Hi I ever asked you about transferring stocks to my nonresident parents when I am nonresident alien, and the conclusion is that, there is no gift tax for such transfer. To follow up on this, assuming after several years, the stock price has gone up and my parents sell these stocks. Also, I become a residence again by then, and my parents transfer money as gift to me and part of the money is from the sales of these appreciated stocks. In this case,
- I guess there is no gift tax needed because the gifting is from nonresidient (my parents are always nonresident), right?
- do I need to report the capital gain of these stocks after this loop of gifting?
When you gift the stocks to your parents (if they were here, don't know about the tax laws where they are) they will have what is called a carryover basis (for capital gain purposes when they sell, their gain will be sales price minus YOUR ORIGINAL, now their, basis) .... I think the risk here would be that IRS would say you did all this simply to escape the capital gains tax ... You're right about the gifting, but IRS uses a doctrine called "substance over form" .... My bet is that they would not allow this new basis (established when your parents sold, the gifted back to you) but you raise a very interesting question ... technically if they gift the proceeds of their sale, rather than the same stocks, back to you, your basis would be that NEW carryover basis the basis they re-established by selling and paying whatever capital gains they had to pay upon sale of their stock
... just don't know if they'd let that one fly ...
Looks like you're offline here ... I'll give you few minutes, then move to the "Q&A" mode where, as you know, we can keep talking there (just not in real-time chat
OK, still don’t see you coming into the chat here … I’ll move us to “Question and Answer” mode. … Maybe that will help … I’ll be waiting there for you.
Let me know if you have questions
Somehow the questions became locked, but it's back now
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information. What happens now? If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Let me know if you have more questions here...
My parents are nonresident living outside US, so they are not subject to US capital gain tax.
Because when I transfer appreciated stocks this year (from non-resident to another non-resident), there is no reporting needed for this. Then later when the cash (value plus gain) is transferred back to me (when I am already a resident, so this transfer will be from non-resident to resident), assuming IRS reviews this and judges that this is not considered gifting but regular transfer actions (I did not claim this is gifting either because there was no reporting for me to do anyways, thus I did not lie at all), what tax obligation in this process for me?
Thanks for the reply! Assuming as you said, IRS judges this as intentionally avoid capital gains, what would happen for the worst case?
Thanks for the reply! Then a follow-up question, how about if I sell all the appreciated stocks and pay the capital gain tax for this, then I transfer the cash to my nonresident parents. Later they may use the cash to do whatever investment they want to and may also make more gains. Then after that maybe many years later, they transfer me cash (part of it may be indirectly from the cash I gave to them before - but it is hard to define as it is just cash). In this process, is it possible that IRS also judges that they used my cash to invest and make gains, and then give it to me, thus I also need to pay capital gain tax against the gains they made?