Do I Report a Foreign Inheritance – Overseas Inheritance Tax | IRS 3520
Foreign Inheritance Tax: The IRS Form 3520 is used for many different purposes, but the main purpose of the form is to report a Form 3520 decedent inheritance from a foreign person. It is important to note, that it is not necessarily situs or property from outside the United States, but rather if the person leaving the inheritance is a “foreign person.”
Do I Report a Foreign Inheritance?
Form 3520 Inheritance refers to a gift/inheritance you received from a Foreign Person. Some examples include:
- Foreign Parents left you money in an estate
- Foreign Relatives left you money for when you graduate
- Your Parents left you an interest in a family business.
- Your Parents left you an interest in an account, stock, funds, etc.
Who Reports the Inheritance?
You (the U.S. person recipient) reports the inheritance. The reason is that because the IRS has no “rights” over a foreign person to require an estate tax return. BUT, the IRS still wants to track how much money and assets you have, so they require you file the Form 3520 when you meet the threshold.
What are the Thresholds for Filing?
The Thresholds will vary based on whether the inheritance is from a foreign individual, or foreign business.
As provided by the IRS:
“You are a U.S. person who, during the current tax year, received either:
a. More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or
b. More than $16,076 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.
Foreign Person vs. Foreign Inheritance
It is important to note, that even if you receive a U.S. property, money, or asset inheritance from a foreign person who — it may still need to be reported (Foreign Person with Foreign Inheritance vs. Foreign Person and U.S Situs). These rules can get complex, and you should speak with an experienced attorney before making any representation (or filing and forms) with the IRS.
How do you Report the Inheritance?
You report the inheritance on Form 3520, and the Filing Requirements vary.
What if you did not Report the Inheritance?
If you did not report the gift, it is important to get into compliance, since the IRS can (and does) issue penalties for failing to file the form timely.
Section 6677. A penalty applies if Form 3520 is not timely filed or if the information is incomplete or incorrect (see below for an exception if there is reasonable cause).
Generally, the initial penalty is equal to the greater of $10,000 or the following (as applicable).
35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust in Part I.
35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution in Part III.
5% of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person under the grantor trust rules (sections 671 through 679) for failure by the U.S. person to report the U.S. owner information in Part II.
Such U.S. person is subject to an additional separate 5% penalty (or $10,000 if greater), if such person (a) fails to ensure that the foreign trust files a timely Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries, or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information.
What if you are Out of Compliance?
If you are out of compliance, it is important to consider safely getting into compliance, before the IRS finds you.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.