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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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my fiance is a german national working for a german company

Customer Question

my fiance is a german national working for a german company overseas. She bought a house in the United States in which I am now living. She also funds a U.S. bank account to provide funds for property taxes, utilities, maintainacne, and my personal living expenses. Do I or my fiance bear any tax implications for this situation?
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

 

Can you tell me your nationality? are you a U.S. citizen or legal permanent resident.

 

AND just to be clear: your fiance is proving you your living arrangements in the United States?

 

 

Customer: replied 6 years ago.
The answer to your questions are:

1. Yes, I am a U.S. Citizen

2. Yes, I have access to her U.S. bank account to pay her housing related expenses and to provide food and clothing for myself as well as living in the house.
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

 

The person perspective of the first question posted does not agree with the second one.

 

So then the German National purchased the home, I am assuming. NO matter.

 

This does not now present any tax liability. I am confused as to who is the citizen and who has bought the house, and who is making expenses. SO, let me answer in this way.

 

Unless this is an exchange of rents and living expenses for personal services related to employment, there is not direct income tax exposure. So this all seems very personal.

 

So there is no income tax exposure based on the information provided.

 

However, there may be a gift tax filing requirement: Here are the gift tax rules.

 

1. If a person buys another person a home by cash or name on the mortgage, then that would be considered a gift. This would mean the other person, who received the gift would be on the deed, and the donor would be on the mortgage. Or the donor paid for the home. the other scenario could be that whether or not the donor and the beneficiary were to both be on the deed, there could still be a requirement to file a gift tax return.

 

If the donor is a legal permanent resident of the U.S. or could be taxed as one, (having physical presence in the U.S. of 183 days or more), then that person, the donor, would have to file a gift tax return if the gift exceeded 12,000 dollars in value. IN most cases the donating of a home as a gift is valued at more than 12,000 dollars. However, in the U.S. each person is entitled to a one million dollar life time exclusion in gifts. So even though a gift tax return is filed, no gift tax is assessed unless the total of all such gifts in a life time, has exceeded one million dollars.

 

2. the other gift tax scenario would be if the donor, who is a citizen, permanent resident or who could be considered one for taxes (183 days or more rule), were allowing the other person to live there rent free. In this scenario the donor is the one on the title. So if the donor is gifting the person living there at the annual Fair Market Value of rent. If that FMV of rent exceeds 12,000 dollars, then a gift tax return is required, but again, the exclusion rule applies and not tax is assessed as long as such gifts have not exceeded 1 million dollars.

 

3. Third scenario: If you are living together and sharing the same household, And this relationship does not violate your state laws (cohabitation), then no gift tax scenario would be applicable. AND one of you may even be able to claim the other on their U.S. tax return as a dependent as long as all other dependent rules apply.

 

I.e.

 

a. The person who is dependent is not earning more than 3500 a year.

b. The person who claims the dependent is maintaining the household.

c. The dependent person is not providing more than half of his or her own support.

 

Customer: replied 6 years ago.
I am getting confused. First of all it is my fiance who purchased the home and is the German national, while I am the U.S. Citizen.

Secondly, I called the IRS and was told that the $1 million lifetime requirement applied to the donor, but also was told that a gift tax declaration would not be required for anything under $100,000 annually. If it is over that amount, the declaration would be required but the exclusions would apply so that taxes would not be required.

Thirdly, I was told that the rent impact as you described would not occur according to the IRS. I explicitly asked the IRS if living in the home would constitute a gift and was told no. I was told that cash for expenses could be considered a gift. I was also told that if a foreign individual purchased a home and gave ownership of the home to the U.S. citizen, then the portion of ownership would be considered a gift at fair market values. Occupancy of the home did not constitute a gift, only legal ownership.

I am bringing this up and I have contacted you, because I want to hear another opinion. When I spoke with the IRS, I used the telephone service and I am not sure if their answers are consistently accurate. I appreciate you attention in this manner
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

 

Thank you for getting back to me.

