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)

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like Private Letter Rulings (PLRs) and General Counsels Memoranda (GCMs) offer some insights, these are largely outdated and may not suit the complexities of modern finance.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.