Foreign unearned income

[blacklab3217]

I took a lump sum distribution on an annuity that I inherited in France and had the money deposited in an American bank account. How do I determine my tax basis and where do I report this income?

[AbrahamT]

All foreign income both earned and unearned must be fully reported and included as taxable income.as long as you are considered a US citizen and you file a 1040 federal tax return.  You may be entitled to a foreign earned income exclusion which doesn't apply in your situation because inheritance income would typically be NOT be in that category See HERE

and HERE Chapter 4 Pg 15 of what goes into the category of earned income.

[pk]

@blacklab3217 ,

(a) are you a US person ( citizen / GreenCard / Resident for Tax Purposes )?  

(b) was this decedent,from whose Estate you inherited the annuity , a US  person ( citizen/ GreenCard/ Resident for tax purposes ) or a Non-Resident Aline  ( Finch Citizen/Resident)

(c) was annuity with  a clause like " pay a fixed sum at death" i.e. with a life insurance attached or the type that pays a fixed sum every month till death  and  return the residue to the estate ?

(d) Are there more  things that I should be aware of on this  situation ?

Generally agreeing with @AbrahamT , that as a US person (? ) you may have to recognize  and may be taxed  depending on the exact facts and  circumstances.

pk

[blacklab3217]

Thanks for the reply. The person I inherited from was a French citizen, but I am an American citizen.  When I withdrew the money, I was taxed by the French government, but was able to get a refund because I am a U.S. based taxpayer. The annuity did not have a life insurance policy attached, it was a retirement account that I was able to draw against until there was no money left. I chose to take a lump-sum distribution as I speak little French and the difficulty of managing money overseas.

I have figured out my (cost / tax basis) and proportioned it to the amount I received in 2022. The refund of the French taxes was not sent until 2023, so I will apply the remaining basis to the refund amount and declare that amount on next years taxes.  I do not have a1099 for the distribution, and am confused as to where do I claim the income, as retirement or investment income? I hope this makes sense and helps with how to answer.

[pk]

@blacklab3217 , great .

If the total amount of distribution is equivalent to US$ DDDD, and the  French  govt withheld at source  US$TTTT, then since the US$ TTTT is going to be refunded to you and because this is from a decedent's estate ( French person and  French entity ), I do not understand  why you have to be taxed on the benefit / distribution -- you were not the beneficiary of the contract --- it is the estate of the decedent and you  received an inheritance.   The best I can come up with is that , and  because  France is not taxing it based on your stipulation that the "heir" is resident of USA, is that you pay the USA taxes  on the gain  ( DDDD less basis  )  in the  total distribution ( if you want to / need to ). -- it is a bit murky because the decedent  and the estate  are foreign .   You may still have to file a form 3520  if the amount exceeds  us$100,000.

Personally you should  pay the French tax per the local tax rules  and not report this income to USA, except for the form 3520.  

I would still recommend  that you seek a tax professional's advice  -- on that is familiar with international taxation and treaties .

Is there more I can do for you ?