 

In my response I focused primarily on the assumption that the donor was a resident alien or was treatable as one. This is because, in this environment, where we have to rely only on the written word, it is sometimes hard to getting meaning across, and I was not certain of the status of all the players in your question and their status in the U.S.

 

So in light of the new information you have provided. You had the opportunity to actually speak to someone. I wished we had that ability in this environment, but unfortunately JA does not allow us to contact each other outside this venue,. some day we may have an ability to connect headphones to the computer and talk to each other.

 

so in light of the new information.

 

1. You have confirmed that the donor is the German National. So with respect to the German National. If you receive a gift FROM overseas, that is from a German National transferring money and tangible gifts from overseas, you do not have to declare these gifts until they are are 100,000 or more. Note closely the following:

  • The declaration IS NOT for tax purposes, but for security issues related to money laundering and anti-terrorism. The document you complete is eventually sent to the security department of the U.S. Treasury. http://www.irs.gov/pub/irs-pdf/f3520.pdf
  • If the home was gifted to you as ownership, then there is an exception if the property has a situs in the United States. Non-resident aliens can be required to file a gift tax return for tangible property such as reals estate, where the property has a situs in the U.S. So if any tangible property including gifts of cash form a U.S. bank Account, can be treated as a gift from Non-resident Aliens and subject to gift tax reporting if it exceeds 12,000 dollars. REFERENCES follow: (a) IRS Private Letter Ruling (PLR 821005); (b) Internal Revenue Code § 2511(b)(1); (c) Internal Revenue Code § 2501(a)(2). (d) Internal Revenue Code § 2511(b)(2)(A
  • RENTS as gifts: Non-resident aliens, do not have to report gifts for gift tax or other purposes for intangible gifts. But remember, my answer was based on a presumption of having residence in the U.S. or being treated as a resident for tax purposes.

So if he were a resident or is considered a resident for tax purposes, then the gift is reportable on a gift tax return if its FMV is more than 12,000 per year.

 

Please note the specific definition of a gift by IRS Publication: 950:

 

"You make a gift if you give property (including money), or the use of ... property, without expecting to receive something of at least equal value in return." The general rule is that any gift is a taxable gift.

However, there are many exceptions to this rule.

Generally, the following gifts are not taxable gifts:

  • Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,
  • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  • Gifts to your spouse,
  • Gifts to a political organization for its use, and
  • Gifts to charities."

Again, we go back to the status of your fiance.

 

If he is not treated as a resident for tax purposes, then only tangible gifts that are located in the U.S. are considered reportable on a gift tax return.

 

If he is treated as a resident for tax purposes, generally determined to have been in the U.S.for 183 days or more, then he would have to report that gift tax return for all gifts, including the use of the property at FMV if it exceeded 12,000 dollars in value. BUT

 

AGAIN, there is no tax liability as long as he has not exceeded 1 million dollars in life time gifts. (while as a resident for tax purposes). My answer before was in relation to the donor, with respect to the gift tax exclusion. Recipients of gifts, except for very rare situations, never pay tax on gifts they receive.

 

 

I disagree with the IRS agents comment that the situation of the rent will never occur. There have been too many incidents of auditors assessing living rent free as a gift. This constitutes use of property as defined in the IRS Publication 950. These INFORMATION officers manning the phones have scripts they go by and are not allowed to make the distinctive interpretations often required by situations such as yours. BUT, the IRS is required to stand by its agents information. So if an agent says you do not have to file a gift tax return that includes the FMV of gifts, then you need to write down that agents name and number. I know they gave it to you when you called them. Then if for some reason, though it is not likely to occur, there is ever an audit, then you will be protected. But this point of contention is really moot. Even if he were required to file a gift tax return, that is if he were a resident or considered a resident for tax purposes, there still is no tax due unless he gifts more than a million; and then it would only be on the part that exceeds one million.

