Transferring money internationally has become an increasingly popular and easier thing to do than it was in previous decades. Individuals and businesses have an unprecedented amount of information at their fingertips, and the ability to make investments and open accounts anywhere in the world. However, these liberties don’t come without responsibilities.
If you’re planning on sending or receiving international funds in excess of $10,000, you should familiarize yourself with the laws and regulations governing such transfers. The IRS has parameters within which you need to operate to avoid hefty fines for transferring money unlawfully. The majority of these regulations pertain to the amount of the transfer, the purpose of the transfer, and the country from which it came.
What is the IRS International Money Transfer Limit?
The IRS international money transfer limit is $10,000. If you receive an international transfer of funds into the US that exceeds that amount, you are required by law to report those funds to the IRS. This law is applicable whether you’re from the US or not. It exists to protect you, your money, and the interests of the American government and her people.
Banks in the US are required by law to report any transfers from overseas exceeding $10,000. They also report any transactions that seem suspicious or raise proverbial red flags within the banking industry. Some wire transfer companies go even farther and report transfers as low as $1,000.
Why is There a Limit on Money Transfers into the US?
The US government reserves the right to obtain information about funds coming into the country as part of national security measures. Large sums of money being transferred into the US are often investigated for potential fraud, money laundering, and other suspicious activities. The IRS places a limit on funds transfers to protect the security of the banking system and the government.
How to Receive a Large International Transfer
Receiving a large sum of money from a foreign country is less complicated than it sounds. Although it requires quite a bit of information and reporting, the process itself is fairly simple.
The Process
To ensure a smooth transfer of funds from overseas into your bank account, you should be prepared to follow the appropriate steps.
- Gather and provide the necessary information to the sender. Ask your bank for their international wire transfer instructions and follow them. If you don’t follow the instructions and give the sender the proper information, you risk delay or cancellation of your transfer.
- Understand the fees that are involved in your transfer. There are usually tons of fees involved in an international wire transfer, including fees from both the sending bank and the receiving bank, among others. If the transfer is between two individuals, the payment of fees can be discussed ahead of time. If you prefer, you can use a wire transfer company that can help reduce the total fees being paid.
- Notify your bank about the incoming transfer. It’s important for your bank to know when to expect the money and what it’s for. You likely gave them this information during step one, but if not, now is the time!
- Know when to expect your transfer and follow up on it. In the world of international banking, there are tons of things that could go wrong. Make sure you’re prepared to investigate if the wire transfer is less than what you anticipated, or takes longer than it should.
Documents Required
As you can imagine, there is quite a bit of information required in an international transfer. Here are the documents that are required to process the transfer. Depending on your banking institution, these may be online or physical forms that need to be completed.
- Photo ID
- Proof of bank account, including account and routing number
- IRS Form 3520 to inform the IRS of the money you received
Information Contained in Those Documents
The documents listed above will require a variety of information about the transfer. That information may include, but is not limited to, the following:
- Your full name
- Your contact information
- The name of the sender
- The contact information of the sender
- Your financial details, including applicable codes such as SWIFT Code and BIC
- The name and physical address of your bank
- Your account and routing numbers
- The amount of money you received
How to Report it to the Government
In the United States, you are required by law to report any international transfers exceeding certain limits. If you are receiving money from overseas, it is your responsibility to report that money to the IRS when applicable. The form necessary to make this claim is form 3520.
Form 3520 should be used when one of the following statements is true:
- You have received gifts or bequests in excess of $100,000 from a nonresident alien or foreign estate
- You have received $15,601 or more from a foreign corporation, partnership, or person(s) associated with those corporations or partnerships
Filing this form is less about taxes and more about information. This form is designed to provide information to the government about the funds entering the country, who they’re from and why they exist. If you fail to report these funds appropriately, you could be subject to penalties and fines as a result.
Why Does the Government Need to Know?
The US government has a host of regulations in place to protect the country, US banks, US consumers and more. To do so, they must obtain detailed information about money coming into the country from foreign accounts. This helps lower the risk of fraudulent or illegal transfers.
Additionally, this practice helps the US government more accurately detect money laundering schemes. The quicker they discover those schemes, the more efficiently they can react and protect the interests of the victims. It also helps deter tax evasion by making it more difficult to hide funds in offshore accounts for later use.
Final Thoughts
There are tons of reasons for receiving transfers from overseas and the vast majority of them or legitimate, legal transfers. However, in order to protect the interests of the government and the country, you should be prepared to report your transfers and the reasons for them. If you do, it will alleviate several headaches that could arise by trying to hide those transfers that might save you a few bucks. When in doubt, report your transfers!
