Gift rules applicability to non-citizens

[atlasthere]

I am on a work visa in the US and for tax purposes an US person.

I generally send money to India to my NRI account and from there give to my parents.

I know that there a fixed amount per yer per person above which gift tax kicks in.

For my situation where I am sending money to my own account in India and then forward it to my parents, does this activity fall under US gift tax or Indian gift tax?

Is there a recommended way to handle these transactions with regards to US gift tax?

[Anonymous_]

@pk

[pk]

@atlasthere , Namaste and  apologies  for delayed response -- my wife in ICU with cancer .

Generally the law is intended for  US persons ( citizens / GreenCard holders). But of course  Residents for Tax purposes , such as  you come  under this also because there is no carveout.  The fact that you send the monies  ( after taxes ) to your own bank account  and then help your parents, kind of puts in a different category --- this is not really gift but maintenance  of the household of ;parents.

There is also no gift tax  as such when you send  more than the "free amount " per donor per donee -- it is just a reduction of your life time credit ( by the excess amount and the need to file a form 720 ).   Assuming that you are married and file jointly, then you each can send  the "free" amount  to each  of your parents -- so essentially four times the free amount.

Is there more I can do for you ?

pk 

[Opus 17]

As you are covered by US tax laws, you must report the gifts as required by law no matter who the recipient is.

If you give gifts of more than $17,000 per person per year, you are required to file form 709 to report the gifts. Actual payment of gift tax is not owed unless your total lifetime gifts are more than $13 million, but form 709 is used so the IRS can keep track of large gifts against your lifetime total.  (Form 709 is not included in Turbotax, you will have to do it yourself.  The deadline for reporting 2023 gifts is the same as the income tax deadline, April 15, 2024.)  But that still means you can give your parents $17,000 each or $34,000 per year without triggering the reporting requirement.  

(Whether they have a tax requirement for receiving a gift depends on the laws of the country where they live.)

You are covered by this requirement whether you transfer the money directly from a US bank account or from a foreign bank account that you control.  It's still "your money" until the transaction is complete and you have given it to them.

I don't think it makes a difference what they use the money for, whether you are supporting their household or they use it to buy fancy cars, I think it's still a gift from you to them.

Lastly, if you own or control a foreign bank account that has more than $10,000 (US or US equivalent) at any time during the year, you are required to report this to the IRS on a report called the FBAR.  No tax is owed, it is only a reporting requirement, and this one can be done online.  The deadline for 2023 reports is April 15, 2024. https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

[atlasthere]

@pk @Opus 17 
Thank you both of you. As I see there is no clear consensus, I will stick with the conservative approach and report these transfers in access of the yearly limit per donee. 

[pk]

@atlasthere , the difference herein is not  in the text of the laws/rules etc.   The question in my is what counts as gift --if you are "gifting"  i.e.  giving monies to a donee without expecting anything in return and/or no obligation ( written / societal/family / emotional/ custom etc. )  then  indeed you need to recognize the rules  i.e.  $17,000  and under   per year requires no reporting  and has no tax implications  now or in the future.  If on the other-hand , you  send monies to help your parent/ parents have a reasonable  living and it is customary  in your culture, then I would argue that this is not a gift  and therefore does not come under the gift rules.  Of course the actual facts and circumstances and amounts matter.  For example , if you and your spouse each sent  $17,000 to each of your parents i.e.  4 X 17000 = 68,000 in total then  is this gift or maintenance of family ties.  It is a Murkey area because it depends on interpretation of the intent of the law and are you trying to circumvent  the rules  ( i money laundering comes to mind ).    Again as I said , facts and circumstances matter.

@Opus 17  and I do not disagree on the law , but I am more aware of the cultural norms  and expectations thereof -- thus interpretation differences.

Namaste ji

pk

[Opus 17]

Even if a particular culture has the built-in cultural expectation that children who go out into the world and earn money, are expected or obligated to send money back to support their parents, I'm not sure that would not count as a "gift" under US tax law.  (Even if the money is not a "gift" under the laws of the country where the parents live, the child being a resident alien is covered under US law, aren't they?)  What is the "full consideration" that the child receives in return?  I would be interested in seeing any relevant court decisions or regulations.

What is considered a gift?

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

[atlasthere]

@pk @Opus 17
thank you both for additional information and insight.

To test a hypothetical scenario, let’s say I am talking about a few lump-sum irregular transfers of >= 8-10k each in a year to my mother, which goes beyond annual limit for gifts. Let’s say total is 30k. I am not sure if that will fall under the gray area between gift and cultural norms for family maintenance, but let’s consider that it is a gift.

To avoid the annual limit, consider I gift my mother 17k, then gift my father remaining 13k. Later my father gifts 13k to my mother.

Is there a rule in place which still would mandate reporting additional 13k on form 709? Pls consider that this 13k is already in Indian currency and gifts within family in India doesn’t have any limit (i.e. unlimited value of gift within family without any tax)

[pk]

@atlasthere ,  since there is likely to be NO tax consequences  ( unless your Estate is > 15-02 million when you pass  and if it is indeed more than that , you probably would not care about the effect of this gift ) , why go through this  --- what are you trying to achieve ?   My fear is that these machinations will attract attention and actually indicate  something that you are taking advantage of the law  ( and therefore the question why ? ).  Just follow the normal path , report  and  let it be that . 

  That is my view

[atlasthere]

@pk 
Thanks for your reply.

I do understand your suggestion. I am just trying to understand the laws around gift tax, particularly for an NRI. So that I can maximum the benefits of it while staying within the law.