Gifts from Parents who are non-US persons

[andycollins]

What is the name of your state (only U.S. law)? VA

Hi,

I am a US Citizen and I like to interpret Tax laws very conservatively.

My parents are not US Citizens, nor are they US Permanent residents, and they do not live in the US.

The question I have is what if they gift me their property which is over seas worth about $500,000. Will they or I have to pay any tax (Gift Tax on it).

The gifter has to pay gift Tax right? and since they are not US citizens, do they still have to pay a gift tax or will I end up owing it or are there no tax implications since the givers in this case (my parents) are not US persons.

Thanks

 

[LdiJ]

What is the name of your state (only U.S. law)? VA

Hi,

I am a US Citizen and I like to interpret Tax laws very conservatively.

My parents are not US Citizens, nor are they US Permanent residents, and they do not live in the US.

The question I have is what if they gift me their property which is over seas worth about $500,000. Will they or I have to pay any tax (Gift Tax on it).

The gifter has to pay gift Tax right? and since they are not US citizens, do they still have to pay a gift tax or will I end up owing it or are there no tax implications since the givers in this case (my parents) are not US persons.

Thanks

Your parents are not subject to US taxation. You, receiving a gift would not be subject to tax either. However, you will have to report that you own the foreign asset. See form 8938 and its instructions on irs.gov

 

[davew128]

Your parents are not subject to US taxation. You, receiving a gift would not be subject to tax either. However, you will have to report that you own the foreign asset. See form 8938 and its instructions on irs.gov

This advice is wholly incorrect.

Form 8938 is inapplicable to this situation. Owning overseas property (real estate) is not subject to reporting to the IRS.

The receiving of the GIFT from a non-resident alien most certainly is reportable, on Form 3520.

 

[LdiJ]

This advice is wholly incorrect.

Form 8938 is inapplicable to this situation. Owning overseas property (real estate) is not subject to reporting to the IRS.

The receiving of the GIFT from a non-resident alien most certainly is reportable, on Form 3520.

According to the IRS seminar I attended in August of 2012, the foreign asset must be reported...even if its real estate. The speaker really hammered that one.

I completely disagree with the use of form 3520 as that form is used to track assets coming into and going out of the country. If her family wire transfers 500k in cash to her, that's the form to use. However, that is not what is happening here.

OP, since you are getting two completely different answers from two different tax professional here, I strongly recommend that you consult a local tax professional.

 

[andycollins]

Follow up

Many thanks guys,

Just for clarification:
0. I plan to get legal and tax help with this - I'm trying to flush out some ideas on how to structure this.
1. Both of you agree that I, as the receiver of the gift will not have a tax liability
2. Both of you agree that my Parents, while they are not US persons will not have any tax liability for giving me the gift.
3. The disagreement lies on how to report it I guess.

Do you have any thoughts on what type of professionals should I seek out to get help - will my CPA know the answer to this or should I get a Tax lawyer?

 

[tranquility]

The two I respect on tax issues are LdiJ and davew128. (I'd add anteater for estate and trust issues and justalayman does not seem to post with foolishness.) Here, I'd lean with Ldij. Without more facts, I can't be sure, but, that is the way I'd roll. If davew128 provides more, I might agree. Until then, I'd go with 8938. That makes the most sense to me. (Without actual work. (As in research and stuff.))

 

[davew128]

Nowhere in the definition of specified foreign assets does real estate get mentioned for FATCA purposes. in fact the instructions for 8938 does a fairly good job of describing what is and includible and while real estate is not mentioned either way, the implication of what is reportable is financial assets, business assets, and investment assets. The holding of real estate which would not otherwise be considered an investment asset would not be included in my opinion.

 

[LdiJ]

Nowhere in the definition of specified foreign assets does real estate get mentioned for FATCA purposes. in fact the instructions for 8938 does a fairly good job of describing what is and includible and while real estate is not mentioned either way, the implication of what is reportable is financial assets, business assets, and investment assets. The holding of real estate which would not otherwise be considered an investment asset would not be included in my opinion.

That is a reasonable argument, its simply not what was hammered at the IRS seminars last August. I was actually NOT happy to hear that at the seminars, because it poses a problem for a couple of my clients. Again, though, I have to say that form 3520 would not apply as its purpose is to track assets going into and out of the country.

 

[davew128]

Again, though, I have to say that form 3520 would not apply as its purpose is to track assets going into and out of the country.

