Week in Insights: Cross-Border Transfer Tax Rule Has Big Loophole

The IRS last month proposed rules that would impose a 1% excise tax on remittance transfers—essentially cross-border money transfers—in amounts greater than $15 that are funded with cash or cash-like instruments. There are some exceptions to the tax, including general-use prepaid cards.

This raises the question of what happens when a person seeking to send money overseas simply buys a prepaid card with cash and then uses the card to fund a remittance abroad.

The proposed regulations handle the obvious cases straightforwardly: If the transaction is effectively a cash-to-card, card-to-remittance chain, the IRS may disregard or recharacterize those steps ...