524. Gift of jointly held shares by

US Nri green card holder . . .

Question: Dear Mr. Chand, I am Abdul, NRI residing in Mideast since last 30 years. My NRI son is presently USA resident holding Green Card. He wants to gift to me his notional ownership portion in jointly held shares of few Indian listed companies. Shares are held on repatriation basis and long term and can be sold or gifted without any Indian income/capital gain /gift tax. These shares are owned by my son jointly with me. Purchase of these jointly held shares was fully (100%) funded by me from my own income sources in the Mideast. The purchase was done about 20 to 25 years ago when my son was resident in Mideast. At that time my son was a student and was not having any income source. His name was used as first holder just to get allotment of more shares under NRI quota under IPOs. Present value of these shares is significant. My son has not reported information regarding these shares on his USA income tax returns as for all practical purposes he is not having any real ownership interest in these investments. In light of the facts of the case, my son's real ownership stake in these shares is zero %. Thus, the value of transfer ( by way of gift ) of his ownership stake to me will be US$ zero. Therefore, in my opinion he should neither be liable to pay any gift tax in USA nor liable to report holding/gifting of these shares. In this connection, I shall be grateful for your expert advice as to whether my understanding is correct as per regulations/practice under USA tax laws for similar cases. I may state that I was trying to find suitable answer to my question on the WEB and found contents of your website quite interesting and informative regarding various issues relating to NRIs. In spite of the fact that you are providing free guidance, your replies are detailed, knowledgeable and provide links wherever required. Answer: I would disagree with you when you say that your son's real ownership is zero %. If his ownership value was zero then there would be nothing to transfer! While theoretically you may be right that your son should not have tax liabilities as he did not make the original investment, in reality your son is now the actual owner of the shares regardless of the circumstances under which he received them. Potential green card holders should do a careful review of their investments and take any tax saving steps available in consultation with a good tax advisor BEFORE they become US residents. Once a person becomes a resident in US, they are treated as US citizens for taxation purposes and their worldwide income, regardless of how derived, becomes taxable. Green card holders are still considered residents for taxation purposes in the United States regardless of which country they reside in. Kindly be aware that: Even if there are no taxes that may apply in the USA on some foreign income, because of Double Taxation Avoidance Agreements (DTAA) foreign income must be clearly declared when US taxes are filed. Just because a particular investment is exempt from taxation in India does not automatically make such investment income exempt in USA. This a point that many people fail to understand. Under the DTAA you can get credit for taxes paid in one country (suppose India) in your home country (USA). If the investments you state that were made in India were tax free, that does not mean that they would be tax free in the United States. As far as your sons tax liabilities are concerned you should consult a tax accountant for professional advice.