Need advice: Foreign Wire Transfer

[dvm_user]

Hello all,

I am writing this post to hopefully receive some advice regarding international money transfers that my family would like to execute.

Although my family is native to Ukraine, they currently reside in Russia. As you may already know, the economic state there is quite unstable right now. My parents would like to transfer money (below $90k this year) into my banking account in the United States from their European bank which is currently not sanctioned (however, they can't send more than $10k USD/day). Given all the uncertainty, we do not want to risk our family’s financial safety and livelihood, so I will act as a placeholder for the money.

I am no longer an international student in the US, I am a resident. I want to ensure that the aforementioned transactions account for all the legal, tax, and interest-related formalities. I plan to talk to a CPA in my area (still looking), but wanted to get some information here.

Here are my questions: 

- Would these transactions cause any issues with the IRS? I know I would have to report them, of course. 

- I will be receiving more than $16k this year, so I cannot claim the rest of the transfers as gifts. What would be my best strategy in receiving this money?

- Would it be better to create a trust instead to have the money transferred? Please share your recommendations.

Thank you!

[Spino]

Here are my questions: 

- Would these transactions cause any issues with the IRS? I know I would have to report them, of course. 

Since the IRS taxes individuals, not families, receiving money is not a reportable event. However, once you have the money, you will be liable for any income it generates.

- I will be receiving more than $16k this year, so I cannot claim the rest of the transfers as gifts. What would be my best strategy in receiving this money?

That is not quite true. There is something called the unified gift tax. However, this is true when you gift money to others, not when you receive it. It sounds like your family are not US citizens or residents, so they would not be subject to this tax, but rather the taxes in Russia, or maybe the place where they currently pay tax on the money if it is subject to another taxing authority, like perhaps the European Union. Again however, once you receive the money as a US resident you would be subject to gift transfer rules as the legal owner of the money. 

- Would it be better to create a trust instead to have the money transferred? Please share your recommendations.

No. Trusts are either taxed at the individual owner's rate or a higher rate depending on the kind of trust it is. This will not save you taxes. If you create a trust, it would usually be for other reasons.

And I'm sorry your family is suffering in the midst of this global tragedy.

[dvm_user]

Hello Spino,

Thank you so much for your prompt reply and compassion – my family and I really appreciate your response. It is quite stressful being so far away from them at this challenging time. 

You mentioned that, as a US resident, I would be subject to gift transfer rules as the legal owner of the money. Would this apply to the full amount or only a portion ($16k) of it? 

"Since the IRS taxes individuals, not families, receiving money is not a reportable event. However, once you have the money, you will be liable for any income it generates."  I do not plan on investing or using said money unless my family grants me permission to do otherwise.

However, the transfers of $10k/month could get reported to IRS by my bank, correct? How do  I prepare to handle this situation? If it gets reported, which documentation would I have to provide to prove that this money is not my income?

Thank you once again for your help!

[Spino]

So let's say it happened. Now you have $90,000 in an account with your US tax id. Suppose your family says to give $30k to your sister and $30k to your brother. If you give them this money in a single year, you are responsible to file a gift tax return. Unless of course you or they are married, in which case you could give twice as much, or even 4 times as much if you are both married, but that gets us into the weeds of the tax law.

You mentioned $16k. That's because the annual gift tax exclusion just went up $1000 to $16k for 2022. As long as you give $16k or less from any one taxpayer to any one taxpayer, you do not have to file the gift tax return....

You mentioned that the IRS might want to know how you got the money. One thing you can do is have a family member write you a letter. They can even have it notarized or witnessed, saying that where these funds came from and that they are not earned income for you, but rather a gift entrusted to you for your family's continuing benefit in these difficult circumstances.

However, the IRS is mainly concerned about collecting taxes, so they are more interested in who you send $10,000 or more to, not money arriving in their jurisdiction from somewhere else. It's the police who care about both ends :-). Documenting the transaction is a good first step for both. It would be more of a problem if you got the money from a "Nigerian prince" and you don't have family in Nigeria.