international wire transfer

[Kea]

My client's brother is coming to the US to go to college. The family lives in Pakistan or India (I don't remember which). Their father wants to transfer the tuition (and money to cover other expenses) to my client's bank account. They thought that would be safer than having the brother carry the money (or check) with him. By client wanted to know if he would be responsible for any taxes for receiving this much money. He never told me the amount, but if you are talking college tuition and expenses, it could easily be 10s of thousands.

My client receiving a gift would not generate any taxes. And since the father is in another country, he would not be required to file a gift tax return. I know there is a form my client would fill out if he receives a large sum from another country, but I don't remember the form number or the amount (maybe $100K?) Note, this money isn't really for my client - he's just going to hold it for his brother until he moves here.

When he transfers to the money to his brother, would that be considered a gift and require a gift tax return? Could his brother set up an account at a US bank before he gets here?

What is the best way to handle this transfer?

Thanks.

[OldJack]

I don't know but I would suggest the brother should work this out to establish his own account, in a USA bank, thru a bank in his own country before travel. Your client should have nothing to do with the account unless he is willing to deal with such things as the government questioning if it is some money laundry scheme or for terrorist.

[Kea]

I had asked my client if they considered setting up an account before the brother left and they weren't sure if they could do that. But, I do agree that would help my client. I don't know how they go about setting up an account from oversees.

If they can get the account set up and the money is just transferred from Dad to Son, there would be no reporting issues at all. Right?

The form I referred to earlier was 3520, but that probably won't be needed.

Thanks so much.

[jainen]

>>they weren't sure if they could do that<<

You think they are going to move tens of thousands of dollars from the mideast (maybe Pakistan, "I don't remember") into the U.S. for a young male under an alternate name without attracting a LOT of attention from Treasury and Homeland Security? Stay away from this one.

[Kea]

It might have all the markings of sounding suspicious, but there are, in fact, many honest, hard-working people from the Middle East, who come here for school and then get good jobs here. I have several clients who fall into this category.

I have no reason not to answer his question as fully as I can. I just don't have experience in this area, which is why I posted the question.

My guess is they probably just figured it was easier to send money to an existing account. His question to me was only related to tax consequences.

I, for one, don't know how to go about setting up a bank account in another country. It doesn't sound easy and I'm sure there are hoops to jump through. I have no idea if they considered that their plan could be considered suspicious. If they had, I doubt he would have asked me about it. I did tell him that I didn't have a ready answer for him and I would be posting the question to a tax bulletin board. He thought that was a good idea. It doesn't sound like he is trying to hide anything.

Thanks.

[Wayne Brasch]

My client's brother is coming to the US to go to college. The family lives in Pakistan or India (I don't remember which). Their father wants to transfer the tuition (and money to cover other expenses) to my client's bank account. They thought that would be safer than having the brother carry the money (or check) with him. By client wanted to know if he would be responsible for any taxes for receiving this much money. He never told me the amount, but if you are talking college tuition and expenses, it could easily be 10s of thousands.

My client receiving a gift would not generate any taxes. And since the father is in another country, he would not be required to file a gift tax return. I know there is a form my client would fill out if he receives a large sum from another country, but I don't remember the form number or the amount (maybe $100K?) Note, this money isn't really for my client - he's just going to hold it for his brother until he moves here.

When he transfers to the money to his brother, would that be considered a gift and require a gift tax return? Could his brother set up an account at a US bank before he gets here?

What is the best way to handle this transfer?

Thanks.

Kea,

That would be Form 3520.

Wayne

[jainen]

>>It doesn't sound like he is trying to hide anything.<<

That's exactly what it sounds like. Even you observe "all the markings of sounding suspicious." Certainly "there are, in fact, many honest, hard-working people from the Middle East." But every single one of them is acutely aware that the American government tracks people and money that enter this country from there. I mean, for the last half decade we have been fighting a WAR on and over Pakistan's borders for that very thing!

So when someone asks if it's okay to stash a large sum of Pakistani money in somebody else's account, which happens to be called money-laundering, and is particularly interested in IRS "consequences," which happens to be part of the Treasury Department, it's just not something I feel comfortable about.

[JohnH]

Kea: You may know all you need to know about this client and the entire situation may be strictly on the up & up. But is it worth the risk? You'd be well advised to heed jainen's warnings on this. I wouldn't be anywhere near this transaction and I'd advise the client to contact an attorney knowledgeable about these matters before taking any sort of action. It isn't a matter of accusing anybody of anything - it's simply accepting the realities of the world we live in today.

[GeneInAlabama]

Kea, I VERY LOUDLY echo what Jainen said. Stay away from this one.

Gene

[Kea]

I appreciate everyone's concern for my liability. I called my client this morning to find out which country he is from. He is from India. I knew it was one of the two because I have several clients from these two countries. I started with one in 1999 and from word of mouth referrals, these 2 countries now represent about 10% of my clientèle. Most of the time I have no reason to know which country they are from. The main exception is when I have had to fill out the form requesting an ITIN for a spouse or other family member.

