International transfer - splitting academic prize money from abroad

[stochastic]

A research paper I wrote with 2 other professors won a prize from a Chinese institute. It's $25k and to be split between the 3 of us. Two of us (including me) are in the US while the third is in China. Unhelpfully, the institute says they will only send the money to one of us and then it's our responsibility to divide it up after that.

It's clearly taxable income and we aren't trying to avoid that. But I'm worried that if say I get sent $25k and pass along my coauthors shares then the IRS will ask why am I only declaring $8,333 income and not $25k. Any suggestions on how we should handle the transfer in such a way that we don't get taxed twice or unnecessarily trigger an audit? Do I need to file any special forms?

***In case someone mentions it, I do know that there is a lot of scrutiny about receiving research funds from Chinese institutions these days. But it doesn't seem to be a problem as long as all the proper disclosures are made so I'm not concerned on that front, particularly because the amount involved isn't large.

[ScubaHogg]

It isn’t my area, but it appears the easiest answer is for your Chinese colleague to receive the prize and send the appropriate shares to the two US authors?

[stochastic]

This was my thought too but his impression is that he will be taxed in China on the full amount (although he hasn't thoroughly researched it). But I don't think that would relieve us of paying US tax on what he then sends us so we'd end up being taxed twice....

It isn’t my area, but it appears the easiest answer is for your Chinese colleague to receive the prize and send the appropriate shares to the two US authors?

[stochastic]

---double post---

[aristotelian]

You could issue 1099's to your colleagues which would give the IRS some documentation that your income was reduced. Either way you should be able to document their cut on your schedule C. Congrats on the prize!

[brawlrats]

You could issue 1099's to your colleagues which would give the IRS some documentation that your income was reduced. Either way you should be able to document their cut on your schedule C. Congrats on the prize!

The 1099 you are referring to is a nominee 1099:

https://www.irs.gov/instructions/i1099g ... 1000286907

Nominee/middleman returns.

Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the IRS Submission Processing Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer.” A spouse is not required to file a nominee return to show amounts owned by the other spouse. The nominee, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

[exodusNH]

A research paper I wrote with 2 other professors won a prize from a Chinese institute. It's $25k and to be split between the 3 of us. Two of us (including me) are in the US while the third is in China. Unhelpfully, the institute says they will only send the money to one of us and then it's our responsibility to divide it up after that.

It's clearly taxable income and we aren't trying to avoid that. But I'm worried that if say I get sent $25k and pass along my coauthors shares then the IRS will ask why am I only declaring $8,333 income and not $25k. Any suggestions on how we should handle the transfer in such a way that we don't get taxed twice or unnecessarily trigger an audit? Do I need to file any special forms?

***In case someone mentions it, I do know that there is a lot of scrutiny about receiving research funds from Chinese institutions these days. But it doesn't seem to be a problem as long as all the proper disclosures are made so I'm not concerned on that front, particularly because the amount involved isn't large.

Since each share is under $17,000, one of you could take the whole amount, pay the income tax, and gift the net amount to the other. The question would be whether the $16,667 will push either of you into the next marginal bracket? If not, this is the simplest. At the end of the day, as long as income tax is paid on the full amount, whether it came from your pocket or your colleague's doesn't really matter.

Otherwise, you could issue a 1099 to your colleague. I'm not sure if you can just manually create one or if there'd be a cost involved.