Gift from father via third party

[ok5678]

Hello:

I am in Missouri - I am NOT a US citizen or LPR yet but I have been filing as a resident for tax purposes.

My father who is not US citizen or LPR, wants to gift me a property/amount that exceeds annual limit. Also, there's a third party in US (not sure if he is US citizen or LPR) who is willing to pay me the amount. My questions:

1. How much tax would I be paying if it exceeds the annual limit? Do I need to file any IRS forms/returns?
2. Is it advisable to receive amount via third party?

Thanks!

 

[Dandy Don]

What country does your father live in?
How long have you been living in the US?
Exactly how much money are you talking about?

 

[ok5678]

Thanks Dandy Don. My father lives in India. I have been here for over 15 years. It is going to be around ~125K. The third party is the buyer of the property in India.

 

[LdiJ]

Thanks Dandy Don. My father lives in India. I have been here for over 15 years. It is going to be around ~125K. The third party is the buyer of the property in India.

Do you file taxes with an actual Social Security Number or do you have an ITIN?

 

[Taxing Matters]

1. How much tax would I be paying if it exceeds the annual limit? Do I need to file any IRS forms/returns?

YOU don't pay any federal gift tax or income tax on the gift. Gifts you receive are not income to you and it is the person giving the gift, not the person receiving it, that might have to pay a gift tax for the gift. If he is not a U.S. citizen or resident (and not treated as one for U.S. tax purposes) he is subject to the federal gift tax laws only if he makes certain gifts of property that occur within the U.S. The treatment of gifts of money made within the U.S. is one that is not entirely clear. For that reason, the advice I give clients in this situation is to ensure that the gift occurs outside the U.S. The easiest way to do that is for you to have a bank account in India into which he can make the gift, e.g. electronic transfer from his account to yours. Then you transfer the funds from that Indian account to your account in the U.S. Doing it this way makes it very obvious that gift occurs outside the U.S. That will ensure that your father will not owe any U.S. tax on this gift. Again, this works because he is not a citizen or resident for tax purposes (meaning he is not a LPR or otherwise treated as a resident for tax purposes, like meeting the substantial presence test) and he's making the gift to you outside the U.S. and the property being given is not located in the U.S. If for some reason he is a resident for U.S. tax purposes, that will change things.

Now, you said that you are not a citizen or long-term permanent resident or green card holder, but have been reporting tax as as a resident. That suggests you either are considered a resident for U.S. tax purposes (e.g. you meet the substantial presence test) or have elected to be treated as a a resident for U.S. tax purposes. If either of those things are true then given the amount of the gift involved, you will need to file a Form 3520 disclosing the gift you received and, if you use an account in India (or any other foreign country) to receive the gift you will need to file a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114 form, too. These forms are not tax forms, they are just information returns. So if you file them timely you don't pay anything. But there are significant penalties for failing to file these forms on time.

2. Is it advisable to receive amount via third party?

I assume that you mean your father would make the gift to this third party and then that third party gives the gift to you. In that case it is still your father making the gift as far as U.S. tax law goes. But doing it this way may complicate things; depending on the exact details of how it is done there may or may not be gift tax owed. I see no benefit to this but you add additional complexity so I wouldn't advise doing it this way unless there is some reason other than federal gift tax that calls for doing it that way. If you must do it that way, then care will have to be taken to ensure your father doesn't unintentionally cause himself to be liable for U.S. gift tax.

 

[ok5678]

Thank you!

