Form 3520 - Inheritance From a Foreign Person Question

[EricSFO]

Hi Community Members,

I am hoping to understand how to properly file Form 3520 after the passing of my father, a foreign person in July 2020.

Being estranged and without leaving a will, me and my siblings (all US citizens) had little idea of his estate therefore an overseas lawyer helped us through a probate process. With COVID delays the foreign court finally granted myself as administrator of the estate on September 2021. Only then were we fully aware of the inheritance to be divided among us (over US$100000).

Before the end of 2021 I, as administrator, liquidated his estate by:

• Selling his only property (for under the appraised value at the time)
• Sold his stock portfolio (for some gain after date of death)
• Closed his bank accounts

All proceeds were deposited into my foreign account at a US bank (I disclosed my TIN and US citizen status).

How I would go about declaring Part IV of the form for 2021?

1. Should I declare the gift/bequest as cash in the value after liquidation of the estate? My father's property and stocks were never under mine or my siblings names since it was a probate process and I sold them acting as the administrator.

2. If there is no tax on the foreign inheritance, would it make sense for only me to file Form 3520 to declare the entire inheritance (not divided among siblings)? My brother is mentally handicapped therefore he is incapable / never had enough income to have the need to file.

Your advice would be greatly appreciated. Thanks so much.

EricSFO

[DaveF1006]

According to IRS, the basis of inherited assets should be determined by:

1. The FMV of the property at the date of the individual's death.

2. The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. 

3. In your case, it will be according to the value of the assets on your father's death or unless the was an alternate valuation date.

4. As far as filing a 3520, since the money was deposited in to your account, then you will report the entire amount on Form 3520. Once it was received, then you can allocate the inheritance to your siblings.

5. Keep the documentation that proves that this was a part of the inherited estate so that IRS doesn't think you are gifting the money to your siblings. You will want to prove the the money divided amongst your siblings are in terms of the inheritance.

For more information, please read the following IRS articles.

Large Gifts or Bequests from Foreign Persons           Publication 551  Inherited Property

@EricSFO