1040 NR Taxpayer

[S T]

I have a 1040 NR taxpayer - commercial rental in California. She is a Phillipine NR - selling the property - the sales transaction I can report. She will receive the funds.

Question, she is going to take the net proceeds after taxes and "gift" Cash to her 3 brothers that are US Citizens. Gift tax return needed form 709 or just report on the form 3520?

Thanks

Sandy

[Roland Slugg]

Both, if the reporting thresholds are met for each form. Those thresholds are $14,000 for F-709 and $100,000 for F-3520.

If one or more forms 3520 are required, it is the brothers who must file them, not the sister.

(Btw, the country is "Philippines" ... one L and two P's, well three altogether.)

* * * * *
If you've ever wondered why the country is the "Philippines" whereas its residents are "Filipinos," you might enjoy reading the interesting explanation at this link: http://www.archipelagofiles.com/2015...d-with-ph.html

[TaxGuyBill]

She may want to reconsider how she structures the gifts, and limit her gifts to $14,000 per year, per recipient.

If I remember correctly, a Nonresident (which is defined a bit differently for Gift Tax purposes, but a 1040NR would probably fit that definition) gets the annual $14,000 Gift Tax exclusion (per recipient), but does NOT get the Lifetime Exemption. In other words, she could be paying 40% of the amount over $14,000 (per recipient).

[S T]

Non resident alien

Gift Tax Form 709

This taxpayer is a “non-resident alien” and does not meet domicile requirements in the US.

First Transaction is selling the California Property and will be reported on the appropriate 1040NR and Calif 540NR, taxes paid for gains, etc. The transaction is scheduled to finalize escrow by 12/31/2016.

Second Transaction is Taxpayer (non resident alien) wants to gift to her brothers (who are US Citizens) the net proceeds after closing costs and taxes have been calculated.

The sale of the property will be concluded in 2016 and the gift of cash to brothers in 2017.

I have reviewed the Form 709 instructions which to me were not clear for non resident aliens, so opted for add'l resource information
http://kmatzlaw.com/yahoo_site_admin...d.22862210.pdf Has references to IRS Reg/Code Sections -- In reading on Non Resident Aliens for Gift Tax Purposes, a nonresident is subject to Federal Gift Tax reporting only on transfers of real or tangible personal property situated in the US. Intangible property would generally be exempt from Gift Tax reporting

Transfers are identified as tangible property (real estate, personal property) situated in the US and , Cash in US situs is considered “tangible” and subject to Gift Tax reporting

If a non resident wishes to gift “tangible” personal property which is located in the US, it should be removed from the US account before making the gift for relief of the Gift Tax reporting, and the non resident should avoid using checks drawn on US Banks and wire transfers.

It would seem if the above is correct, the non resident taxpayer eliminates the Gift Tax Reporting on the Real Estate due to sale and proceeds being directed to a non US Bank Source Account. Potentially could eliminate the Gift Tax Reporting on the later “Cash Gift” if it is disbursed from a non-US Source Bank Account. The brothers receiving the cash gift would then report on filing form 3520.

I would welcome and appreciate any knowledge and advice and whether or not my findings as posted are possibly leading to the correct procedures.

Sandy

[TaxGuyBill]

I have absolutely no firsthand knowledge of this type of situation, but (1) selling U.S. property, (2) then transferring the proceeds to a non-US bank account, (3) and then Gifting the cash, reeks of an illegal "Step Transaction" to avoid taxes.

[S T]

Thanks Tax Guy Bill, for your thoughts.

More Info - Non resident US taxpayer does not have a US Bank Account - proceeds from Escrow will go to a foreign account outside of US - Escrow has verified this.

Question is whether or not a form 709 Gift Tax return requirement is present. Non resident will file if needed. I tried a "what if" on form 709, just seems complicated for a non resident US taxpayer, and seems to not generate any gift tax.

Taxpayer is contacting her legal sources at foreign account to see what they say, It is a large international firm that deals with both US and foreign transactions.

Sandy

[TaxGuyBill]

*IF* a 709 is needed and the Gift is over $14,000, there WILL be Gift Tax owed because a Nonresident does not get the Lifetime exclusion, they only get the $14,000 annual exclusion.

However, backing up to your question about if a 709 needed or not, I don't know. To me, because the funds are being given because a US property was sold makes me think it would apply. But again, I am definitely not very knowledgeable about that.

Is it possible to limit it to $14,000 per Gift per year? Or are the desired gifts extremely large? Don't forget it is $14,000 per person, so if taxpayer and/or brothers are married, that could increase it to $28,000 or $56,000 per year.