 

The botXXXXX XXXXXne, this is a gift whether or not it is reportable based on his status, because it is either forgone rent or use of property.

 

The following article references the gift tax exclusion I relation to living rent free. This attorney says that her mother's rent free living was under the 24,000 annual exclusions. The figure of 24,000 comes from the fact that if you are married, you can split the gift. Each person can gift the mother 12,000 for a total of 24,000. The annual gift tax exclusion is per donor, whether married or not. http://www.nytimes.com/2008/04/21/business/retirement/21transfer.html

 

As I have said, in summary:

 

  • 1. If he is a resident for income tax purposes, then he has to report the gifts to you that total more than 12,000.
  • 2. If he is a non-resident for tax purposes, then I concur that he does not have to report the rents because they are non-tangible. AND further, if he is a non-resident he in fact does not have to report any gift; but that you would have to report for non-tax purposes gifts in excess of 100,000.

 

You can check the publication to determine his tax status in the U.S.: http://www.irs.gov/pub/irs-pdf/p54.pdf

 

 

 

 

 

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 7 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Hi Ed,

I just need to clear a few things up.

First, I am clear on the the rent situation and the real estate situation. However, I am unclear on the following. As you described, if my fiance is a German national and a non-resident alien, and, if she transfers cash from overseas, then this cash is not considered a gift for gift tax purposes (I understand the $100,000 reporting requirement).

However, if she has a opened a U.S. bank account in her name only, and all funds in the account are transferred from her foreign account (no funds in the account from any U.S. source) and subsequently provides cash to me from that account, is the gift tax rule in play for the cash provided to me?

Secondly, I am under the impression that the gift tax does not apply ($12000 rule) if the donor is a non-resident regarding cash gifts. However, on page 3 or the instructions for form 709 (gift tax form) there is a paragraph regarding non-resident aliens which says that gifts of over $12000 must be reported on the form. It does not distinguish whether or not the cash is transferred from overseas . So, I am confused. It seems as though these instructions require a filing for any cash whatsoever that is received by me from a non-resident alien.
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

 

Thank you for getting back to me.

 

Remember, the issue here is not really paying any gift taxes. It is the reporting of gifts that exceed a certain amount on a gift tax return. AND that there is no gift tax unless a person has accumulted 1 million dollars in such gifts in a life time. Such gifts means more than 12,000 in gifts to one person in a single tax year.

 

1. Transfering money into a bank account in the U.S. that is in your fiance's name: There is no aging requirement for the money in the U.S. bank account. when your fiance moves the money from the overseas bank account, into a U.S. bank account, it becomes money resident in the U.S. If he then gifts that money to you, and it exceeds 12,000 dollars, there will be a gift tax return requirement.

 

2. GIFT TAX for gifts from NR aliens. I know it can be confusing, because all the forms and regs sometimes omit critial information cross referecing each other. The rule for gifts and gift tax from non resident aliens is:

 

If the gift comes directly to you from overseas by a non-resident, there is no reporting requirement and no gift tax requirement.

 

so then: if your fiance sends money from his german account, as a gift, into YOUR account in the U.S., then that is a gift from overseas by a non-resident alien, and not reporting requirment exists, other than the rule for reporting for security purposes gifts in a single year that exceed 100,000.

 

compare that to what happens when a Citizen or U.S. legal permanentn resident, residing overseas, sends a gift. In this case they would have a gift tax return filing requirement. This is because U.S. Citizens and Legal permanentn residentes are goverened by U.S. TAx law world wide.

 

The gift tax rule of filing a gift tax return for NR only applies if the gift not situs in the U.S. If the gift, is sited in the U.S., before it is donated, then there is a requirement to file the gift tax return.

 

If your finance sends you a total of less than 100,000 through out the year, directly deposited to YOUR bank account from his overseas bank account, then you woudl not have to report this.

 

And if he was not resident in the U.S. for the 183 days when he would be considered a resident for tax purposes, there would also not be a requiremetn for him to file the gift tax return.

 

 

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