As I said, this client is from India, not Pakistan. I apologize for not knowing before. I hope that minimizes your concerns. (Last time I heard, we were still on good terms with India. I'm still waiting for those mangoes.) So, it is still my understanding that to minimize tax consequences and avoid a potential gift tax return, the best option is for the brother to set up a US bank account before he leaves. This also seems to be a better option than the brother bringing the money with him (I'm assuming he would carry a check. Carrying cash would be extremely dangerous - regardless of the country of origin.) Even a check could get stolen.

Have I got this right?

Thanks

[jainen]

>>I have no reason to know which country they are from<<

I'm sure your clients could give you several reasons for understanding the difference between India and Pakistan.

>>I hope that minimizes your concerns<<

Not at all. The issues of bringing large sums from western Asia are still the same. Actually, from anywhere in the world. Being "on good terms with India" is irrelevant, because we are not talking about diplomacy or trade agreements in this forum. Ask the bank in India, or here, to set up the transfer with full accountability. If he is going to a major school the admissions office can undoubtedly bring it straight into the student's account.

Other than the bank's normal reports to Treasury, there shouldn't be any tax matters involved with the transfer.

[Gail in Virginia]

I am just wondering if the timing is really tight, or if there is some reason the brother can't come to this country, set up a bank account and then have dear old Dad wire the money into his account. It seems to me that would be the simplest way to get the money into the appropriate hands. It also might be possible to make arrangements with whatever college he is attending to have the funds for tuition, books, meal plan etc. wired directly to the college to avoid any question of what the large sum of money will be used for.

[Kea]

Gail-

Thanks. Sending the tuition, etc directly to the school does make more sense. There will still need to be some money transferred to the brother because he would need general living expenses. But that amount is not as significant as the tuition.

Jainen -

I never said there were no differences between India and Pakistan, only that I didn't have any reason to know which country this client was from. The governments of my clients' home country have nothing to do with how I prepare my clients' tax returns. There are also significant differences between Republicans and Democrats, but don't check party affiliation before preparing returns.

I agree that the specific country should not be an issue with a tax question, unless the issue is related to a tax treaty. And I also agree that moving large sums of money between any countries is an issue. Especially in this day and time.

Thanks to all.

[JohnH]

Kea:

With respect to knowing or not knowing which country your clients are from, don't you need to know that information when you prepare their TDF90-221 if they still have economic/financial ties to their country of origin?

[Kea]

I plead ignorance to that one. I must admit I never heard of that form. They never taught me that at Block or any of the other classes or references I've used. I never knew to even look for it.

Thanks. I'll do my homework and learn more about it.

[Kea]

I do ask (all) my clients if they have any other sources of income. I explain that the IRS requires reporting of worldwide income. But I must admit that I have never asked if they have assets or trusts in another country - even if there is no income generated.

Thanks so much. I learn so much from this forum.

[Gail in Virginia]

Kea, the form that JohnH is talking about has to be filed if they have $10,000 or more in a foreign financial institution or trust at any time during the year. It would most likely come up when you complete their schedule B for interest and ask if they have foreign bank accounts. If that large a percentage of your business involves non-citizens, you should definitely be aware of it. But I think many preparers assume the answer is no on schedule B without checking thoroughly.

[Kea]

Gail,

Thanks. I have been asking that much. No one has ever said "yes" - so that's probably why I never went any further. While I do have several clients from other countries, most are citizens at this time. There are some that are still on their green cards, however. I will make sure I am more thorough on this issue. But this issue could easily come up with clients who have lived in the US all their lives. Just in the last year, I have had 3-4 clients ask me about tax consequences of moving to another country. I did run across that form at that time, but had not recognized the form number. (And I know I have a lot more research to do.)

[Pacun]

Kea,

Tell the student to bring in his pocket $9K. Come to the US and open a bank account and ask his parent to send more money to that account. No IRS reporting required. Also, the student can receive money directly wire to him by using Western Union.

If father gifts $10K to big brother's account, no IRS reporting required.

If big brother gives student $10K yearly, no IRS reporting required, but it is advisable to keep good records in case the IRS audits big brother.

The only time that this becomes a problem is when old brother gets audited and there are not adequate records of where the money came from and under what category the money falls in.

I strongly advise my clients to stay away from this type of transactions because most of the time there is no need to involve other people.

[Kea]

Pacun -

I understand the $10K gift limit (although gift tax return limit has been increased to $12K), but what is the significance of student bringing $9K with him?

Thanks.

[Pacun]

So he doesn't have to use other people to get money. Having money going through his brother is not an elegant solution. So if he can bring some money, no need for the brother to get involved.

[jainen]

>>what is the significance of student bringing $9K with him<<

Theoretically you can transfer or deposit less than $10,000 without government interference. But in a country that just legalized the most sweeping program for the surveillance of its own citizens in the history of the world, backed up with a complete loss of the rights to even consult an attorney before being imprisoned in isolation indefinitely, I wouldn't trust that customs officer at the airport.

[Evan S. Golar]

One thing that hasn't been mentioned, is , if CASH is deposited in excess of $ 10,000 at any one time, or more than $ 10,000 in cash disbursed in any one transaction, there is a form that the institution receiving or paying it MUST complete and send to IRS.