Receiving Overseas Money From Another Person for Vehicle Purchase Not Registered In My Name

[jomo13]

This year I received a sum of $26,000 USD from a Proprietary Limited in Australia. The funds were transferred to me in order to purchase a vehicle for an Australian friend of mine who is visiting the US. The friend doesn't have a US bank account. Within a week of the transfer I moved the funds out of my account by taking out a cashier's check in my name and purchased the car for the friend in his name.  The vehicle was technically purchased by me as the cashier's check was in my name but the vehicle is registered to the friend.

I read that I'm required to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts if I receive a gift of more than $100,000 USD from a person in another country or if I received a gift of more than $17,339 USD from a foreign corporation or partnership. I believe I need to fill out Form 3520 on my next Annual Return. Do you know if I will have any tax implications for this or advice? I realize I could have done this many other ways but the transaction is already complete.

Thanks.

[Opus 17]

I agree that under the circumstances, you are required to file form 3520.  There are no tax consequences, this is a transaction report that the IRS uses to look for money laundering and other things, it almost never rises to the level of further inquires, it's just a report.

Form 3520 is filed separately from your tax return (not with your return) although the filing deadlines are the same.  Turbotax does not include this form. 

https://www.irs.gov/businesses/gifts-from-foreign-person

You also technically gave your friend a car worth $26,000.  That must also be reported on a gift tax return form 709, although no tax will actually be owed, but the gift musts be reported.

https://www.irs.gov/forms-pubs/about-form-709

There might be an argument that instead of this being two gifts, you were acting as a purchase agent for your friend, but that might have other, unexpected tax implications that I don't know anything about. 

[rjs]

I question whether any part of this arrangement can be considered a gift. The money was sent to you with "strings attached." The money was never really yours to do whatever you want with it, even though it was briefly in an account in your name. It was given to you with the requirement that you would use it to buy a car that would not be yours. And the car was not a gift from you, because you never owned it, and the money to purchase the car was never really your money. It seems more like some kind of business transaction than gifts.

If the money wasn't a gift to you, it seems that you would not have to file Form 3520. That form is required for money you received "that you treated as gifts." If you didn't treat it as a gift in any way, it doesn't seem that you would have to file Form 3520. There might be other reporting requirements that I am not aware of. It might be a good idea to consult a local tax professional who is familiar with international transactions.

Aside from the tax and reporting issues, I have an uneasy feeling that this whole arrangement might be a scam, or some sort of money laundering scheme. It doesn't pass the "smell test." Is the friend someone you have previously known in person and have a long-standing personal relationship with? Why was the money sent by a company instead of by the friend himself or herself? How long ago was the money transferred into your bank account? Foreign transfers can sometimes be reversed many weeks later.

[jomo13]

@Opus 17 - This is the direction I was tracking. Thanks for your post.

@rjs - This isn't fraudulent or illegal in any way. I believe the vehicle market value and title proves this easily. The friend I have known for many years and is a trusted, close friend who is on a multiple month long vacation (unheard of for most Americans). He wanted to purchase a car quickly upon arrival to begin his road trip around the US. Making a purchase like this is not easy if you do not have a US bank account. When you find a good deal on a car (especially in this market) you usually need to act on it with haste. He made holding deposit by credit card at the dealership then the money transferred in a few days using WISE, and I covered the remaining balance.A family member of his had an account with the same website I use to make international money transfers (WISE). That family member owns a business registered as Pty Ltd in Australia thus the account is marked as such during the transfer. Now there are a number of other ways we could have done this that would have looked "cleaner. " In hindsight I wish I thought it through more but now I am trying to do the right thing and make sure there are no tax consequences. Most tax professionals I have sought out are ignorant to international queries like this and I have not found any good referrals. I have nothing to hide which is why I am seeking open advice on the internet. 