From the form instructions:

4. You are a U.S. person who, during the current tax
year, received either:
a. More than $100,000 from a nonresident alien
individual or a foreign estate (including foreign persons
related to that nonresident alien individual or foreign estate)
that you treated as gifts or bequests; or

I would also direct you to IRC 6039F. There is nothing in the code that does anything other than state the dollar amount and the requirement to report gifts from a non-resident alien.

There is nothing that indicates that it has to be an asset that comes into the country, only that the gift is received from an NRA.

 

[latigo]

That is a reasonable argument, its simply not what was hammered at the IRS seminars last August. I was actually NOT happy to hear that at the seminars, because it poses a problem for a couple of my clients. Again, though, I have to say that form 3520 would not apply as its purpose is to track assets going into and out of the country.

It must be very reassuring to your “clients” that you find it “arguable” whether the “hammering” was correct or not and you can only "say" as to whether IRS Form 8938 or From 3520 would apply.

(Is it possible that you may have wandered into the wrong August "workshop”?)

And both you and the seminar hammer swinger are 100% wrong in representing that the Foreign Account Tax Compliance Act requires a US taxpayer to report foreign real estate holdings as “SFFA” in IRS Form 8938!

The correct form is 3520 with instructions as follow:

“File form 3520 if any or more of the following applies:

. . . . . . .

4. You as a U. S. peson who during the current tax year, received either:

a. More than $100,000 from a non resident alien individual or a foreign estate . . . that you treated as gifts of bequests.

I suggest that you refer your ill-advised “clients” to Dave or elsewhere.

 

[davew128]

I'll also point out that it is difficult to consider direct ownership of real estate as a "specified financial asset", if nothing else than because it is simply not a financial asset. It would appear based on a quick search that I am not the only professional who holds this opinion. http://www.arthurbellcpas.com/article/individual-reporting-requirements-under-fatca

 

[LdiJ]

I'll also point out that it is difficult to consider direct ownership of real estate as a "specified financial asset", if nothing else than because it is simply not a financial asset. It would appear based on a quick search that I am not the only professional who holds this opinion. http://www.arthurbellcpas.com/article/individual-reporting-requirements-under-fatca

Again, I will recommend that the OP contact a local tax professional. Considering the level of the fines issued for NOT reporting overseas assets, the OP needs to be certain of the position to take. The OP should not take either of our advice without strong confirmation from a local professional.

 

[latigo]

. . . . Here, I'd lean with Ldij. . . . . . .

Then your horse came in last. Because it is quite apparent that Ldij has never bothered to read the Instructions pertaining to either IRS Form.

Or the self-explanatory 2012 IRS release, "Guidance On Foreign Financial Asset Reporting"!

 

[davew128]

Again, I will recommend that the OP contact a local tax professional. Considering the level of the fines issued for NOT reporting overseas assets, the OP needs to be certain of the position to take. The OP should not take either of our advice without strong confirmation from a local professional.

Ok then...

Let me make this even SIMPLER for you.

http://www.irs.gov/Businesses/Corporations/Basic-Questions-and-Answers-on-Form-8938#Q3

Q3. Does foreign real estate need to be reported on Form 8938?
Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. For example, a personal residence or a rental property does not have to be reported.
If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you. The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.

 

[tranquility]

Then your horse came in last. Because it is quite apparent that Ldij has never bothered to read the Instructions pertaining to either IRS Form.

Or the self-explanatory 2012 IRS release, "Guidance On Foreign Financial Asset Reporting"!

After some search, I agree the gift need be reported on 3520. Also, per the guidance on Q3, bare title on real estate is not a specified asset requiring to be reported on 8938. However, there are a number of recent discussions due to a webinar from the AICPA and a like seminar from the IRS where the participants are still uncertain as to requirements. Many of the problems revolve around title issues of the country involved. Some countries don't allow foreign nationals to hold direct title. Also, while rental property is not a specified asset, leased property may not be the same. Sale of the property and holding paper is thought to be reportable too. Holding a foreign asset that holds real estate is reportable even if the only thing it holds is the real estate as the value of the otherwise not a specified asset is counted.

http://www.taxalmanac.org/index.php/Discussion:Form_8938_Other_Foreign_Assets

http://federaltaxcrimes.blogspot.com/2012/03/form-8938-and-real-estate-and-other.html

http://www.chamberlainlaw.com/assets/attachments/Form%208938%20Article.pdf