Foreign Inheritance and forms 3520 and 8938

[user17737699809]

I received a foreign monetary inheritance last year that was greater than $100,000 and I'm therefore filling out form 3520.

That money was put in my foreign bank account which already existed.

For this year, on form 8938 if I put in the maximum value of that bank account, it will include the inheritance which is reported on form 3520.

Is this the right way to enter the information or am I duplicating it on the two forms?

Which other boxes do I need to check (8938 part IV line 15, 3520 page 1 question C, others...)?

Thanks.

[ThomasM125]

To the extent you entered the asset balance on Form 3520, you do not need to enter it on Form 8938, as is stated in Part IV of Form 8938. You do need to check line 15 on Form 8938 to indicate that you reported assets on Form 3520.  

Item C on form 3520 referring to excepted specified foreign assets would likely not pertain to you as that would be for items that would normally be entered on Form 3520, but are listed elsewhere. 

You should read all of the questions on both forms and provide answers if the questions pertain to you. 

[user17737699809]

Sorry, I'm still unclear about what I need to enter on form 8938 as the inheritance money was merged with non-inheritance money in my bank account. Do I subtract the inheritance amount from the maximum amount in my bank account and enter that as the maximum value of the account on form 8938?

Thanks

[DaveF1006]

No. You do not need to subtract the inheritance from your bank account balance on Form 8938. Instead, you follow the "Reporting Exception" rule.

1. Report the full maximum value on Form 8938: List the bank account and its true maximum balance (including the inheritance) in Part I. 
2. Use Part IV to prevent double-counting: This is the section specifically designed to tell the IRS, "Hey, I already told you about the value of some of these assets on another form."
3. On Form 8938, Part IV, Line 15, check the box for Form 3520.
4. In the "Number of Forms 3520 filed" box, enter 1.
5. By checking that box, you are legally notifying the IRS that the value reported on Form 8938 overlaps with what you reported as a gift on Form 3520. You report the real balance of the account so your FBAR (if applicable) and 8938 match, but Part IV "flags" the inheritance portion so it isn't treated as a separate, additional asset.

Here are the things that should be addressed on the 8938 and 3520.

Form 8938 (Statement of Specified Foreign Financial Assets)

• Part I, Line 1: Report the account.
• Part I, Line 4: Enter the Full Maximum Value (do not subtract the inheritance).
• Part IV, Line 15: Check the box for Form 3520 and enter the quantity (1). This is your "get out of jail free" card for the duplication.

Form 3520 (Annual Return To Report Transactions With Foreign Trusts...)

• Page 1, Box C: Generally, you leave this blank. This box is for "Excepted Specified Foreign Financial Assets," which usually refers to assets reported on very specific forms like 8621 (PFICs). Since you are reporting the bank account on 8938, you aren't "excepted" from 8938; you are just using the 8938 to cross-reference the 3520.
• Part IV, Line 54: This is where you actually report the date and value of the inheritance (since it's over $100,000 from a foreign individual/estate).

Don't forget that if that bank account held more than $10,000 at any point, you must also file FinCEN Form 114 (FBAR). The FBAR does not have a Part IV "overlap" section; you just report the full maximum balance there regardless of where the money came from. TurboTax does not file these forms but you may file it here.

[xqzhang6]

This is very helpful! Thank you!!