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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi Lane, I ever asked you some questions about gift tax last

Customer Question

Hi Lane, I ever asked you some questions about gift tax last month. Now this is my new account (because I am closing my old account) and I would like to follow up on some questions:


- You mentioned on 709 form: "Nonresidents not citizens of the United States are subject to gift and GST taxes for gifts of tangible property situated in the United States". Just to check, the stocks in my brokerage account should be intangible property, right? So if I gift my stocks to my parents this year (because I am non-resident alien this year), it is not subject to gift tax nor applicable to lifetime exclusion, thus I do not really need to file any report, right?

- If I transfer my stocks or cash from my US bank account to my Singapore bank account, then is the stocks or cash still considered as US-situated property or not? Just wonder, if later on, I want to gift the cash from my Singapore bank account to other people, do I still need to file gift tax return or not (I am always non-resident alien when doing so).


 

Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Hi!

That's right - gifts of any intangible property by a nonresident alien (stocks, other securities), whether or not situated in the U.S. and regardless of its value, would not be taxable.

And on the transfer question, no the property being in Singapore would not be US situs property and we're still talking about intangibles here as well.

No need to file the 709 at all

Good to hear from you

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.

Bo,

Just s a quick follow-up.

With stocks you are fine.

THere has been some inconsistency regarding Cash.

See this:

The Internal Revenue Service and the courts have generally taken the position that cash gifts (for example, in the form of actual bills and coins), constitute tangible personal property. As a result, cash gifts made by a nonresident alien in the U.S. are subject to gift tax. On the other hand, in Private Letter Ruling(NNN) NNN-NNNN the Service ruled, in part, that a transfer of cash by a check drawn on a foreign bank and payable by a U.S. bank is not subject to gift tax.

 

Prior rulings by the Service on the issue of whether a cash transfer, in a form other than the physical exchange of bills and coins, have not been entirely consistent. In addition, a private letter ruling binds only the IRS and the requesting taxpayer. Absent clear guidance, the safest approach is to presume that cash is tangible personal property for purposes of the gift tax rules.



I think that covers it.
Lane
Customer: replied 10 months ago.

But when I transfer cash to other people, I do it from my Singapore bank account when I live physically in Singapore and I am outside US for the year. Is it still considered as "by a nonresident alien in the U.S." ?

Expert:  Lane replied 10 months ago.

That's right.

Yes if you are non-resident and doing it all from outside the US, then you are COMPLETELY outside of any US jurisdiction to require anything at all of you.
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.

Thanks Bo!

And thanks for asking for ME.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question


You can also set me up as your preferred expert on your home page.


Regardless, thanks again,

Lane

Customer: replied 9 months ago.

Hi Lane,


 


Just to follow up this question further, because on wikipedia http://en.wikipedia.org/wiki/Gift_tax_in_the_United_States#Non-residents, it says that,


 


For gift tax purposes, the test is different in determining who is an non-resident alien (NRA), compared to the one for income tax purposes (the inquiry centers around the decedent's domicile). This is a subjective test that looks primarily at intent. The test considers factors such as the length of stay in the United States; frequency of travel, size, and cost of home in the United States; location of family; participation in community activities; participation in U.S. business and ownership of assets in the United States; and voting.


 


So my questions are:


 


- To prepare for the worst case, assuming that, I did the gifting this year (but the amount was below unified lifetime credit), then a couple of years later, IRS catches my case and judges that I was actually a resident (not a NRA) when I did the gifting. If this happens, I will be forced to file gift tax return and pay gift tax by then. In this case, because I can still claim to count this gift towards my unified lifetime credit and by doing so, I should not owe any gift tax to IRS anyways, right? Just wonder, is there still any late filing penalty for this not-owing-any-tax case? If so, how to calculate it?


 


- For the hypothetical case above, when I claim to use the unified lifetime credit, I am actually claiming based on the credit amount in the year I did gifting rather than in the year I am filing the return (which could be a couple of years later than the year I did gifting), right?


