How To Withdraw Money From Virtapay To Paypal?

Legal/Tax implication of holding a relative's money in bank account

• Here's the situation : A relative of mine who is resident and citizen of Country "A" has opened an account with Paypal. As per Paypal's policy, residents of Country "A" can open account with Paypal but Paypal will not transmit/wire funds to anybank in Country "A". Now this relative of mine sells goods on the internet using Paypal and now has significant amount of funds in his Paypal account. However, because of the above Paypal policy, he is not able to withdraw his money. As far as I know, there are two possible ways this situation could be resolved and I would like to know the legal as well as tax implications of both. (1) My relative opens a US bank account. There are sites like http://www.usbankaccount.com who claim they will open a US bank account for non US residents at a certain fee. Question: Is it legally possible for a person who has no US address and no SSN to open a US bank account. It will also be great if the "Answerer" can let me know about the reliability of sites like usbankaccount.com . (2) My relative tranfers his Paypal funds into my account (I am a US resident and have a US bank account). Subsequently, I can transmit the funds to my relative in Country "A". Question : Since the amount is substantial, I would like to know if there would be tax implications for me for holding my relative's money temporarily in my account(even though its not really "income" for me). Also, will it have any legal ramifications (eg. money laundering etc. - even though I can't think how) P.S : If it is of any help to answer the questions above, I should mention that Country "A" is a US friendly nation and not a country associated with terrorism or any other kind of "evil" in the Post 9/11 world.

• Answer:

