Q-1:

Dear Sir, Guru Kindly respond to me pl 1) I need to send a sum much more than 12 k to my son in USA , in one Financial year. I am a NRI, Indian, & have no USA limitations to send money to my son as 12k. from my side. As it is generated out of India & out of salary. 2) Now can my son receive money from me (parents) without any tax at his end. Will the Tax department treat anything above 12 k as other income & charge Income tax, for sum in excess of 12k. r forb that matter Gift tax? 3) Will it help us to send the money by increasing the number of Donors from our side to avoid tax from his end. We are clear to send , & have no problem with our tax regime. Kindly revert please

Kindly ignore my previous Email pl. pl. respond to the below instead pl. sub.What is the limit a Donee can receive cash gift in a Financial year in USA from single or multiple Non Resident, non US donor/s. 1) How can a donee in USA receive money from parents without any Gift tax at his end from a third country where they are employed? Is the Gift restriction of $.12k, is only for a USA Citizen donor? Will the Tax department treat anything above $.12.in USA as other income of the Donee & charge Income tax,/gift tax, for sum in excess of $.12k If received as Gift from out side country sent by parents. 2) Is there a restriction that amounts received by the Donee in USA, from a PARENT donor non US Citizen, out side USA should not exceed 12k? 3) Will it help the Donee to receive money by increasing the number of Donors, to avoid gift/income tax as other income from his end during a Financial year? Kindly revert please

A-1:

I have no knowledge or experience with the tax system in India, so my comments can only cover the USA tax systems.

You seem to be under the impression that people in the USA have to pay tax on gifts that they receive. That is actually not the case at all. Gifts are one of the very few things that are statutorily exempt from tax on the recipients. Any gift tax obligation, or even requirement to report larger annual gifts is on the giver (aka donor).

Again, I have no idea how the gifting taxes are structured in India; so you need to work with a professional tax advisor in that country.

However, for your relatives in the USA who will be receiving gifts from you, there is technically no dollar limit on the amount of gifts they can receive that are exempt from any taxes on them.

In addition, as their USA professional tax advisors should warn them, they should be sure to have excellent documentation of the fact that any monies received are in fact bona fide gifts and not for anything that could be construed as taxable, such as proceeds from the sales of assets or compensation for services rendered. Out tax authorities in the USA do operate from the presumption that any money received is automatically taxable income unless the recipients can prove otherwise.

Good luck. I hope this helps.

Kerry Kerstetter

Q-2:

Thank you Sir,

Yes, I am fully aware of the Tax Laws in India fully. Your notes surely helped. But a little doubt exists. pl. see below. I feel the term GIFT is only for the DONORs concern. For Donee it is an additional income as per below. (2)Does the Tax books say that a Donee

(1)they should be sure to have excellent documentation of the fact that any
monies received are in fact bona fide gifts and not for anything that
could be could be construed as taxable, such as proceeds from the sales of assets or compensation for services rendered.

(2) A resident of the United States, (Warning: A foreign citizen living in the United States for more than 182 days is considered a taxable U.S. resident by operation of IRS Code and is taxable on his world-wide income, even if he/she never did any business in the United States.

Does above (1) phrases over rides (2) for Donee. We have no problem here at all.

Thank you for your time, I appreciate your kind advice.

Regds

What do you think of this below please. It’s the law: "U.S. Persons" are taxable on their word-wide income, no matter what/where/when/how the source of such income, unless there�s an exception or exemption i.e. Tax Treaty. A GIFT is not under Tax treaty A "U.S. Person" is defined by Internal Revenue Code Section 957(d) as: A citizen of the United States, A resident of the United States, (Warning: A foreign citizen living in the United States for more than 182 days is considered a taxable U.S. resident by operation of IRS Code and is taxable on his world-wide income, even if he/she never did any business in the United States regds

Dear Sir, I have understoof your very helpful, simple advice. I am grateful. I am fully aware of Indian Laws. Only one thing i wanted to clarify is, My son who will be the Donee in USA, can he receive in ANY one particular Financial year indefinate amounts? Though our contribution & need is just 60k.$. to buy his first house to minimise loan from the bank. Will the tax authorities treat the gift from parents as a additional income to Donee, as USA Computes Tax on Global receipts. pl. see below A "U.S. Person" is defined by Internal Revenue Code Section 957(d) as: A citizen of the United States, A resident of the United States, (Warning: A foreign citizen living in the United States for more than 182 days is considered a taxable U.S. resident by operation of IRS Code and is taxable on his world-wide income, even if he/she never did any business in the United States) A domestic corporation, A domestic partnership; or An estate or trust other than a foreign estate or trust. Thank you kindly.

A-2:

I see why you may be confused; but the distinction is in the definition of "Income." Gifts are not considered to be income and are thus not taxable to the recipients (donees).

Taxable income is generally money received in exchange for something; such as services (wages), items (capital gains), or use of money (interest & dividends). Gifts, by definition, are not given or received in exchange for anything.

Your relatives here in the USA should be working with their own professional tax advisors in the USA who can give them more specific suggestions on how to properly document and report the gifts they receive.

Good luck. I hope this helps clarify things for you.

Kerry Kerstetter

Follow-Up:

Dear Mr. Kerry Kerstetter,

Your recent message clarifies my below doubt for

It's the law: "U.S. Persons" are taxable on their word-wide income, no matter what/where/when/how the source of such income, unless there's an exception or exemption i.e. Tax Treaty.

The point is " A gift received by a Donee in a single Financial year or more is not an Income by Definition."

We are much obliged.

with all Sincererity

While it probably doesn't apply in this case, I just wanted to add some more clarification on the reporting rules for people in the USA who receive gifts from outside of the country.

If more than certain amounts are received during the year, the recipient is required to file Form 3520 with our IRS, which is strictly informational and has no actual tax obligation.

The following is from the instructions for Form 3520 for who has to file it:

4. You are a U.S. person who, during the current tax year, received either:

a. More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or

b. More than $13,258 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.

I thought you said your goal was to gift $60,000 to your kids, so this shouldn't apply; but they should check with their own personal professional tax advisors in the USA.

For further info, you can download the 3520 and instructions from the IRS website.

I hope this info is useful for you.

Kerry Kerstetter

Thanks a lot Mr. Kerstetter,

I understood what you have said. So to avoid any unforeseen complications, what we are trying to do is, by Dec-2008 my wife & I will make 2 gifts of $.12 k each =$.24k. Later in January-2009, will make another $.12K x 2=$.24K. sO we are within Laws.
Rest we may do it subsequently in the same year or following year.

As I read below the provisions of form 3520, may not apply,as we are not gifting more than 100k in a year or even cummulatively in years, nor we are foreign corporation, nor partnerships. I feel we are within Laws. We try to be Law abiding citizens every were. We have no large amounts to give, as what we give is out of affection to our wards. Just a sacrifice.

Since $.24k from parents is allowed, in any 1 single Financial year, I may feel the question of filing form 3520 may not necessarily be required or if he does it there may not be harm to keep peace of mind.

However, I saw you placing my query on your NEWS Bulletin. Thank you, it may help many over there.

Kind Regds

Labels: Gifting

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 9/17/2008 01:48:00 PM Send this post: