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Tax guidelines and regulations for sending large money transfers to the US

Failing to file could land your recipient in hot water with the US Internal Revenue Service (IRS).

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If you’re planning to transfer more than $10,000 USD to the States, a money transfer service can help you save on fees. Be aware that your recipient will need to report the transfer to the US government.

Do large transfers have to be reported in the US?

Yes. No matter where in the States your recipient lives, if they’re receiving more than $10,000 USD while in the US, they’ll need to abide by US laws put in place to both protect both their money and the interests of the American government.

By law, banks report all cash transactions exceeding $10,000 USD — and any transaction of any amount that alerts their suspicions. Money transfer businesses, which often solely send money between countries, sometimes have reporting thresholds as low as $1,000 USD.

US law requires banks and money transfer companies to report:

  • The recipient’s name and contact information.
  • The sender’s name and contact information.
  • For bank transfers, the recipient’s financial details, including SWIFT code.
  • The recipient’s banking details, including his or her bank account number.
  • The amount received.

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Documents for sending large amounts to the US

When US residents receive foreign gifts of money or other property, they have to report it on Form 3520 — Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

US citizens and residents are required to use Form 3520 for:

  • Gifts or bequests valued at more than $100,000 USD from a nonresident alien individual or foreign estate.
  • Gifts of $15,601 USD or more from foreign corporations or foreign partnerships (including from people related to these corporations or partnerships).

Form 3520 is considered an “information return,” rather than a tax return, because foreign gifts generally are not subject to income tax. However, there are stiff penalties for failing to submit Form 3520 when it’s required.

Who is responsible for filing Form 3520 — the sender or the recipient?

The recipient of the transfer is solely responsible for reporting the amount received during the current tax year with their annual tax filing.

The penalties for failing to file Form 3520 on time are equal to the greater of $10,000 USD or the following:

  • 35% of the gross value of the distributions received from a foreign trust.
  • 5% of the gross value of the portion of the amount the recipient treats as belonging to them.
  • A separate 5% penalty if the recipient fails to furnish correct, required information.

Why is the US government interested in how much money US residents receive?

Laws are in place to protect both recipients and the government from fraudulent activity. By monitoring transactions in and out of the US, authorities are able to:

  • Protect people’s sensitive information.
  • Lower the risk of illegal and fraudulent transfers.
  • More clearly identify money laundering schemes.
  • Inhibit the ease of sheltering taxes in untraceable offshore accounts.

Since 9/11, the US government has put even more stringent laws in place. For example, the Patriot Act allows the government to track money more carefully due to terrorism.
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What should I expect when sending money to the US?

To prevent the US government from delaying or canceling your money transfers, your recipient will need to provide proof of identity in the form of government-issued photo ID — a driver’s license or passport, for example — and proof of their address.

If the person receiving the money already owns an account with the bank or money transfer company the funds are sent to, they may not need to provide ID every time they receive a transfer. However, online money transfers may come with stricter rules when it comes to proof of ID and could ask for additional documentation or to verify the recipient’s identity by phone.

To avoid the penalties that come with a failure to report large sums of money into the country, it may be worth it to speak to a US tax lawyer to make sure that everything is above board and complies with the laws of all countries involved.

Bottom line

Sending large money transfers to the United States almost always need to be reported to the IRS, failing to do so could lead to a fine or even worse. It may be tempting for your recipient to think they can slip through the cracks and save money, but the fines far outweigh the benefits. Instead, learn how to save money on your next transfer to help offset the taxes your recipient may end up owing.

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