JaR

Hi, I could do with some advise on bringing in money from the UK.

My son received some money from a civil court action 15 years ago, now that he is 18 the court will pay him his funds. We do not have a UK bank account in his name as we moved here 6 years ago, the courts will only pay his funds into an account in his name. He does have a USA bank account and the court will transfer funds into that account, however we are concerned about USA/UK tax. After everything that he went through, we do not want him to have to end up paying a high percentage in tax.

Does anyone know as these are funds from a civil court case for injuries, if he will have to pay tax here in the US or the UK?

Please any advise is really appreciated.

TimFountain

Honestly, this sounds like a complex situation that requires the expert eye of a lawyer who specializes in tax issues. Asking on a public forum is not really going to get you a definitive answer....

JAJ

You need to find yourself a good CPA to confirm all of this, but the IRS say:
http://www.irs.gov/publications/p525/ar02.html


Court awards and damages.
To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.

1. Interest on any award.
2. Compensation for lost wages or lost profits in most cases.
3. Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.
4. Amounts received in settlement of pension rights (if you did not contribute to the plan).
5. Damages for:
1. Patent or copyright infringement,
2. Breach of contract, or
3. Interference with business operations.
6. Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.
7. Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

If any of the award appears to be taxable under these rules ask the CPA to investigate when the income was legally vested. If it was obtained 15 years ago and it was before he was a US citizen/resident then it may not be taxable anyway.

If it's left in a UK bank account make sure he complies with FBAR reporting rules. For example, if the balance exceeds $10,000 for one day, an FBAR report must be filed by mid-2012.

JaR

Thank you so very much for your advice and the link to the website, I will without a doubt follow up.

Again thank you, your help is appreciated.