NON-RESIDENT ALIEN GIFTS

This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.

Each year every Donor may make tax free gifts totaling $10,000 to each recipient.

• This rule applies to US citizens, residents, and non-residents who make US gifts.

The easiest way to guarantee that a gift is not made within the United States is to ensure that it is completed outside of the United States.

First the wrong way: on a visit to the US, Uncle hands Nephew $5. Clearly it is a US gift.

Again the wrong way: Uncle mails (from overseas) a personal check drawn on Foreign Bank. Nephew deposits that check in his US Bank. Is it a US gift or a foreign gift? Probably a US gift because it is not completed until it clears both the US Bank and Foreign Bank. Until then, Uncle can stop payment so the gift is not complete.

Uncle wire transfers funds from Foreign Bank (Uncle's account) into US Bank (Nephew's account). Is this a US gift? I fear that it may be, because the gift can be stopped by Uncle at any time before it arrives in US Bank. The key issue is when can Uncle "stop payment" on the wire transfer. Frankly, I do not know for certain, but if it is beyond Uncle's control when his Bank sends it, an issue still exists: when is the gift completed? On arrival at US Bank? I am unsure, and I HATE not knowing.

To guarantee that the gift is completed overseas, I suggest the following:

1. Nephew opens an account at Foreign Bank;
2. Uncle deposits funds into Nephew's account;
3. Nephew transfers funds into the US Bank.

Since 1996, Tax Code Section 6039F requires that if foreign gifts totalling over $10,000 in a tax year are received by a US Person (citizen or resident), the US Donee must report the fact of the gift to the IRS, even though no US tax is owed.

Tuition or medical payments do NOT count in computing the $10,000 per year rule.

In June, 1997, IRS issued Notice 97-34. Since IRS has not yet revised Form 3520 (which will require general information to determine whether the gift was in fact disguised taxable income rather than a gift).

The last I heard was that IRS has postponed the filing requirements until 60 days after the form is released. Please check with IRS regularly and see status!

For more information on gifting, see:
US Gifts
Advanced Estate Planning
Family Limited Partnerships