Tax liability on foreign fund transfers to Vanguard MM

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JTcheek
Posts: 63
Joined: Mon Aug 02, 2010 12:48 pm

Tax liability on foreign fund transfers to Vanguard MM

Post by JTcheek »

My wife is an Italian citizen and US permanent resident (Green card holder). She asked her Italian bank to wire $50,000 to our Vanguard money market account. When she did this, the Italian bank teller told her a horror story of another bank client who wired money to a US bank, and had to include the amount transferred as income on their US tax return.

Does anyone have experience with this situation? I can't imagine that a simple transfer of funds would be considered income for tax reporting purposes, but I've been surprised be IRS rules before.
555
Posts: 4955
Joined: Thu Dec 24, 2009 6:21 am

Post by 555 »

That doesn't sound right.

On the other hand I believe you are supposed to declare whenever you bring at least $10k into the US, but I'm not sure how that works. Maybe someone here can describe how that part works.
billern
Posts: 1079
Joined: Fri Dec 07, 2007 3:08 pm

Post by billern »

As long as your wife has been accurately reporting her income that is taxable in the US and reporting her foreign bank accounts to the IRS, if required (which I honestly cannot remember if they are required of a resident non-citizen), there should be no issue with the transfer.
Michael B
Posts: 96
Joined: Fri Feb 15, 2008 2:13 pm

Post by Michael B »

There is no obligation to do anything and no automatic or mandatory tax liability from the transfer.

1. Treasury reporting requirements are met by the bank.

2. The IRS has the right to request details regarding the origin of the funds, to determine if income tax is or was in the past due. This is not automatic and also not usual.

3. If the money is after tax income, supporting documentation to show this should be kept on file.

4. If the money was never subject to US income tax, supporting documentation should be kept on file.
555
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Joined: Thu Dec 24, 2009 6:21 am

Post by 555 »

So the individual doesn't have to do any reporting. Is that right?
Michael B wrote:1. Treasury reporting requirements are met by the bank.
Michael B
Posts: 96
Joined: Fri Feb 15, 2008 2:13 pm

Post by Michael B »

555 wrote:So the individual doesn't have to do any reporting. Is that right? ]
You have to file a yearly FBAR if you have signature authority over a non-US bank account. You do not have to file anything when you transfer money to the US because that reporting is done by the bank. You do have to file with the treasury if you are carrying out a cash transfer $10K or greater not through a financial institution.
555
Posts: 4955
Joined: Thu Dec 24, 2009 6:21 am

Post by 555 »

Thanks for the info. What is FBAR?
Also what if the transfer goes via a forex place like xe.com or oanda.com?
Michael B wrote:
555 wrote:So the individual doesn't have to do any reporting. Is that right? ]
You have to file a yearly FBAR if you have signature authority over a non-US bank account. You do not have to file anything when you transfer money to the US because that reporting is done by the bank. You do have to file with the treasury if you are carrying out a cash transfer $10K or greater not through a financial institution.
Michael B
Posts: 96
Joined: Fri Feb 15, 2008 2:13 pm

Post by Michael B »

555 wrote:Thanks for the info. What is FBAR?
Also what if the transfer goes via a forex place like xe.com or oanda.com?
My pleasure.

There are three separate topics in this thread. One is authority or ownership of a foreign bank account. Another is treasury reporting requirements for transferring money. The third is tax liabilities.

FBAR is the Report of Foreign Bank and Financial Accounts. You have to fill it out if you have authority or ownership of a non-US accounts with a value greater than $10K. See here http://www.irs.gov/businesses/small/art ... 44,00.html

Transactions involving $10K or more in cash or similar financial assets usually need to be reported to the US Treasury. This includes transporting that amount to or from the US. When you transfer money to or from the US using a financial institution, the institution is reporting the transaction. A registered forex exchange like Oanda would technically be transferring funds into a bank account so that would be recorded by them or the corresponding bank.

Tax liability is subject to IRS tax code. When you receive money from any source into a bank account the deposit creates an audit trail and the IRS can at any time (within the statute of limitations) request you document the source to determine tax liability.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Post by TedSwippet »

See also http://www.irs.gov/businesses/article/0 ... 22,00.html for reporting receipt of non-US gifts or bequests, and http://www.mondaq.com/unitedstates/arti ... leid=97106 for newly extended FATCA reporting, beyond FBAR, for owning non-US accounts.
555
Posts: 4955
Joined: Thu Dec 24, 2009 6:21 am

Post by 555 »

Thanks for the info. It is clear enough.
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