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Non-Citizens Entitled to Draw Social Security

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QUESTION: I am a Canadian citizen who immigrated to the United States in 1961. Shortly later I received legal immigrant status, an accompanying “green card” and a Social Security number. I have been employed since 1965 and have contributed to Social Security over all these years. Now a friend tells me that to draw Social Security benefits at retirement age, I must be a U.S. citizen. Can that be right? --E. A. T.

ANSWER: Absolutely not, says the Social Security Administration; you do not have to be a U.S. citizen in order to receive Social Security benefits. According to a Social Security spokesman, when you apply for your benefits you will need verification of your employment in this country as well as your Social Security card. You should have no problems receiving what you are entitled.

Q: Last year my wife gave our married daughter a $20,000 gift from her own funds, not our joint holdings. It seems that tax form 709A, which we must use to report this gift, offers us a way to avoid gift taxes by permitting us to say that this was a “split gift,” that is a gift that my wife and I jointly gave. Is that true? Also, I am curious how the government knows that this gift was made. What are the possible consequences if we fail to report this? Does California have a similar requirement? --J. D. A.

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A: The Internal Revenue Service doesn’t care whether the gift to your daughter came from jointly held funds or your wife’s personal account.

What matters is that the gift did not exceed the $20,000 combined limit on the amount you and your wife can give to another individual each year without the recipient’s having to pay tax on it.

So, you can consider the $20,000 a “split gift” as form 709A permits.

Although the IRS doesn’t care about the source of the gift funds, it does care greatly about your reporting it on your income tax return. And, argues IRS spokesman Robert Giannangeli, there’s nothing to be gained from not telling.

According to Giannangeli, the gift is exempt from income tax on your daughter’s end, so there’s no reason to hide it from the IRS. Furthermore, because the gift does not exceed the $10,000 each of you is allowed to give each year tax free to another individual, it does not count against the $600,000 the government allows each estate to pass on tax-free to its heirs.

However, he says that if you choose not to report the gift, you risk the chance that it could be discovered in the course of an audit of either your taxes or your daughter’s filing. Furthermore, Giannangeli says the gift could be discovered during the probate of your estate when some accountant wonders where some of the money went. At the time of discovery, the estate, and possibly any recipients of your gifts, could be slapped with tax fraud charges and subjected to all the applicable penalties.

The requirements are different in California. First of all, a 1982 voters’ initiative repealed the gift tax. In addition, the Franchise Tax Board, which handles income taxes, does not require taxpayers to report gifts they either make or receive. Remember, however, that if you file your income taxes on the state’s “long form,” you are required to attach a copy of your federal tax filing, which would include the appropriate gift reports.

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Q: Last year I worked for awhile at a part-time job not covered by an employer pension plan. Later, I got a full-time job with a different employer where I was covered by a retirement plan. My husband is covered by a retirement plan. If we file separate tax returns, can I make a deductible contribution to an individual retirement account based on on the part-time job earnings? --L. C.

A: You have raised two separate and unrelated issues. First of all, you are not entitled to a full, $2,000 tax deductible IRA contribution because you were covered by a retirement plan for at least a portion of the year.

However, for the 1987 tax year, for which you should have filed your return Friday, a soon-to-be-plugged loophole allowed a spouse not covered by a retirement plan and filing a separate tax return to make an IRA contribution, even if the other spouse was covered by a retirement plan. The amount of the tax deductible contribution allowed by the IRS varied, up to a maximum of $2,000, according to the income of the wage earner. But under legislation currently being considered by Congress, spouses filing separate tax returns would not be allowed to make a tax deductible IRA contribution if either one is covered by a retirement plan.

Q: My son is being married in the near future and I plan to loan him a substantial amount of money, interest free, toward his purchase of a new house. Are there any IRS tax implications that I should be aware of that govern the interest-free nature of this loan? --C. M. L.

A: Yes, there are several tax implications that you should consider before making the loan. However, the ramifications will vary according to the nature of the loan you make, and unfortunately you haven’t provided enough information for us to specifically analyze your situation.

Among the variables that will affect the tax consequences is the type of loan you make to your son. For example, is it a demand loan that you can order repayed at any point or a loan for a specific term? You will also have to decide whether you are going to charge interest on the loan, and then forgive its payment or if you are simply not going to charge any interest at all. If you charge--and then forgive the interest--you will have to agree upon a rate that satisfies the IRS.

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These are just a few of the issues you face.

Your best bet is to consult a qualified professional, either legal or accounting, for expert guidance before you make the loan. And don’t forget that everyone will far be better off if you, your son, and possibly your daughter-in-law sign a written agreement that clearly sets forth all the terms of the loan.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.

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