It depends. The instructions for 3520 state this should be reported if more than $100,000 is received 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. Bequests are gifts made as part of a will or trust, so if there was a formal will made at the time of the inheritance, than a 3520 should be filed for the proceeds of the sale as well as the gift.
This transcends into a gray area where you will need to make a decision on whether or not to report this on a 3520. I generally err on the side of caution and would recommend reporting this just to be safe. Besides the 3520 is an informational form that will have no impact on your income taxes.
Definitely file the Form 1116 as well as reporting the investment income that is reported on Schedule D and 8949 in the manner that AbrahamT suggests.
@ppttcomm23
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