Do I Pay U.S. Taxes on Money I Transfer from Overseas?

U.S. Taxes on Money Transferred from Overseas

The United States tax rules can be very complicated and especially when international components are introduced into the mix, it can be downright overwhelming for U.S. Taxpayers who are not originally from the United States and/or have foreign income generated from overseas. One common question we receive is:

• • • Do taxpayers have to pay U.S. tax on money transferred from overseas?

The answer is, it depends on what type of money is being transferred. For example, if a taxpayer is just receiving a gift, then that may not be taxable — although it might be reportable. If a taxpayer is transferring their own money from overseas then generally there are no tax or reporting requirements. But, if a Taxpayer is transferring or receiving income from overseas then there may be a tax implication in the United States, since the United States follows a worldwide income tax model.

Let’s take a look at three (3) common examples.

Transferring Income

Michelle is a U.S. person who lives in the United States. She has rental income and interest income generated from a foreign country. Each month, she receives her rental income from her tenant which is then transferred into her U.S. bank account. Likewise, at the end of the year, Michelle receives a payout of her interest income when her CDs reach maturity. These are examples of transfers that are considered income and therefore they are taxable in the United States because Michelle is a US person who earns income from overseas.

What About a Gift From Abroad?

Danielle is a U.S. citizen who has non-US citizen relatives who live abroad. After Michelle graduated from medical school, her foreign relatives transferred her $250,000 of foreign money so that she could help put a down payment on a new home since she had not established any credit yet in the United States. The money that was transferred to Michelle is not taxable because it is a gift of foreign money from non-resident aliens. However, the gift is reportable on Form 3520 because the gift exceeds $100,000 in any given tax year from a person or related parties. It is important that Danielle files Form 3520 timely in order to avoid any potential Form 3520 penalties.

Overseas Wire Transfers

David is a U.S. citizen who resides in the United States. He previously worked overseas and still has a few different bank accounts that he forgot about — but now wants to transfer that money back to the United States since he no longer works abroad. In this scenario, David is simply transferring his own money from overseas to his US bank account. This is not considered income and therefore would not be taxable — although, David should be sure that he has been filing his annual FBAR and Form 8938 because the value of his accounts exceeded the reporting thresholds for both forms. There is also the potential of an international wire transfer audit, but those are not very common in situations in which a Taxpayer is transferring their own money from overseas to their U.S. bank account unless it is a very large sum.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.