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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22958
Experience:  Taxes, Immigration, Labor Relations
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I have a question about tax and trust. I am an American citizen

Resolved Question:

I have a question about tax and trust.
I am an American citizen and my brother is a Romanian. in end of 2007 he transfered some money from his bank account in USA to my account to invest in real state. but because of drop in real state I did not buy any real state and the money is in my bank account. I have been paying tax on the interest just like my own money. I have giving him promissory Note.
now he wants to gift this money to me or to make a trust for my children. I know I have to report this gift to IRS on form 3520 since it is over 100,000.
When I report this to IRS as a gift is there any problem since the money have been in my account since end of 2007? what is the proper way to do it?

Thanks,
Sam
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi Sam and welcome to Just Answer!
There should not be any problem - but to be on the save side - you should be able to proof the date when the gift was made and accepted by you.
You might also want to support your statement that funds transferred to you were owned by your brother and are given to you with a specific purpose.
I might suggest collecting these statements from your brother and have notarized his signature.
While that is not required - in case the IRS would question these funds - you will be covered.
Let me know if you need any help.

Customer:

Hi Lev,

LEV :

Hi

LEV :

Let me know if you need any help.

Customer:

when this money was transferred from his account to my account I documented and got letter from bank officer that transfer was under my brother direction. The concern I have they may say why did you kept the money so long. as you know there is special form 3520 has to be filled out and submitted each year if you receive a gift over 100,000 from a foreign person. but this was not a gift at that time

Customer:

now I have a concern they may say should it fill at that time.

LEV :

You need to get an official dated letter from your brother that he decided to gift funds to you.
That letter will support your claim that the gift took place now and not time ago.

Customer:

if he gives it to my children and make trust is it better?

LEV :

As you have a concern about that issue - have this letter signed by your brother and notarized - so it would look more official.


You would use this document to support your position if the IRS object the timing when the gift was made.

Customer:

but I heard tax for income from trust is much more than individual tax

LEV :

if he gives it to my children and make trust is it better? - I do not see any difference from tax prospective - that is up to you.


LEV :

 


Yes - if funds will earn income - it will be taxable. Generally the trustee has an option - either the trust pays income taxes or taxable income is passed to beneficiaries.

Customer:

if beneficiaries are young? like 7 and 2 years old?

Customer:

and they are on my tax return

LEV :

Income tax rates for trust are same as for individuals – but because the trust has lower tax brackets – in most situations the trust pays more income taxes on the same income compare to individuals.

Customer:

you said

Customer:

Generally the trustee has an option - either the trust pays income taxes or taxable income is passed to beneficiaries.

LEV :

That is correct.

Customer:

if the gift trust is for my young children and I add the income to be part of my income each year?

Customer:

if the gift trust is for my young children then can I add the income to be part of my income each year?

LEV :

If your children will receive investment income - it will be taxable to them - not to you. If the child is your dependent - income below $950 will not be taxable.

Customer:

but the income can be as much as 100,000 per year

Customer:

from the gift trust

Customer:

Lev are there?

Customer:

Lev are yo there?

LEV :

Regardless if income is coming from the trust of from any investment account - income received by the dependent is taxable to the dependent.
Income below $950 is not taxable
Income between $950 and $1700 is taxable at dependent’s tax rate
Income above $1900 will be taxable at parent's tax rate - so called kiddie tax


None of child’s income is included into your income.
However – if the child receive large income – more than 50% of his/her own support – that child generally is not your dependent for tax purposes.

Customer:

this means every year trust has to file a return from its income like a corporation? and children are my dependent on my my income tax

LEV :

 


The trust - if it created as an irrevocable trust - is a separate legal and taxing entity - and has some filing requirements for income tax purposes.
You are correct - these requirements are somehow similar to those for individuals or corporations.
Your children are your dependents if all requirements to be dependents are met. See IRS publication 501, page 12 for details - www.irs.gov/pub/irs-pdf/p501.pdf.

Customer:

Lev the last question I have is

LEV :

Go ahead.

Customer:

I received over 100,000 from my father in 1999 and also another time in 2003 as a gift and he was not an American citizen but I did not know at the time that I have to file a report with IRS

Customer:

and recently they had amnesty to report any one who have done so from 2003 util 2010

Customer:

I called IRS number and they told me this is for between 2003 and 2010 but it keeping me busy that what if they question me in the future why did not you report it.

Customer:

I received over 100,000 from my father in 1999 and also another time in 2003

Customer:

correction

Customer:

I received over 100,000 from my father in 1999 and also another time in 2002

Customer:

every thing I received was before 2003

LEV :

As you know - the gift is not a taxable income - so there is no tax liability.
If you did not report a gift from abroad - you may do it now - and add explanation why it was not reported timely. I do not think there will be any penalty.
Filing requirements for the period between 2003 and 2010 is related to Offshore Voluntary Disclosure Initiative (OVDI) - it is for those who have accounts and income in foreign countries and did not properly report these accounts. You may find some information here - http://www.irs.gov/newsroom/article/0,,id=210027,00.html
I do not think that is related to your situation.

Customer:

I have seen that it is mostly about people having accounts outside of country. but for not reporting gift over 100,000 there is big penalty

Customer:

but if it has passed the 7 year do I still need to report?

Customer:

and how do I report it?

Customer:

just wright a letter to IRS?

LEV :

Penalty is not automatic - it is determined by the IRS agent who processes the reporting form. If you provide an explanation and there is no tax avoidance - most likely there will not be any penalties.
However I may not advise you to file or not to file a reporting form - that you need to consult with your tax advisor. I may only tell that by the law - it is required to be reported. For tax returns that were not filed – there is no statute of limitation.

Customer:

Thank you Lev, you were very helpful.

LEV :

You are welcome.

Customer:

Lev just for my information and recommendation to my friends are you familiar with sanction against Iran?

Customer:

and if some one have property there how to bring here legally?

Customer:

I heard Treasury Department has special rules for Iran

LEV :

Honestly - I am not very familiar. However sanctions are not against regular people - they are not blocking you from transferring your own funds and are not making such transfers illegal.


Limitations are only for government organizations and some specific persons who hold substantial power.

Customer:

Lev I am very happy with your answers and I will recommend your services to others. do you work in California? I need to set up a trust are involved with living trust?

LEV :

I am not in California - but in Missouri.
If you are setting a living trust - that most likely will be revocable trust - which is not treated as a separate taxing entity - all income is reported on settler’s individual tax return...

Customer:

if I need any help in the further is there way to find you?

LEV :

I suggest bookmarking this page - here is the address http://www.justanswer.com/tax/5hvdl-question-tax-trust-i-american-citizen.html
You may later come back for reference or to ask for clarification.
I might not be immediately available - but surely will reply.


Be sure to accept the answer. Experts are only credited if the answer is accepted.

Customer:

I can not understand your last sentence

Customer:

any time in the future I have to pay $30 again? or there is a special for returning customers.

LEV :

I am not the person who sets payment options. As I know - there are different payment plans. If you are not certain what payment plan you selected - I suggest to contact the customer service - because I personally do not have access to your account.

Customer:

have a good night and thank you.

LEV :

Yiou are welcome.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22958
Experience: Taxes, Immigration, Labor Relations
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Taxes, Immigration, Labor Relations