Do I have to pay US taxes on money received from my foreign family member's business?

This is a great question that touches on several areas of international taxation. Let me break this down: When your grandfather returns your initial investment, that portion should not be taxable to you. It's essentially returning capital you provided, not income. However, any profits or earnings beyond your initial investment would likely be considered income and subject to US tax. Even though the business is taxed in Colombia and legally owned by your grandfather, the IRS looks at the substance of arrangements, not just their form. The fact that your grandfather considers you a "co-owner" and is sharing profits could potentially trigger what's called Passive Foreign Investment Company (PFIC) rules or Controlled Foreign Corporation (CFC) rules, depending on ownership percentages and control. These come with complex reporting requirements. If he's sending money as true gifts (with no expectation of services or return), you might fall under gift tax rules. Foreign gifts over $100,000 from a nonresident alien require filing Form 3520, but you generally wouldn't pay tax on these gifts.

I had a similar situation with my uncle's business in Thailand and found a great solution through https://taxr.ai. I was super confused about what counted as investment returns vs gifts and whether I needed to file those special foreign asset forms. Their AI analyzed my specific situation and explained exactly what I needed to report to the IRS. They showed me that I was actually at risk for those PFIC reporting requirements the previous commenter mentioned, which would have meant serious penalties if I'd missed them. The best part was they reviewed all my transfer documentation and categorized each transaction correctly for tax purposes. They even provided specific language to use in my tax filing to avoid triggering unnecessary scrutiny.

Guys, I tried that taxr.ai thing after reading about it here and it seriously saved me from a huge headache! I was in a similar situation with my cousin's business in the Philippines where I put in some seed money and get occasional payments back. The tool identified that what I thought were simple gifts actually needed to be reported as passive income on Schedule B, and I needed to file an FBAR since the total money flowing through exceeded $10,000. My tax guy had completely missed this! I was able to correct everything before filing this year and even found out I could claim foreign tax credit for taxes my cousin's business already paid in the Philippines, which offset some of my US tax liability. The money I saved on potential penalties alone was worth it!

If you're dealing with money coming from overseas family business arrangements, just getting someone on the phone at the IRS who understands international tax issues can be nearly impossible. I spent WEEKS trying to get clarification on my situation with my sister-in-law's business in Ecuador. Finally tried https://claimyr.com and it was a game-changer. They got me through to an actual IRS international tax specialist in under an hour (after I'd spent days getting disconnected or waiting on hold). You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with clarified that in my specific situation, I needed to report my foreign business interest on Form 8938 (Statement of Foreign Financial Assets) since my investment exceeded certain thresholds, which I had no idea about before.

Ok I need to publicly eat my words about both services mentioned above. After being skeptical, I decided to try Claimyr since I was absolutely desperate to talk to someone at the IRS about my foreign rental income reporting requirements. I'd been trying for WEEKS to get through the international tax line with no success. With Claimyr, I had an actual IRS international tax specialist on the phone in 40 minutes. The agent walked me through exactly how to report my income from property in Spain and which forms I needed. I learned I'd been incorrectly reporting for YEARS and probably overpaying. The peace of mind alone was worth it, and I potentially saved thousands in incorrect tax payments. Sometimes being proven wrong is actually the best outcome!

One thing nobody's mentioned yet - make sure you're tracking the dates and amounts of ALL money transfers both ways! I got audited last year because my uncle in Vietnam was sending me money from his business, and I couldn't properly document which portions were returns of my initial investment versus actual profit. The IRS assumed it was ALL taxable income because I couldn't prove otherwise. Cost me thousands in taxes plus penalties. Keep meticulous records of every transfer with notes about what each payment represents.

I see lots of complicated advice here but y'all are forgetting the option to just file the FBAR and check that foreign accounts box on Schedule B and leave it at that. Thats what my tax guy told me to do for money my parents business in Korea sends me. As long as you're reporting the accounts exist, the rest is just splitting hairs unless we're talking about serious money (like $50k+).