When Do You Pay US Tax on Money Transferred from Overseas?

When Do You Pay US Tax on Money Transferred from Overseas?

Are Overseas Money Transfers to the U.S. Taxable?

Michelle is a U.S. person who lives in the United States. She has rental income and bank interest income generated from a foreign country. Each month, she receives 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 are therefore taxable in the United States because Michelle is a U.S. person who earns income from overseas.

Transfers of Foreign Gift Money 

Danielle is a U.S. citizen who has non-US citizen relatives who live abroad. After Danielle graduated from medical school, her foreign relatives transferred her $400,000 of foreign money as a gift, to help her put a down payment on a new home since she has not established any credit yet in the United States. The money that was transferred to Michelle is not taxable income 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. It is important that Danielle files Form 3520 timely in order to avoid any potential Form 3520 penalties.

Foreign Wire Transfer of Your Own Money to the U.S.

David is a U.S. citizen who resides in the United States. He previously worked overseas and still has a few foreign bank accounts that sit dormant — but he 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.