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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4540
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hello Lev. I am a Chilean Citizen residing in Chile with my

Resolved Question:

Hello Lev.
I am a Chilean Citizen residing in Chile with my Wife whom is a US CITIZEN.
I am not a US resident and never stay over 90 days a year visiting USA.
I maintain a brokerage account in Merrill Lynch, the account is with the international division for non residents with proper overseas mailing address.

I intend to sell shares and make a gift in cash to my Wife, wire transfer or issue a check to her for $500.000.-

Is there any reporting to the IRS necessary from my part, or any similar reporting from my Wife to the IRS ?.

Are there any taxes ( gift taxes ) involved in this transfer ?.

My wife will buy shares on her separate brokerage account, also on M. Lynch (Acct. for US residents)

As extra information, the shares I will be selling are US. Limited Partnerships, (Kinder Morgan etc).

My Wife makes her yearly declaration to the IRS, and naturally she will report the income from the new shares (dividends and distributions).

Please advise us as to do all properly legal.

Thanks

Cris
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

Hi,

Lane :

It appears that Lev is not online .. he has not answered for 15 minutes ... may I help?

Lane :

yes, I have just checked and Lev is not online

Customer:

Hello Lane

Lane :

As you probably already know, there is no gift tax to pay here as you are not a resident AND the assets are intangibles, and although the domiciliary and residence tests are more fact, circumstances and intent based than for income tax purposes, if you have no intent to domicile within the US, it is my opinion that you have no requirement to file a gift tax return ,,, and altough you wife is a US citizen, the gift and estate taxes in the US are borne by the giftor/estate NOT the receiver of the gift

Lane :

Hi

Lane :

Further, as these are investments and passive in nature AND NOT real-estate, you have no INCOME tax obligation either

Lane :

and finally, as you have surmised, your WIFE WILL have reporting/tax obligations on any capital gain, interest and/or dividends on the account once she has posession in her account... as all US citizens are taxed regardless of where they reside

Customer:

what worries me a little is that the shares I will sell are US companies, (Limited partnerships), as I said I will wire transfer cash to her M. Lynch Acct.

Customer:

Do you see any problems in that

Lane :

let me check the regs. I knosw that investment income is not taxable ... let me make sure that there is no issue with capital gains

Lane :

From IRS publication 519:

Lane :

Capital gains or losses on the sale of shares of publicly traded companies are not considered real estate gains unless the investment is in real estate investment trust, or REIT. If you read from Page 18 to 22 very carefully, and try not to get too confused, you come to the second paragraph on Page 22 that says the following:


If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax-exempt unless they are effectively connected with a trade or business in the United States during your tax year.


The gains listed earlier are:


The following gains are subject to the 30 percent (or lower treaty) rate without regard to the 183-day rule, discussed later.



  1. Gains on the disposal of timber, coal or domestic iron ore with a retained economic interest.

  2. Gains on contingent payments received from the sale or exchange of patents, copyrights and similar property after Oct. 4, 1966.

  3. Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before Oct. 5, 1966.

  4. Gains on the sale or exchange of original issue discount obligations.


 

Lane :

So, if your investment account does not consist of these, your account's realized gains are tax-exempt.

Lane :

The portion that actually comes BEFORE that may help to illuminate (page 18)

Lane :

Generally a foreigner is taxed in the U.S. on effectively connected income and fixed and determinable annual or periodic income. In short, this is referred to as ECI or FDAPI. ECI arises when you have an operating business in the U.S. ECI also includes gain on the sale of real property or the sale of stock in a U.S. corporation owning real estate. FDAPI is interest, dividends, rents and royalties, and it is discussed on Page 19 of the publication

Customer:

since I am not a resident nor Citizen of USA I do not pay Cap.Gain taxes on shares, only on dividends, that is not a problem and I have it clear, however as you mentioned.....and altough you wife is a US citizen, the gift and estate taxes in the US are borne by the giftor/estate NOT the receiver of the gift.....I DO NOT UNDERSTAND THE PART....and altough you wife is a US citizen, the gift and estate taxes in the US are borne by the giftor/estate NOT the receiver of the gift

Lane :

the unified gift and estate tax system is a completely separate tax system gift and estate taxes are TRANSFER taxes NOT income taxes ... further section 102 of the title 26 of the US code exempts income from gifts, estate, inheritances or devise from income tax

Customer:

I UNDERSTAND THAT THERE IS A GIFT TAX ON MY PART ON THIS CASH GIFT TO MY WIFE?? OR I AM WRONG??

Lane :

this transfer tax is paid by then person GIVING the gift (or in the case of the estate tax (the FINAL gift) it is paid from the estate before being retitles to the heir

Lane :

NO, as non-resident, giftin intangible assets your are exempt .... there would be a tax on your wife IF SHE GAVE YOU a gift

Lane :

You are wrong in this case ... for gifts of REAL PROPERTY with US situs ... and for gifts of pure cash ( the courts have perceived that as real property) there would be a gift tax even for a non-resident

Customer:

Thanks Lane I got it all clear now, there is no tax involve on either side and no reporting necessary, except on my Wife tax declaration next year (dividends and Distr.)

Lane :

What you may want to do be VERY safe is transfer the stocks themselves ... there has been NO contradiction from eith IRS or the courts that gifts of intangibles are exempt

Lane :

That's correct

Lane :

Seethis from Deloitte and Touche's Estate and Gift tax for Non-residents piece:

Lane :

• Non-U.S. domiciliaries are subject to U.S. gift tax only on transfers of tangible personal property
situated in the United States and real property situated in the United States. Gifts of intangible
property, regardless of where located (such as stocks and bonds), made by a non-U.S. domiciliary
are not subject to U.S. gift tax.

Lane :

If this HAS helped, I would appreciate a rating of 3 (OK) or better. (Excellent is ideal)… That’s the only way they pay us here.


 


HOWEVER, if you need clarification, or want to discuss this further, be sure to come back here, so you won’t have to pay for an additional question.

Lane :

Thanks,

Lane :

Lane

Lane :

I see you're typing ... I'll wait

Customer:

Thank you very much Lane, I rate you a triple seven, great to know I can make this gift to my Wife without taxes complications, thank you again and good bye

Lane :

You'e very welcome..

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4540
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 5 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.



Hi Christian,

Thanks again for the rating.

If you’d like to work with me again, just say “For Lane only …” at the beginning of your question, and I’ll get the alert.

Thanks again,
Lane

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Lane
Lane
JD, MBA, CFP, CRPS
3667 Satisfied Customers
Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986