BiggerPockets

I am not a tax attorney, but here's my best guess...

Regardless of whether he deposits the money directly or wires it, the bank will be required to report the transaction to the IRS (generally they report anything over $10K in one day).

That said, there is nothing specific about doing a $10K+ transaction that is illegal or would necessarily incur any tax penalty. So, while the IRS would have this information, unless they audited you, they likely wouldn't do anything with it.

Now, if you did get audited (and my pure guess is that having this transaction reported may increase your risk of getting audited), the IRS would want to know what the money was for. They'd be looking for some type of documentation that the money was the repayment of a loan -- and clearly if it were a loan, there should be some record of the money going out at some point.

Now, here's the rub:

- First, if you can't provide some proof that the money was a loan, it's going to look like a gift to the IRS, and you'll likely be on the hook for taxes;

- Second, if the loan was made by someone else in your family but is getting repaid to you, it may appear to the IRS as a gift from the family member who made the loan to you (in fact, that's exactly what it is). So, you may be on the hook for taxes there anyway.

Again, I'm not a tax professional, but this is my assumption based on my limited knowledge of tax law and my personal common sense...

Jason, banks are only required to report cash transactions (or cash equivalents) of $10,000 or more. A wire transfer or check does not have to be reported. Banks also have to report other suspicious activities to FinCEN, but a gift from a foreigner, by itself, is fairly common in the immigrant communities and will not raise suspicion.

Vikram, thanks for adding to the thread. I understand what you are saying, however you keep referring to the gift when it comes from outside the US when I have stated in this thread and previous post that In my situation the money from the foreigners is in the US already sitting in their bank accounts. So, assume that these monies were initially wired from overseas' banks into the US. From there to my bank account and hence I want to know how to minimize any unnecessary risks with uncle sam and how to best do this. I will have a friend and my father wiring me different amounts and need to be prepared and cover all my basis to avoid any trouble for me and them and carry out the necessary documentation. That is why I ask how would you, seasoned investors, set this up or do this if you were me and would be getting this amount of money from a friend and now I add, your father. thanks

JM, is it that hard for your dad and your friend to wire the money back to their foreign banks and then start all over again the correct way? This should be very easy, to be honest. If their country makes it hard to send the money back out, then have them open bank accounts in Canada, Singapore, the U.K., or any country other than the U.S. Have them send the money to that new account. And then start the right way as I have explained earlier.

Is that going to be a problem for your dad and your friend?

My concern is U.S. gift taxes. I think your donor will be exempt from gift tax as long as the gift is not tangible personal property or real estate, but I am not completely sure about this. You may wish to consult a cpa or lawyer to figure this out.

Jon, there IS a gift tax and an estate tax in the U.S. They are subject to a common unified credit and so people often think of them as the same thing. But the gift tax will apply if you give a gift in excess of the unified credit (and a small annual allowance).

For non-resident-aliens, the situation is a little different. They do not get the benefit of the unified credit, so all their gifts, minus some exemptions, are subject to a gift tax. However, gifts made outside the U.S. are not subject to any gift tax.

There are also special rules with respect to gifts from a NRA to a U.S. taxpayer and vice versa.

Maybe I'm missing something important here, but is this a mole-hill being made into a mountain?

It's a $50,000 check, not a $500 million check. No one at either bank is going to care, and neither will the IRS.

The only thing semi-unusual that will happen is that the maker's signature will absolutely be verified (banks have different levels for where they do this, but I'll wager none is higher than $25,000), but outside of that, this is a run-of-the-mill deposit.

If you get a wire, the funds will be available immediately, but the bank will sting you for $30 for the privilege of processing an electronic transaction that cost them about three cents to administer.

If you get a check, there will likely be a considerable hold until the funds have absolutely cleared, unless your account routinely has checks in these amounts going in an out and the bank is comfortable giving you credit sooner.

If you get a wire, I would ask for a short letter from the sender that says this is a loan repayment. If you get a check, ask that this be put in the memo section of the check ("loan repayment"), then make a copy of the check before you deposit it.

The recipient will incur a fee as well. Count on it.

And best of luck getting correct "advice" from the IRS...

He said it was a loan repayment, though, not a gift. Perhaps I missed the reality of this transaction.

And if the maker's bank is US-based and the check is denominated in dollars (and assuming likewise for the recipient), I don't think this transaction will draw any scrutiny from anyone, anywhere.

I was on the phone with the IRS and they transferred me to a higher level rep only to be told that I have to contact a tax advisor with experience in foreign gifts?? I know I have to, but how do you find such professional? Advise on that please..