1/3 each). What this means is that each of my two brothers will get 1/3 of this money through corporation shares. Would this be considered a gift from me to my brothers and do I have to pay taxes on this? If it is considered a gift would it be counted towards that 5 million dollar life time tax exempt gifting?
Thanks,
Nazee

 

[davew128]

California:
Hello,
I received a gift from my aunt who is not a US citizen and lives overseas. I am in the process of transferring this money from my personal account to a corporation account which is shared between I and my two brothers (1/3 each). What this means is that each of my two brothers will get 1/3 of this money through corporation shares. Would this be considered a gift from me to my brothers and do I have to pay taxes on this? If it is considered a gift would it be counted towards that 5 million dollar life time tax exempt gifting?
Thanks,
Nazee

1) Did you report the gift from a nonresident?
2) Your understanding of corporation shares is flawed. Unless you actually gift them shares in the corporation, there is no gift. If they receive shares in the corporation on their own and the corporation distributes the money, they will have a capital gain and owe income tax rather than a gift tax that you otherwise would have owed.

 

[LdiJ]

1) Did you report the gift from a nonresident?
2) Your understanding of corporation shares is flawed. Unless you actually gift them shares in the corporation, there is no gift. If they receive shares in the corporation on their own and the corporation distributes the money, they will have a capital gain and owe income tax rather than a gift tax that you otherwise would have owed.

I agree that he/she needs to report the gift from a foreign person...assuming that the gift is over 100k.and assuming that its actually a gift.

I am not sure that I get where you are coming from, from the rest, as it appears that the corporation is already formed and the siblings already have shares in that corporation...nor does the OP indicate what the purpose of the corporation is.

If we are talking about the aunt investing and/or loaning money to a corporation that is viable it's far different than an attempt to distribute wealth.

 

[davew128]

I agree that he/she needs to report the gift from a foreign person...assuming that the gift is over 100k.and assuming that its actually a gift.

I am not sure that I get where you are coming from, from the rest, as it appears that the corporation is already formed and the siblings already have shares in that corporation...nor does the OP indicate what the purpose of the corporation is.

If we are talking about the aunt investing and/or loaning money to a corporation that is viable it's far different than an attempt to distribute wealth.

He wants to make a corporation, fund it with the money he got and make his brothers equal shareholders. As long as the brothers get shares in their own right at the time of formation, it doesn't matter who puts what money in there. There is no requirement that the money contributed to a corporation exchanged for stock be of equal value when done under Sec. 351. Where the gift happens is when you gift the shares. Otherwise, distributing the wealth from the corporation (which is the likely goal) results in a taxable gain for the brothers since they get pro rata distribution even though the shares they bought cost next to nothing.

 

[LdiJ]

He wants to make a corporation, fund it with the money he got and make his brothers equal shareholders. As long as the brothers get shares in their own right at the time of formation, it doesn't matter who puts what money in there. There is no requirement that the money contributed to a corporation exchanged for stock be of equal value when done under Sec. 351. Where the gift happens is when you gift the shares. Otherwise, distributing the wealth from the corporation (which is the likely goal) results in a taxable gain for the brothers since they get pro rata distribution even though the shares they bought cost next to nothing.

The corporation is ALREADY formed, with his brothers already having shares. The money has not yet been put into the corporate bank account.

If this is an attempt to distribute wealth, its a poor choice. If its an actual corporation that is actually going to be used to make a profit on a product or service, then its another story.

 

[nazee]

He wants to make a corporation, fund it with the money he got and make his brothers equal shareholders. As long as the brothers get shares in their own right at the time of formation, it doesn't matter who puts what money in there. There is no requirement that the money contributed to a corporation exchanged for stock be of equal value when done under Sec. 351. Where the gift happens is when you gift the shares. Otherwise, distributing the wealth from the corporation (which is the likely goal) results in a taxable gain for the brothers since they get pro rata distribution even though the shares they bought cost next to nothing.

You got it! Thanks, this makes sense.

N

 

[nazee]

The corporation is ALREADY formed, with his brothers already having shares. The money has not yet been put into the corporate bank account.

If this is an attempt to distribute wealth, its a poor choice. If its an actual corporation that is actually going to be used to make a profit on a product or service, then its another story.

This is an attempt to:
1) partner with my brothers on this and other potential monetary gifts/ inheritance from overseas (and yes, I will report the gift to IRS as it is over $100,000)
2) protecting the assets

 

[davew128]

The corporation is ALREADY formed, with his brothers already having shares. The money has not yet been put into the corporate bank account.

If this is an attempt to distribute wealth, its a poor choice. If its an actual corporation that is actually going to be used to make a profit on a product or service, then its another story.

In other words, yes Dave you were right.

 

[nazee]

I agree that he/she needs to report the gift from a foreign person...assuming that the gift is over 100k.and assuming that its actually a gift.

I am not sure that I get where you are coming from, from the rest, as it appears that the corporation is already formed and the siblings already have shares in that corporation...nor does the OP indicate what the purpose of the corporation is.

If we are talking about the aunt investing and/or loaning money to a corporation that is viable it's far different than an attempt to distribute wealth.

1) aunt has nothing to do with this other than gifting her niece (me)
2) I want to start a partnership with my brothers on this and other potential gifts/inheritances from overseas
3) I am reporting the gift money to IRS as it is over $100,000
4) since the money is going from my personal account to this newly formed corporation which is 1/3,1/3,1/3 shares I was not sure how this is accounted for as far as IRS. I am paying 2/3 of shares of this corporation while I am owning only 1/3.
I hope this is clear...
N

 

[anteater]

Partner with your brothers doing what?

 

[LdiJ]

1) aunt has nothing to do with this other than gifting her niece (me)
2) I want to start a partnership with my brothers on this and other potential gifts/inheritances from overseas
3) I am reporting the gift money to IRS as it is over $100,000
4) since the money is going from my personal account to this newly formed corporation which is 1/3,1/3,1/3 shares I was not sure how this is accounted for as far as IRS. I am paying 2/3 of shares of this corporation while I am owning only 1/3.
I hope this is clear...
N

If you simply gift the money to your brothers, as long as you do not exceed your lifetime exclusion for gifting nobody will be paying any tax on the money.

If you put it in the corporation, because your brothers paid nothing for their shares of the corporation, they are going to end up paying tax on the money when they take it out of the corporation. All in all, its a VERY bad idea.