Tax on international fund transfer

[ZoeY4]

Hi, I have a few questions regarding tax on international fund transfers. For your information, both my husband and I are both China citizens, nonresident aliens. I am wondering if I should file any report or pay tax on the following scenarios.

1) I transfer fund from my US account to my own account in Hong Kong
2) I transfer fund from my US account to my husband's account in Hong Kong
3) I transfer fund from my US account to my parent(China citizen)'s  account in Hong Kong
4) What if I transfer fund from my US account to my husband's US account?

Thank you for your time.

[DaveF1006 · Accepted solution]

You won't be required to file an FBAR. Since you are both non-resident aliens, you won't need to file a 8938 either unless you are a specified person listed in these IRS instructions. 

As far as reporting your money transfers, your US bank will report all transfers over $10,000 as required by the Bank Secrecy Act.

Now the biggest issue for you is that you may need to file a 709 gift tax return for the gift you made to your husband and to your mother. Please read this IRS reference for more details. Here is a synopsis of that publication.

If you are a nonresident not a citizen of the United States who made a gift subject to U.S. gift tax, you must file a gift tax return (Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return) when any of the following apply:

1. You gave any gifts of future interests.
2. Your gifts of present interests to any donee other than your spouse total more than $16,000 (for 2022) and $17,000 (for 2023).  This would apply to a gift made to your mother.
3. Your outright gifts to your spouse who is not a U.S. citizen total more than $164,000 (for 2022) and $175,000 (for 2023).

If both gifts were under these thresholds, you do not need to file a gift tax return.  But if one of these did not fall under these guidelines, then that gift would need to reported on a gift tax return.

[ZoeY4]

Hi Dave,

Thanks a lot for your reply. I am going to transfer my husband some money over the threshold ($176,000). I believe I will have to file form 709, correct? But do I have to pay any tax on the transferred amount?   And if my husband has to file form 3520?

For your information, my husband and I are both nonresident aliens.

Many thanks.

[AbrahamT · Accepted solution]

So the answer to both questions is yes. You will have toi file a form 709 as you are making a gift over the 164,000 threshold. Consequently, any sum of money which is considered a gift giving for filing purposes will have the applicable gift tax associated with it. See HERE Pg 2  Gifts to Spouse. As far to whether your husband must file Form 3520, the answer is also yes, See HERE. Section 4A.

[redbus45]

Hi DaveF1006 -- I think there is an issue with your reading of the instructions on the i709. I have pasted below the part you copied but also the preceding text. As you can see, it says that "Nonresidents not citizens of the United States are subject to gift and GST taxes for gifts of tangible property situated in the United States." Hence the following text stating "If you are a nonresident not a citizen of the United States who made a gift subject to gift tax, you must file a gift tax return when any of the following apply.." only applies, as stated, to those who "made a gift subject to gift tax" that also meets the subsequent criteria.

Hence none of this applies to nonresident noncitizens unless the gift consists of trangible property situated in the United States, i.e. property with a physical presence like real estate or artwork or whatever. My interpretation is reinforced by the other text that states "Under certain circumstances, they are also subject to gift and GST taxes for gifts of intangible property. See section 2501(a)." However, section 2501(a) seems to refer to citizens who have lost their citizenship. Hence if you were never a US citizen and the gift consists of intangible property, it appears that those gifts are not subject to gift and GST taxes and hence no filing of form 709 is required. 

===== full quote from i709 below ======

Nonresidents not citizens of the United States are subject to gift and GST taxes for gifts of tangible property situated in the United States. A person is considered a nonresident not a citizen of the United States if, at the time the gift is made, (1) was not a citizen of the United States and did not reside there, or (2) was domiciled in a U.S. possession and acquired citizenship solely by reason of birth or residence in the possession. Under certain circumstances, they are also subject to gift and GST taxes for gifts of intangible property. See section 2501(a).

Instructions for Form 709 (2022)

-3-

If you are a nonresident not a citizen of the United States who made a gift subject to gift tax, you must file a gift tax return when any of the following apply.

• You gave any gifts of future interests. • Your gifts of present interests to any

donee other than your spouse total more than $16,000.

• Your outright gifts to your spouse who is not a U.S. citizen total more than $164,000.

[RobertB4444]

Your interpretation is correct.  You are moving money in your bank account - money that has assumedly been taxed already - to offshore bank accounts.  These transfers are not subject to US gift tax as they are not tangible property situated in the US.  You have no gift tax requirement.

@redbus45 

[redbus45]

Thanks. I think the question is asking the opposite in terms of the transaction actually. The gift is nontangible property from a nonresident noncitizen (presumably hence originating in an offshore account) to someone with US status. In this case (nontangible property being given by a noncitizen nonresident) there is no gift tax. But in the other case (nontangible property being given by a US person to someone offshore) there would be potential gift tax liability. 

The underlying rationale here I think is that a US persons money is potentially taxable in future by the IRS (i.e. gift tax, inheritance tax). So moving that money to a non-US sphere (by giving it to a nonresident noncitizen) is potentially liable for gift tax so you don't excape tax entirely. However moving money from a nontaxable sphere (held by a nonresident noncitizen) to a taxable sphere (giving it to a US person) makes it now taxable by the IRS in those other ways, so no taxable as a gift. 

An alternate explanation is that gift tax is levied on the giver, not the recipient. So it is impractical to tax a non-resident noncitizen as the giver, whereas this is not the case if the giver is a US person. 

[redbus45]

Actually I just read again and the situation is actually symmetrical. Gift from a noncitizen nonresident to another noncitizen nonresident of nontangible property. So no gift tax either direction.