  bystander-ga: Thank you for your question regarding the legal and tax implications associated with two separate options for your relative to transfer out money from his Paypal account. First, I should restate that the information I and my fellow Researchers provide here is based on information that we are able to find both online and offline, as well as our own analysis and therefore opinion. I am not a certified tax or legal adviser. I only state this to remind you that neither Google nor I can accept any liability for any consequences that may result from any actions your relative take after receiving this information. I'm sure that you and your relative are already aware of that, but anytime the IRS is involved, it's best to restate things. :) The first option that you asked about is the option where your relative would open a US-based back account in their own name, for the purposes of receiving the funds from the Paypal account. I would recommend that you review the Answer provided by politicalguru-ga for a similar Question: "Opening a US bank account without a SS Number" http://answers.google.com/answers/threadview?id=28508 In this Answer, politicalguru-ga points out that it is technically and legally possible (but perhaps extremely difficult) for a non-US resident to open up a US-based bank account. Further to this, I would point out that, while your relative may be able to open up an account using your address, it comes at the potential future risk that an agency such as the IRS would look at the bank account as proof of residency (legal or not). When it comes to taxes, often definitions apply that would otherwise run counter to the definitions of other government agencies such as the Immigration and Naturalization Service. Therefore, it would be best for your relative to NOT establish a US-based bank account in their own name. This leads us to the second option you asked about, namely the situation where your relative transfers their money to you, then you move the money into "Country A" through an electronic funds transfer. More specifically, you are interested in any legal or tax issues that may be related to the following process: 1) Your relative transfers funds from their Paypal account to your Paypal account; 2) You transfer the funds from your Paypal account to your US bank account; 3) You transfer the funds from your US bank account to your account in "Country A"; 4) You write a check from your "Country A" bank account to remit the funds to your relative. I will preface my analysis by first referring you to the following policies used by Paypal: Paypal Seller Protection Policy: http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/ua/policy_spp-outside - please note in particular the bolded section in Section 1, which states in part "if the sender's transaction is reversed for any reason and you do not qualify for the Seller Protection Policy for that transaction, you will owe PayPal for the amount of the reversed transaction plus a $10 chargeback fee". Paypal Buyer Protection Policy: http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/ua/policy_pbp-outside - note that this policy only covers items sold on eBay by verified US or Canadian sellers; therefore, as long as "Country A" is not Canada, this policy *should* not apply to your relative Paypal Buyer Complaint Policy: http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/ua/policy_buyer_complaint-outside - this policy provides recourse to any buyer of any tangible, physical good sold by a seller who receives payment using Paypal - note that this policy means that Paypal reserves the right to be the final judge in any dispute, with recourse being the reversal of the funds payment Payments (Sending, Receiving, and Withdrawals) Policy http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/ua/policy_payments-outside - please read Section II Paragraph 2. carefully. In this paragraph, Paypal reserves the right to reverse payments and charge a service charge for the reversal. While Paypal's right is limited to the balance in the affected Paypal account, Paypal reserves the right to pursue the balance of the reversal through any legal means available, including making a claim on the bank account associated with the account. Depending on your relationship with your bank, this may mean a temporary freeze on the affected funds until the issue has been resolved. - further, the policy states that "If you open a Premier or Business Account after October 11, 2001, you authorize PayPal to debit your bank account linked to that PayPal account for the amount that you owe PayPal on transactions which were not covered by the Seller Protection Policy and which were not recoverable from your PayPal balance." It is due primarily to this last policy that you are best advised to structure the flow of funds with your safety in mind. While I hope that your Paypal account is not a Premier or Business Account, you are still better off using a dedicated checking account, separate from your regular checking account, to link to your Paypal account. That way, Paypal does not have the necessary information to trigger an electronic dispute that may affect your own funds. As for the potential for dispute, it will arise primarily from a buyer filing a complaint with Paypal after a transaction with your relative (the 'seller'). If Paypal determines (based on their own criteria) that fraud is involved, and decides to reverse the payment, and if there is not enough money in your relative's Paypal account to cover the reversal, there is a tangible possibility that Paypal will track the last transfer out of your relative's account to your account, and attempt to recover the funds from you on the grounds that the funds were fraudulently obtained in the first place. It's Paypal's system, they make the rules. The only way to safeguard the funds is to remove them from Paypal's system, by transferring them to your (dedicated) checking account. Even then, the funds are not absolutely safe until you transfer them from this checking account that is known to Paypal. Please do not read any malice towards Paypal in my comments; I am only stating the possible recourse available to Paypal as defined by their own policies and agreed to by all users of Paypal. Once the funds have been transferred to your (dedicated) checking account, the question of tax implications must be addressed. For this, I refer you to the following question posted to the Bankrate.com "Ask the tax adviser" column in November 2000: "...taxes on gifts from foreigners" (scroll down to 2nd question) http://www.bankrate.com/brm/itax/tax_adviser/20001114a.asp?prodtype=itax In this question response by George Saenz, a columnist with Bankrate.com, George advises the questioner that the IRS requires that "certain large gifts from foreigners be reported for informational purposes." That means that while there is no income tax associated with monetary gifts from foreigners, the IRS still wants to know about them. The threshold for reporting is given as $100,000 US total per tax year. If the "substantial amount" you mention is greater than $100,000 US, then you are required to report each individual gift greater than $5k using Form 3520 (2002). Internal Revenue Service Form 3520: http://www.irs.gov/pub/irs-pdf/f3520.pdf You would also be personally responsible for reporting and remitting income tax on any income generated as a result of the gift. By using a dedicated, non-interest bearing checking account, you can avoid this and maintain a good paper trail at the same time. Once the money (that you received as a gift) is in the dedicated checking account, you should be free to transfer it to yourself and the account you hold in "Country A", as long as there are electronic fund transfer agreements in place between the two banks involved. Depending on the bank you use in "Country A", you may be able to open the dedicated chequing account with their American subsidiary/parent/partner, making this transfer easier to manage. This method would save you the service charges and risk associated with using a money order to directly send the money to your relative. One example of an international bank that understands this sort of need is HSBC: Press Release: "HSBC first bank to offer truly global banking service" http://www.hsbc.com/code/tools/site/Renderer.jhtml?cp=/public/groupsite/news_room/2003_archive/en/hsbc_first_bank_to_offer_truly_global_internet_banking_service.jhtml&bu=groupsite&toolName=news_room&ln=en&isPc=true&pId=9e503a70-2e23-11d7-bba1-080020c629df For your own protection, you should make sure that your relative understands that you are not responsible for any service charges or foreign exchange conversion charges that may be incurred each time you do this transfer. As you mentioned that you would be transferring the funds to a US-Dollar account in "Country A", there should be minimal exchange charges; there will most likely be transfer fees to get your money there, though. Finally, make sure that you keep accurate records of each and every transfer. Again, I will recommend using separate accounts (including Paypal if at all possible). That way, your personal finances are kept separate from your relative's money, even after it becomes his "gift" to you. If the IRS ever decides to audit you for any reason whatsoever, this detailed record keeping will be important. This record-keeping includes keeping each and every returned cheque that you write to your relative from the US-Dollar foreign account, and every statement from that account. That way, if necessary, you can show that you only ever earned minimal interest, if any, on that money. I presume that you already know that you are supposed to report the income from that foreign bank account in your annual tax return for the IRS. This flow of money should be considered proper, as the funds are not obtained through illegal activities and you are not charging a fee for handling the funds. Your relative is still responsible for reporting their income from the original transactions on their tax report in "Country A" if that country tracks foreign income as part of total income. I hope that this information helps you and your relative with the decisions that you will need to make. Best of luck, and please let me know if you require any clarification to this Answer. Regards, aht-ga Google Answers Researcher ------------------------- Search Strategy: monetary gifts foreigner ://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=monetary+gifts+foreigner&btnG=Google+Search paypal reversal ://www.google.com/search?q=paypal+reversal