Do I have to pay taxes on income received from abroad as a US citizen?

Thanks for the detailed reply! So if I understand correctly, when I get my initial $12,000 back, that's not taxable. But if he sends me like $15,000 total, I'd need to pay taxes on that extra $3,000 as investment income? Also, how would I report this on my taxes? Would I need some kind of documentation from his business in Ecuador?

Exactly - the return of your $12,000 investment would not be taxable, but the $3,000 beyond that would likely be considered taxable income. You would report this on Schedule B (for interest/dividends) or Schedule E (for partnership income) depending on how the arrangement is structured. Ideally, you should get documentation from your grandfather showing what portion is return of principal and what portion is profit. This could be a simple statement from the business. Keep records of your original wire transfer as proof of your initial investment. If the amounts become substantial, consulting with a tax professional who specializes in international taxation would be worthwhile.

How does this work with foreign language documents? My situation is with family in Vietnam and everything is in Vietnamese. Would I need to translate everything first?

Sounds interesting but kind of skeptical... did it actually help you avoid any issues with the IRS? Like did you end up filing correctly and not get any followup questions?

Their system handles foreign language documents pretty well - I uploaded Thai documents without any pre-translation. You just identify what country they're from and it processes them. They have support for a lot of languages including Vietnamese. For your question about IRS issues - yes, it definitely helped. I filed exactly as the system recommended, properly reporting everything, and I haven't received any questions from the IRS. The key benefit was that it helped me identify what needed to be reported where, especially with the FBAR requirements for foreign accounts which have huge penalties if missed. It was a relief to file with confidence rather than guessing.

Wait, how does this actually work? I thought it was impossible to get through to the IRS these days. Is this some kind of priority line or something?

I'm calling BS on this. I've tried EVERYTHING to get through to the IRS about my foreign income questions and nothing works. No way this service actually gets you through to someone that quickly. Sounds like a scam to me.

It works by using technology to navigate the IRS phone system automatically. When you sign up, their system calls the IRS and goes through all the prompts and wait times for you. Once they reach a human agent, they call you and connect you directly to that agent. It's like having someone wait on hold for you. I was definitely skeptical too before trying it. I had spent hours upon hours trying to reach someone at the IRS with no luck. The service actually does work though - they connected me with an IRS agent in about 18 minutes when I had been trying for weeks on my own. The agent I spoke with was super helpful about my specific international income situation and gave me detailed filing instructions. Not a scam at all - it just automates the painful waiting process.

Wait, this sounds serious. I don't have signature authority on any accounts in Ecuador, but since I'm sending money and receiving profits, could that count as having a "financial interest"? How would I know if I need to file this FBAR thing?

The definition of "financial interest" can be broad. If you have an arrangement where you're entitled to profits from the business, the IRS might consider you to have a financial interest in the accounts, even without signature authority. The safest approach would be to consult with a tax professional who specializes in international reporting. But generally, if you're investing in a business and receiving returns based on performance, you likely have a financial interest. If the total of all foreign accounts you have an interest in exceeds $10,000 at any point in the year, you'd need to file the FBAR. You might also need to look into Form 8938 (Statement of Specified Foreign Financial Assets) depending on the amounts involved. These are separate from your tax return and have different filing requirements and deadlines.

That approach could create more problems than it solves. The IRS looks at the substance of transactions, not just what you call them. If there's a pattern of you investing money and then receiving returns that correlate with business performance, relabeling them as "gifts" could be seen as tax evasion. While non-US persons can give gifts to US citizens without triggering gift tax for the recipient, unusual patterns of large gifts might trigger extra scrutiny. If audited, you'd need to prove these were genuine gifts with no expectation of return, which contradicts the investment arrangement described.