Reporting foreign income from unusual source on US return
A friend and I have an interesting set-up from which I derive income and I'm not sure how to express this on my US return. I suspect it should be treated like a personal loan, but maybe it could be classed as a gift.
My friend has an offset mortgage in the UK, where I happened to have a lot of idle cash. So, we set-up an arrangement whereby I made a new bank account in the UK in my name, deposited my money there, and set it up as an offset for his mortgage. This way his monthly interest repayments are reduced and we're splitting this saving. I receive the benefit with him making me a personal electronic transfer every quarter. This amounts to a few k per year for me in GBP.
The bank account I have set up for him is 100% in my name and he has absolutely no access to it at all. For example, I could withdraw all of my money today and there is nothing he could do, or he could default on his mortgage and my money would be unaffected. Similarly he could just not make the regular transfers to me one quarter and there is nothing I could do about that either.
Everything about this arrangement is completely ad-hoc, no formal contracts, or acknowledgement from the bank beyond the fact my account offsets his mortgage and earns 0% interest officially.
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