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Laws and legal documents when transferring large sums of money into the US

What you ought to know when sending large sums into the US.

Transferring your life savings ahead of immigrating to the US, funding a business opportunity or inheriting money from family abroad? Whatever your reasons for sending money to the US, there’s a lot to consider.

However, one thing you can’t avoid are the laws and legal paperwork that go along with transferring large amounts of money. Before you move your money to the US, familiarise yourself with these laws and regulations.

Do I have to report large transfers into the US?

Yes. No matter where you’re from, if you’re receiving more than US$10,000 while in the US, you’ll need to abide by US laws put in place to both protect both your money and the interests of the government.

By law, banks report all cash transactions that exceed US$10,000 — 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 US$1,000.

US law requires banks and money transfer companies to report:

  • Your name and contact information.
  • The name and contact information of the person who sent you the money.
  • If it’s a bank transfer, the financial details of the recipient, including SWIFT code.
  • Your banking details, including your bank account number.
  • The amount you received.

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Documents specific to sending large amounts into the US

If sending large amounts of foreign gifts of money or other property to friends or relatives in the US, they’ll need 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 US$100,000 from a nonresident alien individual or foreign estate.
  • Gifts of US$15,601 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, you are subject to stiff penalties for failing to submit Form 3520 when it is required.

Who is responsible for filing Form 3520 — me or the person who sent the money?

As the recipient of the transfer, US citizens and residents are 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 US$10,000 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 treated as owned by them.
  • A separate 5% penalty if they fail to furnish correct required information.

Why is the US government interested in the amount of money transferred?

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

  • Protect 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.

What should my US-based recipient expect when receiving money from overseas?

To prevent the US government from delaying or canceling your money transfers into the country, you’ll need to provide proof of a government-issued photo ID — a driver’s license or passport, for example — and proof of your address.

If you already own an account with the bank or money transfer company, you may not need to provide ID each time you receive money. However, online money transfers may have stricter rules when it comes to proof of ID and could ask for additional documentation or to verify your 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 tax lawyer to make sure that everything is above board and complies with the laws of all countries involved.

Bottom line

Large money transfers received by US citizens and residents almost always need to be reported to the IRS, failing to do so could lead to a fine or worse. It may be tempting to think you 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 overall cost of the taxes you may owe.

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