Receiving gift from foreign person/corporation

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Receiving gift from foreign person/corporation

Post by chase_logi » Thu Oct 12, 2017 7:24 pm

Hi fellow bogleheads, I have a question regarding receiving foreign gift from a foreign entity.

I am a US citizens and I will be receiving a substantial amount of gift greater than 100k from my parents (non-US citizen, does not live in the US). The complication is that this gift is going to be TRANSFERRED DIRECTLY from a foreign bank account of a corporate entity (rather than my parent's personal bank account). This is strictly 100% a gift, I do not work nor have any stake in that foreign corporation. It is a gift from my parents that may have to be indirectly sent to me through an intermediary bank account of the foreign corporate entity.

According to IRS on this link: ... ign-person):
"In general, a foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. A “foreign person” is a nonresident alien individual or foreign corporation, partnership or estate. The IRS may re-characterize purported gifts from foreign partnerships or foreign corporations as items of income that must be included in gross income."
That last sentence is what gets me worried. It seems that under certain circumstances, IRS might consider the contribution not as a gift and consider that wire transfer as an income and thus it becomes taxable.

I found another link in a tax blog that highlight a situation very similar to mine ( ... ip-oooops/). Here is the excerpt that describes the situation:
Here’s an example how the tax rules governing “purported gifts” would work in the real world. HoldCo is a corporation organized under the laws of Lebanon that is beneficially owned by A, a nonresident alien individual who is resident in the United Arab Emirates. A’s daughter D, is a US green card holder who recently finished her Master’s degree in design and is starting a business venture with some other colleagues. A wants to support his daughter’s endeavor and he directs that HoldCo make a gratuitous transfer of $500,000 directly to D.

D must report on her US income tax return and treat the transfer as a dividend from HoldCo (let’s assume HoldCo has sufficient earnings and profits to support full dividend treatment). In this example, treaty benefits will not be available for “qualified dividend” treatment, and, as a result, D may end up paying a tax of 39.6% (plus a net investment income tax of 3.8%) on the “purported gift. Furthermore, if HoldCo is a “passive foreign investment company” (PFIC), she must treat the amount received as a “distribution” from a PFIC under Code Section 1291 with very harsh tax results that will eat up a great portion of the “gift”."
Has anybody been in this situation before? Any idea whether receiving this gift indirectly through a foreign corporate entity will be considered as a non-taxable gift or a taxable income?


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