Gift from Father

Today TaxMama® hears from Ada in the TaxQuips Forum with a deceptively difficult question.  “My father is a non-resident alien with a non-business U.S. checking account that he opened over 15 years ago. He wants to give me and another sibling (both resident US citizens) the money from that account (split equally to about $20k each). What are the reporting requirements and tax liabilities for him, my sibling and myself?

Dear Ada,

I asked Roger B. Adams, EA, our resident international tax expert, to research this for you. After researching this Mr. Adams’ has determined the following:

According to IRC sec. 2501(a) and Reg Sec. 25.2501-1 a nonresident alien donor is subject to gift tax on the transfer of real or tangible property situated in the US. The question is whether or not a bank account is “tangible” property and the answer seems to be, NO it is not. Cash, on the other hand, is tangible property.

Gifts are not taxable to you since they are not considered income. So you and your sibling are not liable to pay tax on the gift.  It seems your father’s best option is to transfer his interest in the account to both of you. Thereafter, you would do with the money as you wished.

Ada responds that the bank won’t allow them to be added to the account. Since they must open a new account, wouldn’t this end up costing Father gift taxes?

TaxMama has way around this problem.  Do open the new accounts, if you must. However, set up the new accounts in your FATHER’S name, with you and your sister as co-signers. That way, it’s his account. You’ve now been added to the account – not given cash. You can each use the cash in the account under whatever agreement you sibling and your father decide.

And remember, you can find answers to all kinds of questions about non-resident alien tax issues and other tax issues, free. Where? Where else? At www.TaxMama.com.

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