Skip to main content

Clarifying U.S. Gift Tax on Wire Transfers of "Cash" from Non-U.S. Persons to U.S. Residents

By Matthew Ledvina, JD, LLM (US Taxation)


US Taxation Matthew Ledvina


Introduction


In a globalized financial landscape, a recurring question perplexing tax practitioners is whether wire transfers of "cash" from non-U.S. persons to U.S. residents are subject to U.S. gift tax. The crux of the matter revolves around whether these wire transfers are classified as tangible or intangible assets under U.S. Tax Code §2501(a).


Historical Context


Although existing guidelines like Private Letter Rulings (PLRs) and General Counsels Memoranda (GCMs) offer some insights, these are largely outdated and may not suit the complexities of modern finance. Specifically, references like PLR 8210055 and older GCMs (such as GCM 36860 from 1976 and GCM 34845 from 1972) leave much to be desired in terms of current applicability. Additionally, the Curry v. McCanless case from 1939 further complicates the issue by defining intangibles as rights unrelated to physical things. 


Bank Deposits as Intangibles


According to Regulation §20.2105-1(k), bank deposits are considered debt obligations, which clearly classifies them as intangibles. For a non-U.S. person looking to avoid U.S. gift taxation, one option is simply re-titling a foreign bank account into the name of the U.S. resident. While this would require reporting under Form 3520, FBAR (Financial Crimes Enforcement Network Form 114), and FATCA (Foreign Account Tax Compliance Act), these are primarily informational requirements and do not incur gift tax. 


Alternative Solutions


Another option would involve creating a foreign entity, such as a corporation or partnership. This entity could then purchase U.S. Treasuries or foreign-issued life or annuity policies, transferring these to the U.S. recipient. Previous cases like Pierre v. Commissioner from 2009 suggest that such actions should be considered intangible personal property, thereby avoiding gift tax implications. 


Wire Transfers: Where Does the Gift Occur?


When a non-U.S. person insists on wiring cash to a U.S. resident's account, an interesting argument can be made. The contention is that the gift only completes upon reaching the U.S. account, making it a U.S.-based transaction. However, since bank accounts are considered intangible properties (essentially debt obligations as clarified in the regulations), the wire transfers are intangible as well. 


Conclusion


In summary, the modern financial ecosystem emphasizes that bank deposits, and by extension wire transfers of "cash," are intangible in nature. While non-U.S. persons need to adhere to informational reporting through Form 3520, FBAR, and FATCA, these gifts generally steer clear of U.S. gift tax. Perhaps this clears up some of the "intangible ink" spilled over this complicated issue.

Location: Switzerland

Comments

Post a Comment

Popular posts from this blog

Best Ways for Americans to Make Donations to International Charities

Donating to a non-profit charitable organization is one of the best ways of helping others who are in need. In general, there are several charities that work for different causes such as providing disaster relief, healthcare facilities for the poor, protecting animals from cruelty, etc. Considering the USA, charities raise billions of dollars each year for the betterment of mankind, the animal kingdom, and the planet Earth. In fact, the annual charity generation in the USA is one of the highest in the world. Among the billions of dollars, most donations are made to the US charities while the remaining small portion goes to the international charitable organizations. No doubt, there are many Americans who are eager to donate their fortune to international charities but due to some reason they don’t. One of the foremost problems is that most international charities do not provide tax deductions to the US citizens and as a result, most people choose to make donations to US charitie...
1 comment
Read more

What Happens Now the GAO is Looking at PPLI?

It’s the question that everyone in the industry is asking right now, so we sat down with an expert to hear more. Matthew Ledvina is a cross border tax specialist with an extensive knowledge of PPLI and he was willing to sit down with us and shed light on the GAO’s latest activities: “Firstly, I want to say home important it is that an institution with the reputation and reach of the United States Government Accountability Office is taking this part of the industry seriously. I’ve been warning about the abuse of a number of variable insurance products and the wide-ranging implications such practices are having on the industry.” It’s certainly something of a hot topic right now, so does this mean an end to all offshore arrangements for high net worth individuals? “Absolutely not, this is more of a cleanup as it were. The key thing to note here is the IRS themselves openly acknowledge the legitimacy of many offshore life insurance products and the benefits they offer. What the GAO ...
Post a Comment
Read more

U.S. Tax Treatment of Annuities

As with life insurance, annuities are tax-favored investments under the Code. Unlike life insurance, however, the primary income tax benefit of an annuity is derived from the compounding effect of the tax deferral on the investment gains within the contract, rather than the avoidance of income tax, as with investment in a life insurance policy. Generally, under § 72(a), gross income includes any amount received as an annuity under an annuity, endowment, or life insurance contract. The income tax effect of an annuity depends, however, on numerous factors, such as whether the tax is being applied to a distribution during the a nnuity’s accumulation period or annuitization period and whether the distribution occurs after the death of the holder of the annuity contract or after the death of the annuitant (assuming that the holder and the annuitant are different persons). Section 72: Annuity Contract Defined To qualify as an annuity, the annuity contract must satisfy the requirements o...
Post a Comment
Read more