[Opus 17]

@jomo13 

While I did not consider the possibility of fraud (you said this was already completed transaction) I do agree with the points raised by @rjs .  This isn’t really a gift transaction. But I’m not sure what it is.  If you were acting as a business agent, I’m not sure how to report that. I don’t think you can harm yourself by reporting it as a gift.  And I think if you don’t report it at all, the IRS may want an explanation for the $26,000 of incoming funds that were deposited in your name.   If you want someone’s opinion to rely on in case the IRS asks questions, you would have to hire your own expert and pay for that opinion. We are just doing the best we can.

[jomo13]

@Opus 17 I certainly appreciate the advice and do not disagree.

Which of the below experts would you recommend I seek out? I sought professional advice prior to this post from a CPA and AFSP but have not found someone yet who is familiar or confident enough to take on this question.

• Attorney Credential
• Certified Public Accountant Credential
• Enrolled Agent Credential
• Enrolled Actuary Credential
• Enrolled Retirement Plan Agent Credential
• Annual Filing Season Program Participant

[rjs]

Any of the experts in your list might be able to help, except an actuary or retirement plan agent. The expert's knowledge and experience are more important than the title. I would suggest an attorney, because your questions are not only tax questions. They are about the requirements for reporting foreign transactions, and how to characterize the transactions that you made. These are questions of law. But obviously attorneys have a lot of different specialties. Most attorneys are not tax experts, and do not regularly deal with this type of activity. You have to find someone who has particular expertise in the type of situation that you are dealing with. A tax attorney might be a good starting point. If the first attorney that you consult does not have the specialized expertise that you need, he or she might be able to refer you to someone who does.

[jomo13]

Hi again,

Thanks for the advice.

I actually ended up reaching out to another CPA who seemed knowledgeable. His response was:

Since the car was put in the friend’s name, that he did not receive a gift that is reportable.  The CPA sees it as I received a loan and repaid the loan with the transfer of the vehicle. He also said I could file the Form 3520 which he do not believe creates any tax implication, it is more of a disclosure form.  And said as long as I had no benefit from the transaction (I didn't, in fact, it's been more of an annoyance), he would probably not consider reporting.

Thoughts?

[Opus 17]

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@jomo13 wrote:

Hi again,

Thanks for the advice.

I actually ended up reaching out to another CPA who seemed knowledgeable. His response was:

Since the car was put in the friend’s name, that he did not receive a gift that is reportable.  The CPA sees it as I received a loan and repaid the loan with the transfer of the vehicle. He also said I could file the Form 3520 which he do not believe creates any tax implication, it is more of a disclosure form.  And said as long as I had no benefit from the transaction (I didn't, in fact, it's been more of an annoyance), he would probably not consider reporting.

Thoughts?

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It's an interesting thought, and I agree it would be a reasonable way of looking at the transaction.  My endorsement is, of course, worth exactly what you are paying me. 😉

One thing the CPA did not mention that applies to your friend.  If this was a loan from your friend to you, your friend is required to charge interest, and pay income tax on the interest received.  If they didn't actually charge interest, they are still required to report the income they would have received if they had charged at least a fair market rate.  This is called imputed interest, and there is an article about it here.

https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC

The minimum fair market rates are listed here.

https://www.irs.gov/applicable-federal-rates

For example, a short term loan with monthly interest that was made in April 2023 has a minimum rate of 4.75%.  If we look at this as you borrowing $26,000 and paying the loan back with a car, and the transaction took 2 months to settle, the interest would have been $206.  Your friend would report receipt of $206 as taxable interest income, which would result in around $50 of extra income tax, depending on their other income.

I'm not saying your friend must do this, I'm pointing it out as a rule that exists (if this was a loan).

The interesting thing about form 3520 is that the instructions say to file the form if you received from a foreign corporation more than the annual exclusion amount (which is $17,339 for 2023).  However, the form itself says to report amounts "that you treated as gifts."  If this is being treated as a loan, it would seem form 3520 is not required. 

I also agree that form 3520 is a reasonable suggestion, since you received (even as a loan), more than $17,000.