Do I Have to Disclose an Inheritance from a non-US resident to the IRS?
The IRS tracks gifts and bequests from overseas, and you may have to disclose these gifts using form 3520 – “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts” if the gift or bequest received is over $100,000.000 (one hundred thousand dollars) Form 3520 is a separate form, but gets filed with your tax return for the year in which you received the inheritance. Although you will not be taxed for receiving such foreign bequest, failing to report it on Form 3520 can result in hefty penalties.
Are There Any Other Requirements?
This will depend on your own situation and the nature of the Inheritance from Foreign Person for which you are responsible. If you have a financial interest in or signature authority over a foreign financial account such as a bank account, brokerage account or a mutual fund (exceeding certain thresholds), then you may have to electronically file a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR), to the Department of Treasury.
US Situs Assets
The main consideration which the IRS will focus on is whether the inheritance from foreign person includes any US situs assets, which are taxable under US law. If the bequest received includes any property physically located in US soil, then US law applies. In this case, the US estate of the decedent might have to go through probate before it can be distributed to the heirs.
How Can I Ensure all Legal Requirements are Met?
The best way to be sure, and to have peace of mind, is to have the help of an experienced international tax attorney. As with many tax issues, determining whether you have to disclose an inheritance from foreign person can become complex. As previously mentioned, failure to meet the requirements can result in severe penalties, sometimes up to 100% of the value of the bequest if the noncompliance is for several years. It’s far wiser to be completely sure that you have the relevant information to your specific circumstances and that you understand and comply with current US tax laws. This way you can avoid nagging doubts and the chance of future repercussions due to lack of diligence in an area where the stakes can often be very high.
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