Foreign Inheritance Tax & Reporting – IRS Foreign Inheritance
- 1 Foreign Inheritance Tax & Reporting
- 2 Why Is There No U.S. Tax?
- 3 U.S. Situs Changes the Rules
- 4 Inheriting Foreign Assets
- 5 What Can You Do?
- 6 We Specialize in Safely Disclosing Foreign Money
- 7 Who Decides to Disclose Unreported Money?
- 8 Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
- 9 Beware of Copycat Law Firms
- 10 4 Types of IRS Voluntary Disclosure Programs
Foreign Inheritance Tax & Reporting – IRS Foreign Inheritance
Whether or not a person has to pay U.S. tax on money or assets they received from a foreign inheritance is a very common question. Usually, there’s a very simple answer, which is that you do not pay tax on the receipt of a foreign inheritance.
Foreign Inheritance Tax & Reporting
In other words, if you are a U.S. person and you receive an inheritance from a person who is a non-U.S. person, involving non-U.S. money then there is no tax.
But, there may still be a reporting requirement.
Why Is There No U.S. Tax?
The United States follows an estate tax model. That means, that it is the estate that is being taxed and not the inheritance.
Stated another way, it is the money of the person who passed away which is being taxed, and not the actual recipient’s portion of the money that is being taxed.
Therefore, if a non-US person (let’s say a citizen of Taiwan) who has no U.S. status and no U.S. situs passes away and leaves a U.S. person $40 million worth of foreign assets, investments, etc.. then the IRS has no right to tax the assets, etc. of the foreign person, because the foreign person has no relation to the United States.
Likewise, the recipient is not taxed directly on the inheritance. The federal government does not have an inheritance tax, (although some states still do have an inheritance tax), so you’ll want to check with your particular state’s estate tax rules.
All pretty good news, unless the person who passed away also had U.S. situs…
U.S. Situs Changes the Rules
In the prior example above, the person who passed away (a.k.a. the decedent) did not have any U.S. situs, such as land. But let’s say that person also had $3 million worth of US real estate.
Let’s also presume that person did not properly place the land into a trust or other asset protection entity, and that the person presumably owned property directly. When a foreign person (non U.S. Citizen or Resident) owns US property, the default rule when he or she passes away is that only the first $60,000 is exempted from estate tax. This is a far cry from the exemption amount for US persons, which is roughly $5.5 million.
In this situation, if the foreign person decedent also had $3 million of U.S. situs, then any amount over $60,000 may be taxed at 40%.
Therefore, while the foreign assets would pass tax-free, the U.S. situs would be taxed at 40% — which is nearly $1.2 million.
Inheriting Foreign Assets
If you have inherited foreign assets or accounts, it is important that you remain in IRS tax compliance. As you may or may not be aware, the IRS has made international tax enforcement a key priority. And, as a result of the inheritance, you may now have an International Informational Return filing requirement.
Moreover, the penalties associated with failing to remain in compliance are brutal, and can often reach 100% value in a multi-year audit situation in which the IRS believes you are willful.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
We Specialize in Safely Disclosing Foreign Money
We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)
Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Who Decides to Disclose Unreported Money?
What Types of Clients Do we Represent?
We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
Our Managing Partner, Sean M. Golding, JD, LLM, EA earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)
Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists
The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.
In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.
Beware of Copycat Law Firms
Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.
*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
Contact Us Today; Let us Help You.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)