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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I ever asked you about transferring stocks to my nonresident

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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?


 


Lev :

Hi and welcome to our site!
Several issues...

1.
If your parents who are nonresident alien will realize the gain from selling shares of publicly traded company - that gain is NOT subject of US tax - but might be taxable for them in their home country based on local laws.
2.
Assuming you do not own these shares - then - you do not receive the gain and would not be responsible for any tax liability.
3.
The gift is a separate transaction - not directly related where your parents will get the money to gift. When your parents will gift you the money - the gift is not a taxable income in the US - and is not reported on your tax return.
4.
However the gift from nonresident aliens is separately reported on form 3520. There is no tax associated with that reporting. Only gifts above $100,00 are required to be reported.
However...
Some additional thoughts...
When you transfer shares to your parents - is that a true gift?
The IRS defines the gift as a transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.
So - if you expect that the value and the gain from these shares will be returning back to you - that might be not a gift - and you might be considered as retaining the ownership of these shares.
If that is correct - the whole situation would be evaluated differently.

So you need to be absolutely clear - that is a true GIFT - and you receive no consideration from that transfer.
Customer: replied 3 years ago.

Thanks for the reply.


 


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 value and gain are 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?


 

assuming IRS reviews this and judges that this is not considered gifting

what tax obligation in this process for me?

If that is not a gift - means you are considered as the owner of these shares all that time - you would be responsible for the capital gain at the time shares are sold.

Thus the gain would be included into your taxable income in the year shares are sold.

The "transfer" itself is not taxable.

Lev and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Thanks a lot for your 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?

Let analyze the sequence of events...
--if I sell all the appreciated stocks and pay the capital gain tax for this -
there is no issues... when shares are sold - the gain is realized. If you are a nonresident alien - the gain is not taxable for you in the US, but if you are a resident alien - it is taxable... if shares are held more than a year - reduced long term capital gain tax rate will apply.
-- then I transfer the cash to my nonresident parents - here we need to clarify - what do you mean under "transfer" as that it is related to the ownership... Is that a gift? a loan? or you are hiding money from creditors? Who owns the money while they are siting in your parent's account?
-- Later they may use the cash to do whatever investment they want to and may also make more gains. - I see no issues as long as there is no tax avoidance scheme - and all income is correctly reported according to US and their home country laws.
-- 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) -- so far - I might conclude that original transfer was a loan - as your parents are obligated to return the money back to you - correct? If that was a loan - there should be interest charge.. if there is no interest a so-called imputed interest is used.
-- 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? - I would say - that is possible... If you simply used their names - but operated that account as your own - and in fact enjoy all benefits of the ownership - it is possible that they received income as nominees - and you retained the full ownership over that account - and could be considered as the actual owner and as such is responsible for all tax liability realized on that account.
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