Form 3520 Inheritance

Form 3520 Inheritance

Foreign Inheritance Form 3520 Reporting

Form 3520 Inheritance Reporting: The IRS rules surrounding International tax law is complicated. This is especially true when it comes to a foreign inheritance. That is because with foreign inheritances there are generally two components to international tax: There is the taxation of the income, and the reporting of the account or asset.

While most foreign inheritances will escape tax, they must still be reported to the U.S. government.

The failure to report the money to the U.S. government may result in significant fines and penalties.

Here are some of the basic rules for foreign inheritance reporting:

Foreign Estates & Form 3520

When a person is a foreign person with a foreign estate, the United States does not have any jurisdiction over those assets. 

So in the common situation of a US person receiving an inheritance from a foreign person with foreign assets, the U.S. do not have to pay any tax on that money that they inherit.

Once the US person owns the foreign inheritance assets, if they start to generate income, then the US person will have to pay tax on the income generated from the assets.

Why?

Because the income was generated to the US person after the US person received the asset.

Stated another way, there is no estate tax due from a US person who receives a foreign inheritance from a foreign person, comprised of foreign assets. But, once the US person begins receiving income from those foreign assets, income tax is due on the earnings.

*If the foreign person has U.S. situs in their estate, the U.S. Tax rules may kick-in for the estate of the foreign person as to the U.S. assets, depending on the underlying planning.

US Situs

When a foreign person has U.S situs (such as land/property), the estate tax rules are different.

If you are the recipient of US real estate from a foreign person as a result of an inheritance, the US portion of the estate maybe come subject to estate tax.

Unlike general estate and inheritance rules, the tax rules for a foreign person with the US real estate or other property are not very forgiving – with a much smaller exemption or exclusion amount.

Reporting the Foreign Inheritance on Form 3520

The reporting required in receiving a foreign inheritance, is the same that is required when receiving a gift from a foreign person.

 Why?

Because an inheritance is a gift. And, there is no specific exclusion for not having to report a foreign inheritance gift on form 3520 the same way that a foreign gift from a non-decedent is required.

Learn more about the requirements for reporting foreign gifts.

Form 3520 Inheritance Tax Specialist Team

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.

Contact our firm today for assistance with getting compliant.

 

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