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ParkNYC

Level 5

Question

Gift / Inheritance Form a Foreign Person. Form 3520-Gift Tax.

Forum|Forum|4 years ago
February 17, 2022
29 replies
149 views

Hello everyone,

I have questions regarding inheritance and form 3520.

My relative died and I received a real estate and some cash totaling more than $100,000 in a foreign country.

My relative was a foreign person and I'm a US citizen. I understand that I have to report this to the IRS and file a paper form 3520 Part IV.

My questions:

Do I have to report real estate also or only cash gifts? The real estate value is greater than cash I received.

If I have to report real estate properties, do i have to describe details about the property?

My relative died in December 2021, but all inheritance we received in January 2022 (legal procedure overseas). Should I mail the Form 3520 by April 2022 (for 2021 tax year) or April 2023 (for 2022 tax year)?

Thank you,

Not A Product Question

Opus 17

Level 15

You must report the entire value of the inheritance, using the US dollar value as of the date of the person's death, not just the cash. Separately, you need to file an FBAR report if you had at any time, a foreign bank account with more than $10,000 US equivalent in it (even if you later closed the account and transferred the funds to the US). The FBAR would be filed for 2022, since it sounds like you didn't have money in the account in your name until 2022.

Yes you need a description of the real estate, but it does not have to be lengthy. ("Apartment 612 at 123 Fake Street, Berlin", or "15 hectares of vacant land in Lazio province, Italy"). See the form 3520.

I'm not sure when to report the inheritance. Due to the need to close probate and the doctrine of constructive receipt, I would think it is more likely to be a 2022 inheritance (since you couldn't actually spend the money or sell the property until 2022). 2022 is when the property was distributed from the estate to you.

@pk12_2 any comments?

One important note you did not raise: whenever you sell the real estate, you will owe capital gains tax based on the gain in value over your cost basis, which is the fair market value on the date the previous owner died. It will be worth it to get a qualified appraisal now even if you have to pay for it, it could save you a lot of money later.

pk_

Level 15

@ParkNYC , having gone through the original post and the answer , I agree with @Opus 17 that :

(a) the fair market value of the real-estate and any other non-cash assets received as part of the inheritance by a US person ( Citizen/Green Card / Resident ) on the date of the demise of the decedent or on an alternate date shortly thereafter is the BASIS of the asset(s) for the recipient/inheritor.

(b) any gain in disposing these assets would generally be treated as long-term / Capital gain and taxes as such. Hence a proper valuation for purposes of establishing basis is a very good idea

(c) Form 3520 needs to be filed as part of the return for the year in which the inherited assets were constructively received e.g. in case of realestate, it is the date on which the property was transferred to you , not necessarily the date on which the title is registered and returned to you ( e.g. in Mexico it is the date on which the Contrato de Venda is signed, and funds exchanged --- in front of a notario ---not when actual escritura -- "title" -- is registered and returned to the buyer -- think it is often the case in many countries )

(d) FBAR filing is separate from the return and is due by June 15 the following and done as on line filing at FinCen.gov for form 114 -- this will take you to bsa-efiling site which operates the facility.

(e) Additionally there is NO tax impact of the inheritance itself and therefore there is no foreign tax credit eligibility ( if the foreign taxing authority taxes the transfer of ownership from the decedent to the inheritor ). In case of disposal of assets resulting in gain, this taxed by the US ( Fed and State ) and if taxed by the foreign taxing authority, eligible for foreign tax credit.

Thank you @Opus 17 -- it was a very good answer

jtax

Level 10

@pk12_2 wrote:

(d) FBAR filing is separate from the return and is due by June 15 the following and done as on line filing at FinCen.gov for form 114 -- this will take you to bsa-efiling site which operates the facility.

The current filing deadline for the FBAR/114 is not June 15 but rather April 15 with an automatic extension until October 15. There is no requirement to file for the extension it is automatic.

https://www.fincen.gov/sites/default/files/shared/FBAR_Due_Date_20190306.pdf

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar#:~:text=When%20to%20File,due%20date%20of%20April%2015.

Note the Act referred to says "April 15" not the 1040 due date, which could be June 15 if you are not in the US.

https://www.congress.gov/bill/114th-congress/house-bill/3236/text

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ParkNYCAuthor

Level 5

Thank you @Opus 17 and @pk12_2. I've been filing FBAR yearly for a while because I own foreign accounts.

I understand that I'd have to include and report value of the real estate properties also. My main question still is: when should I file the form 3520, in 2022 for year 2021 or in 2023 for year 2022? I don't want to make mistakes here and I would prefer to do it in 2021, but I think it would make more sense to file the form for a year when I actually received (became the owner) the real estate and cash, which was in January 2022. The relative died in December 2021, but legally I still couldn't do anything with the property.

In my old country there is a similar informative form which I have to file to avoid inheritance taxation. I have six months to file it from the day of receiving the property. There are two dates on that form, the first is "date of death" (in my case December 2021which is called "date of receiving") and second date which is January 2022, that date it's called "date when requirement to file the form starts" and I have six months to file the form from that day.

Opus 17

Level 15

@ParkNYC

For US tax purposes, the date of constructive receipt seems to have been in 2022. You may have been a technical owner of the property and the cash in 2021, but you didn’t have any ownership that you could act upon until 2022.

I’m not aware that the IRS would penalize you for filing the form in 2021, since it’s a close call. On the other hand, I don’t see the urgency either.

ParkNYCAuthor

Level 5

Thank you @Opus 17 for you response. I have couple more short questions:

1. Do I have to mail all 6 pages or only page 1 and 6. I'll be filing only Part IV?

2. Should I check box "initial return"?

3. I received percentage of real estate (3/8 of a house), should I include this info in the "Description of property received"?

4. In the part IV (a) "Date of gift or bequest", should I write date of death (December 2021) or legal receiving (January 2021)? I guess this would affect the year for which I should file the form. I'm not sure if in the US date of death is also considered date of receiving the inheritance or not.

Thanks,

LoganathanB

Level 7

Yes, you will report the property also in form 3520 Part IV. Enter a brief description of the property and fair market value of the property.

You will file the 3520 for the tax year 2022 since you actually received the gifts in 2022.

Capitano123

Level 2

Hi, i am italian and american citizen and so was my father who passed away last year and left me a home over in italy. In my case do i have to fill out form 3520? Thanks in advance!

Opus 17

Level 15

If your father was a US person for tax purposes, then form 3520 is not required. A "US person" for income tax purposes is a citizen, a green card holder, or a non-citizen living in the US for more than 183 days per year.

pk_

Level 15

@Capitano123 , while generally agreeing with @Opus 17 about your inheritance from your father ( both being US citizens/ US persons for tax purposes ), I would like to point out that , if the property in question is foreign i.e. the estate was a foreign estate under foreign probate laws, then for US tax purposes, you still have to treat this as if the inheritance/gift is from a foreign person/foreign trust/estate and hence form 3520 reporting would be required ( iff, the amount is >= us$100,000). The is because US probate has no jurisdiction over a foreign estate ( this is sometime circumvented through special court orders ( through US State Department ) and requests to the foreign country judicial system , but these are extremely time consuming and therefore most people with foreign assets , just create a local trust / estate and a foreign estate/trust ---- this is quite common as I understand between US and Mexico.

Does this make sense ?