 


- To prevent the worst case from happening, do you think it is OK to still file form 709 to notify IRS about this gifting regardless, even though I think I am still a NRA this year? So that I fulfill (actually over-fulfill) my responsibility. But if I do so, does it mean that IRS will just consider me as a resident alien and count this amount into my unified lifetime credit and there is no way for me to argue that "this should not be counted because I was a NRA when gifting" in the future anymore?

Expert:  Lane replied 9 months ago.

Hi Bo,

You said:

To prepare for the worst case, assuming that, I did the gifting this year (but the amount was below unified lifetime credit), then a couple of years later, IRS catches my case and judges that I was actually a resident (not a NRA) when I did the gifting. If this happens, I will be forced to file gift tax return and pay gift tax by then. In this case, because I can still claim to count this gift towards my unified lifetime credit and by doing so, I should not owe any gift tax to IRS anyways, right? Just wonder, is there still any late filing penalty for this not-owing-any-tax case? If so, how to calculate it?

First, the facts and circumstances test to determine residency. based on the information you provided, not being domiciled in the US at all, and any gift NOT coming from a US situs account AND the gifts being intangibles but not cash, it is my opinion that you will not be subject to filing a form 709.

And you are right, there is nothing owed UNTIL the cumulative LIFETIME TAXABLE (gifts under $14,000 per person per year are not taxable at all) gift amount crosses over that annually increasing threshhold ($5,250,000 if you passed this year).

And here's the real "punch-line!" The late filing penalty IF you were deemed to be domiciled in UIS for some reason is based on AMOUNT OWED. There is no dollar amount. It is expressed as a percentage of amount owed, which for you is ZERO.

See this from the IRS internal manual:

8.17.7.3 (09-24-2013)
Failure to File, IRC 6651(a)(1)

  1. If a return is not timely filed, IRC 6651(a)(1) provides for a penalty of 5% if the failure is for not more than one month, with an additional 5% for each month or fraction thereof during which the failure continues, but not in excess of 25%.

  2. The failure to file (FTF) penalty under IRC 6651(a)(1) applies to any delinquent return or substitute for return, except when the failure to file was due to reasonable cause and not willful neglect.

  3. The FTF penalty is computed on the net amount due. The net amount due is the tax liability required to be shown on the return reduced by payments of tax on or before the date prescribed for payment and by the amount of allowable credits against the tax, which may be claimed on the return.





You said:

For the hypothetical case above, when I claim to use the unified lifetime credit, I am actually claiming based on the credit amount in the year I did gifting rather than in the year I am filing the return (which could be a couple of years later than the year I did gifting), right?

Really, both. The credit is a LIFETIME, cumulative amount. If your total gifts (over 14,000 per person per year) have finally accumulated to more than the lifetime credit. THAT is when tax is owed. You could say it this way: the TEST to see if you have crossed over is run every year, but you only owe the tax in the year you cross over that increasing threshhold.

(and remember the late filing penalty is really designed for those that OWE, because it's a percentage of the tax owed)



You said:

- To prevent the worst case from happening, do you think it is OK to still file form 709 to notify IRS about this gifting regardless, even though I think I am still a NRA this year? So that I fulfill (actually over-fulfill) my responsibility. But if I do so, does it mean that IRS will just consider me as a resident alien and count this amount into my unified lifetime credit and there is no way for me to argue that "this should not be counted because I was a NRA when gifting" in the future anymore?

No, based on the information - especially given that you do not even know if you will be domiciled here in the future, you should not file, in my opinion. If you file when you are not required, the system won't know what to do with your return ... except possibly add gifts to your accumulated total when (again, based on your not being here, the gifts being intangible assets AND being sent from a bank that is non-US situs), you are not required to file.


Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 9 months ago.

Thanks a lot for your reply!


 


Just to clarify one point (sorry I did not mention it clearly before), for one gift, I am actually transfer stocks from my US brokerage account to my parents and the stocks are issued by a US public company, so it is US-situs property (but still intangible since it is stock). Hope in this case, your opinion is still valid.