 

[LdiJ]

YOU don't pay any federal gift tax or income tax on the gift. Gifts you receive are not income to you and it is the person giving the gift, not the person receiving it, that might have to pay a gift tax for the gift. If he is not a U.S. citizen or resident (and not treated as one for U.S. tax purposes) he is subject to the federal gift tax laws only if he makes certain gifts of property that occur within the U.S. The treatment of gifts of money made within the U.S. is one that is not entirely clear. For that reason, the advice I give clients in this situation is to ensure that the gift occurs outside the U.S. The easiest way to do that is for you to have a bank account in India into which he can make the gift, e.g. electronic transfer from his account to yours. Then you transfer the funds from that Indian account to your account in the U.S. Doing it this way makes it very obvious that gift occurs outside the U.S. That will ensure that your father will not owe any U.S. tax on this gift. Again, this works because he is not a citizen or resident for tax purposes (meaning he is not a LPR or otherwise treated as a resident for tax purposes, like meeting the substantial presence test) and he's making the gift to you outside the U.S. and the property being given is not located in the U.S. If for some reason he is a resident for U.S. tax purposes, that will change things.

Now, you said that you are not a citizen or long-term permanent resident or green card holder, but have been reporting tax as as a resident. That suggests you either are considered a resident for U.S. tax purposes (e.g. you meet the substantial presence test) or have elected to be treated as a a resident for U.S. tax purposes. If either of those things are true then given the amount of the gift involved, you will need to file a Form 3520 disclosing the gift you received and, if you use an account in India (or any other foreign country) to receive the gift you will need to file a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114 form, too. These forms are not tax forms, they are just information returns. So if you file them timely you don't pay anything. But there are significant penalties for failing to file these forms on time.



I assume that you mean your father would make the gift to this third party and then that third party gives the gift to you. In that case it is still your father making the gift as far as U.S. tax law goes. But doing it this way may complicate things; depending on the exact details of how it is done there may or may not be gift tax owed. I see no benefit to this but you add additional complexity so I wouldn't advise doing it this way unless there is some reason other than federal gift tax that calls for doing it that way. If you must do it that way, then care will have to be taken to ensure your father doesn't unintentionally cause himself to be liable for U.S. gift tax.

Out of curiosity, how could the IRS enforce a gift tax on a non-citizen, non-resident?

 

[davew9128]

Out of curiosity, how could the IRS enforce a gift tax on a non-citizen, non-resident?

I imagine by making the donee responsible for the tax.

 

[LdiJ]

I imagine by making the donee responsible for the tax.

But that would be contrary to established law.

 

[davew9128]

But that would be contrary to established law.

No it wouldn't. The donee can be required to pay the gift tax on a transfer when the donor does not. I can't give you an IRC cite but I recall this as a test exam question long ago and the instructions to Form 709 still reflect that.

 

[Taxing Matters]

Out of curiosity, how could the IRS enforce a gift tax on a non-citizen, non-resident?

(1) Assess the tax using its authority under IRC 6020(b).
(2) Collect the tax from any assets or income the person may have in the U.S.
(3) Invoke any provisions the U.S. may have in a tax treaty or agreement for aid in collection of tax (these kind of treaties or agreements are not common, however).
(4) Collect the tax from the gift donee in the U.S. This is due to the special way estate and gift tax liens work. Specifically, IRC § 6324(a) deals with the estate tax and § 6324(b) deals with the gift tax. The latter states:

(b) Lien for gift tax. -- Except as otherwise provided in subsection (c), unless the gift tax imposed by chapter 12 is sooner paid in full or becomes unenforceable by reason of lapse of time, such tax shall be a lien upon all gifts made during the period for which the return was filed, for 10 years from the date the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. Any part of the property comprised in the gift transferred by the donee (or by a transferee of the donee) to a purchaser or holder of a security interest shall be divested of the lien imposed by this subsection and such lien, to the extent of the value of such gift, shall attach to all the property (including after-acquired property) of the donee (or the transferee) except any part transferred to a purchaser or holder of a security interest.

The IRS will first attempt to collect from the donor when it is reasonably practical to do so. But if the donor does not pay up and the IRS cannot collect it with enforced collection (as in a person with no assets in the U.S. that the IRS may take to collect it and no treaty provison to reach assets outside the U.S.) then it will then turn to the donee.