If your wife is a United States Citizen or Resident she is taxed on her worldwide income. Settlements in a lawsuit are taxable income unless they are compensation for physical injuries. From your description, then entire amount of this judgment would be taxable if your wife is a U.S. Citizen. Actually bringing this money into the U.S. is not what triggers taxation. Also, if she is a U.S. Citizen she will be required to report this amount if it is deposited into a foreign account under the FBAR rules. To not do so would subject her to criminal and civil penalties. I recommend that you hire a tax attorney to work with you on this matter since it is a sizable amount and could result in severe penalties if it is not handled properly.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
Mr. Lively is correct in that U.S. citizens are tax on their worldwide income.
You need to see a tax attorney with international experience to get a clear determination of the tax implications of the funds before you receive it because the IRS has invested heavily in prosecuting individual who deposits large sums in foreign bank accounts and also the banks. A clear determination has to be made as to what actual injuries your wife sustained resulting from the "negligence by her employer." to determine what portions of the funds are taxable.
Move the funds by wire transfers and use extremely reputable banks in SA.Talk to your bankers on both sides of the transaction, and make the arrangements before the funds are transmitted to you.
You will need a number of different advisors and need to do your research with the right attorney who will protect your interest.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
You definitely should speak with a tax attorney here as there are major penalties for failing to disclose the more than $10,000 in cash/check proceeds- the lawsuit awards may also be taxable in the US (and possibly Chile) which will bring up some planning here re: any potential foreign tax credits available if taxed in Chile and if the award(s) is/are taxable in the US.
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