 


 


And I was asking about which year to determine the unified lifetime credit, because this credit changes every year. I know this year is $5,250,000, but I heard next year it may drop to $1,000,000. So just would like to see the gifting this year is associated with which year's unified lifetime credit (this year or the later year when I am forced to fill gift tax return).

Expert:  Lane replied 9 months ago.

You said:

Just to clarify one point (sorry I did not mention it clearly before), for one gift, I am actually transfer stocks from my US brokerage account to my parents and the stocks are issued by a US public company, so it is US-situs property (but still intangible since it is stock). Hope in this case, your opinion is still valid.

Yes, even more clearly intangible, so still applies here...



And

You said:

And I was asking about which year to determine the unified lifetime credit, because this credit changes every year. I know this year is $5,250,000, but I heard next year it may drop to $1,000,000. So just would like to see the gifting this year is associated with which year's unified lifetime credit (this year or the later year when I am forced to fill gift tax return).

It, in terms of taxes owed, will always apply to the year in which you cross over the exemption. And, in terms of being required to file, that goes back to giving more than 14,000 to one person and being required to file at all ( as we have been discussing).

The lifetime exemption was made permanent by the 2012 tax Act AND the annual increase was also made permanent. The number started at 5,000,000 but indexed to $5,125,000 last year, stands at $5,250,000 this year and will go up continuously.


Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 9 months ago.


As a follow-up, just to be sure I'm being clear, Bo ...



The amount that your total accumulated gifts (total to) each year will be applied to the lifetime exclusion for THAT year, for TAX DUE purposes



And the need to file has only to do with being required to file (as we have been discussing) which will in turn add that year's gifts to the accumulated total.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 9 months ago.

Thanks a lot for the explanation! I feel much clearer now:)

Customer: replied 9 months ago.

Just found this on 6651 (http://www.law.cornell.edu/uscode/text/26/6651):


 


In the case of a failure to file a return of tax imposed by chapter 1 within 60 days of the date prescribed for filing of such return (determined with regard to any extensions of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, the addition to tax under paragraph (1) shall not be less than the lesser of $135 or 100 percent of the amount required to be shown as tax on such return.




Does it mean that, even when I have 0 tax liability, I still need to pay $135 as the minimum for late filing ?

Expert:  Lane replied 9 months ago.
That only applies to income tax returns.n, not estate, gift or excise tax returns.

O
Im in a meeting right now, but ill send you the documentation on that this evening

Lane
Expert:  Lane replied 9 months ago.


Here we go Bo.

This is found in the IRS internal manual (see the underlined sentence below):

8.17.7.3.1 (09-24-2013)
Minimum Failure to File Penalty

  1. If the return is at least 60 days late, including extensions, a minimum FTF penalty applies:

    • For returns filed (without regard to extensions) after 12/31/2008, the minimum penalty is the lesser of $135 or 100 percent of the tax required to be shown on the return that was not paid on or before the due date.

    • For returns filed (without regard to extensions) before 1/1/2009, the minimum penalty is the lesser of $100 or 100 percent of the tax required to be shown on the return that was not paid on or before the due date.

  2. In order for the minimum penalty to apply, there must be a net tax due. Withholding and other allowable credits as of the due date of the return must be less than the revised tax liability or tax required to be shown on the return.

  3. The minimum penalty applies only to income tax returns. It does not apply to employment tax, excise tax, gift tax, or estate tax returns.

  4. When both the failure to pay (FTP) penalty and the minimum FTF penalty apply (income tax returns only), the minimum FTF penalty is not reduced by the amount of the FTP penalty.


You can find this here (2nd heading down):

http://www.irs.gov/irm/part8/irm_08-017-007.html#d0e621


Lane

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Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3894
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 9 months ago.

