A relative transferred $31,000 to my bank account. Do I have to report this to the IRS?
All information online is very inconsistent.
Additional details:
He wants me to temporarily hold his money. he has issues with his wife and he did not want to have any extra money on his personal account.
Based on the extra details edited in, I want to modify my answer:
he wants me to temporarily hold his money. he has issues with his wife and he did not want to have any extra money on his personal account.
This is dangerous. Depending on what is going on you could face legal problems, if the hiding of funds is related to a divorce, separation, or child support issue.
In the strict sense it isn't a gift, or a loan. But you could find yourself dragged into a legal issue far beyond taxes.
Because the transfer was done electronically, then if the court requires a review of their banking records they will want to know why the transfer was done. They will want the money back, unless there was a legitimate reason. You don't want to lie about the reason.
I would suggest you transfer it back, and let them deal with it on their own.
Previous answer: which only applied if it was a gift, but it isn't a gift based on the new information.
Lets assume it was a gift:
You don't pay any tax. You don't even have to report it to the IRS. The relative may have to report this.
If they gave you the entire $31,000 in 2021, then $15,000 of it is tax free. They will have to submit a tax form to count the excess $16,000 against their lifetime exclusion.
If they gave you $15,000 one year (2020) and $16,000 in 2021, then only $1,000 would be counted against their lifetime exclusion. Same if the order was switched.
If they are married or you are married they could give $30,000 in one year without having to count against their lifetime exclusion. But if they are married and you are married, then they could give you $60,000 in one year.
Now if it is a loan, then there should be be interest paid on the loan, which they would count as income. Though the initial transfer wouldn't have any gift tax impacts.
If it is pay for some service, then you would have to report it on your income tax forms.
There is another way that a gift/loan can be important. If the money is given to you and you are about to get a home mortgage the lender will want to know if it is gift or a loan. Your relative will be asked to document the gift/loan. The lender wants to know because loans have to be paid back, and they want to know all your obligations.
While you did say they transferred the money, I will add one more example. If they gave it to you in cash, then your bank may report the large cash transaction when you deposit it. This is part of the anti-money-laundering laws.
He wants me to temporarily hold his money. he has issues with his wife and he did not want to have any extra money on his personal account.
Danger, Will Robinson! Danger!
If you're caught hiding money from her during a divorce, YOU will be up the fecal creek with nary a paddle to be seen.
Make this "transfer" a written loan with interest (he can gift you back the interest payment) and if he does get a divorce, take it upon yourself to tell his lawyer. Get it in writing from that lawyer. (That way, your hands are clean.) Your brother might hate you, but we can't condone fraud.
An idiot relative has involved you in his idiocy. That's unfortunate.
You can treat it as a zero-interest loan. There is nothing for you to report on your taxes. You can keep any bank interest that you earn on the deposited funds.
Banks have a directive under some anti-money-laundering regulations to report any cash transaction above $10,000 or any transaction that looks suspicious. I think this is what you came across on the internet. You don't have a requirement to report your own transactions.
To be clear, there's noting illegal about transferring large amounts of money. There's nothing illegal about actual hard currency paper money cash transactions, no matter the size. Also, there's no tax liability just because a transaction is reported.
BUT if your brother is getting divorced and half of that money (or however much) is his wife's it doesn't matter what account it's in, even if that account is yours. You'll probably be subpoenaed then ordered to return the money. Obviously this would also get worse if you and your brother start fabricating some fiction about why he transfered the money to you. Sometimes the best way to help is to stand-by while your friend or relative rips the band aid off.
This transaction may or may not be legal. You should consult a local attorney to determine if holding this money would be a crime.
Let me give you a non-crime scenario. His wife is a gambling addict. He is not going to divorce her, but he needs the money kept away from her.
That is perfectly legal. It is dangerous to him, though. You could die and the funds would pass to your heirs. You could also be in an automobile accident where you are at fault and those funds could be attached by a court. A trust document would likely be an improvement here.
Now let me talk about the two cases where you would face legal jeopardy. First, if he is hiding money from the court and you gave him your bank routing and transit number, then you might be a co-conspirator. Second, if you are holding money for another and their purpose is not legal, then you could be violating federal money laundering laws.
This is purely a legal question based on the laws of your community. The internet is not the place to ask this as it is now evidence. You have the right to remain silent. Do so.