I see. Thanks for the update. While FTF penalty does not apply to gift tax in this section, can we just confirm that there is 0 penalty for late filing if there is 0 gift tax liability? Or there is other tax code that deals with FTF penalty for gift tax return?

Expert:  Lane replied 9 months ago.
OK,

Let me give you this whole section, so you'll see it in context. This is from IRS internal manual, section 8.17.7, "Penalties and Additions to tax dated September 24, 2013. (Note the Failure to File section)

8.17.7 Penalties/Additions to Tax in Computations


8.17.7.3 (09-24-2013)
Failure to File, IRC 6651(a)(1)

  1. If a return is not timely filed, IRC 6651(a)(1) provides for a penalty of 5% if the failure is for not more than one month, with an additional 5% for each month or fraction thereof during which the failure continues, but not in excess of 25%.

  2. The failure to file (FTF) penalty under IRC 6651(a)(1) applies to any delinquent return or substitute for return, except when the failure to file was due to reasonable cause and not willful neglect.

  3. The FTF penalty is computed on the net amount due. The net amount due is the tax liability required to be shown on the return reduced by payments of tax on or before the date prescribed for payment and by the amount of allowable credits against the tax, which may be claimed on the return.

    1. If valid extensions of time to file have been granted, the FTF penalty is not applicable until the expiration of the extension and then only from that date on. An extension may be considered invalid if tax is not properly estimated. In these instances, the FTF penalty is computed from the original due date.

    2. To arrive at the tax liability required to be shown on return, compute the revised tax liability of the case, excluding all net operating loss, capital loss and credit carrybacks.

    3. All withholding credits are considered timely paid regardless of the posting date shown on the IDRS transcript. Additional withholding credits allowable are considered timely paid and are allowed as credits when computing the delinquency penalty.

    4. Refundable credits such as earned income credit, additional child tax credit, first time homebuyer credit, etc:

    1. Are treated as payments when computing the FTF penalty.

    2. Adjustments made to change these credits are not included in the revised tax liability.

    3. Instead, when computing the FTF penalty with adjustments to these credits, the revised tax liability as determined in paragraph (b) above is reduced by the allowable amount of these refundable credits.

    4. The "allowable" amount of refundable credit is the total amount shown on the transcript increased or decreased by any adjustments made to the refundable credit in the Appeals tax computation.

  4. The FTF penalty is generally computer generated by the Campus with respect to the liability shown on delinquent returns.

  5. Generally Appeals computations that assert the IRC 6651 penalty use the RGS penalty schedules or the TCS Excel penalty spreadsheets on the Technical Support SharePoint site, reached by a link on the TCS web site.

  6. Interest will be imposed on the FTF penalty as of the return due date (including extensions.) The Campus will normally compute interest. If the taxpayer wishes to make a payment, then an interest computation will be requested by the AO and included in the case file.

  7. Additional information on computing the FTF penalty can be found in IRM 20.1.2, Failure To File/Failure To Pay Penalties.

8.17.7.3.1 (09-24-2013)
Minimum Failure to File Penalty

  1. If the return is at least 60 days late, including extensions, a minimum FTF penalty applies:

    • For returns filed (without regard to extensions) after 12/31/2008, the minimum penalty is the lesser of $135 or 100 percent of the tax required to be shown on the return that was not paid on or before the due date.

    • For returns filed (without regard to extensions) before 1/1/2009, the minimum penalty is the lesser of $100 or 100 percent of the tax required to be shown on the return that was not paid on or before the due date.

  2. In order for the minimum penalty to apply, there must be a net tax due. Withholding and other allowable credits as of the due date of the return must be less than the revised tax liability or tax required to be shown on the return.

  3. The minimum penalty applies only to income tax returns. It does not apply to employment tax, excise tax, gift tax, or estate tax returns.

  4. When both the failure to pay (FTP) penalty and the minimum FTF penalty apply (income tax returns only), the minimum FTF penalty is not reduced by the amount of the FTP penalty.

  5. See IRM 20.1.2.2.7.4, Minimum Penalty, for additional information

 

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