I am an F1 visa holder in the US about to receive an inheritance from abroad. What taxes do I owe the IRS? How to file?

[mandmeier]

Here's my situation with hopefully all the relevant details:

• F1 visa holder, currently living and working on OPT in the US. I have been here for more than 5 years so I am considered a resident for income tax purposes (although I am not sure if this applies to inheritances)
• A dear family member passed and according to the will left me an inheritance. These funds are currently in their (to be liquidated) foreign bank account in foreign currency. Amount is low 6 figures when converted to USD.
• I would like to transfer this foreign money to my US investment account. How do I report this correctly and what taxes will I owe to the IRS for this transfer?

[Critter-3]

Nothing changes tax wise ...

• A dear family member passed and according to the will left me an inheritance. These funds are currently in their (to be liquidated) foreign bank account in foreign currency. Amount is low 6 figures when converted to USD.  An inheritance of cash from anyone or anywhere is not reported on an income tax return.
• I would like to transfer this foreign money to my US investment account. How do I report this correctly and what taxes will I owe to the IRS for this transfer?   Again a transfer from one bank account to another  is not reported on an income tax return in any fashion  however if the money earns income like interest that is taxable.  

FBAR requirements : 

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5). Willful violations may also be subject to criminal penalties under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001.

You must file the FBAR electronically through FinCEN’s BSA E-Filing System. You don’t file the FBAR with your federal tax return.

If you want to paper-file your FBAR, you must call FinCEN’s Resource Center to request an exemption from e-filing. See Contact Us below to reach this resource center. If FinCEN approves your request, FinCEN will send you the paper FBAR form to complete and mail to the IRS at the address in the form’s instructions. IRS will not accept paper filings on TD F 90-22.1 (obsolete) or a printed FinCEN Form 114 (for e-filing only).

If you want someone to file your FBAR on your behalf, use FinCEN Report 114a, Record of Authorization to Electronically File FBARsPDF, to authorize that person to do so. You don’t submit FinCEN Report 114a when filing the FBAR; just keep it for your records and make it available to FinCEN or IRS upon request.

Turbotax does not offer the form so you may want to consult with a tax pro. 

[DoninGA]

The receipt of a  cash inheritance is not reported on a federal tax return.

However, if the amount of inheritance received from a foreign individual is greater than $100,000 you will have to file a Form 3520 to inform the IRS of receiving the income.

Go to this IRS website for Form 3520 - https://www.irs.gov/forms-pubs/about-form-3520

Form 3520 is Not sent with or included with your federal tax return, it is a stand-alone form that has to be filed on or before the due date of a federal tax return for the tax year in which the funds were received.

[mandmeier]

Thanks!

Just to clarify "United States person that has a financial interest in or signature authority over foreign financial accounts "

That foreign account is currently under the control of my relative's estate agent. Does this count as me "having a financial interest" in this account? I do not currently own any bank accounts myself outside the US, nor do I plan to open one to transfer the inheritance there. According to the current plan it would go directly into my US brokerage account.

Do I still have to file an FBAR in this case?

Also, is the FBAR just for information or will any part of my inheritance be taxed in any way?

[Critter-3]

That foreign account is currently under the control of my relative's estate agent. Does this count as me "having a financial interest" in this account?   NO

Do I still have to file an FBAR in this case?  No you don't.

Also, is the FBAR just for information or will any part of my inheritance be taxed in any way?  Only informational.  

[mandmeier]

Thanks for the help!

If I understand this form 3520 right my inheritance would fall under section IV "U.S. Recipients of Gifts or Bequests Received During the Current Tax Year From Foreign Persons". Line 54 there states the following:

During your current tax year, did you receive more than $100,000 that you treated as gifts or bequests from a nonresident alien (including a distribution received from a domestic trust treated as owned by a foreign person) or a foreign estate?

1. What does "receive" mean here? Does it mean (A) transferring some amount from the inheritance (currently in the foreign bank account, not managed by me) to my US account, or (B) have I already "received" these funds the moment my relative passed and my name was uncovered in their will?
2. What happens if the answer to Line 54 is YES, vs. if the answer is NO? Is this again just for reporting or will I pay US taxes on any part of this inheritance in any of the two cases? If I am not mistaken that inheritance is already taxed in the foreign country, hence being taxed twice doesn't seem right, thinking of it.

[DoninGA · Accepted solution]

Received means that you have access to the funds from the inheritance.  This would be when the funds are in a bank account where you are the owner of the account.

Answering Yes has no bearing on these fund being taxable on a US tax return.  Any type of gift or cash inheritance where you are the beneficiary is not taxable on a US tax return.

[mandmeier]

Received means that you have access to the funds from the inheritance.  This would be when the funds are in a bank account where you are the owner of the account.

Answering Yes has no bearing on these fund being taxable on a US tax return.  Any type of gift or cash inheritance where you are the beneficiary is not taxable on a US tax return.

This is very helpful, thank you! I think I am beginning to understand.

This means I can transfer the entire inheritance to my US account without any tax consequences, in which case I will submit Form 3520, or I could transfer it to a new foreign account (also with no US tax consequences), in which case I would submit FBAR.

Correct? or am I missing anything?

[DoninGA]

You are correct. 

If deposited in a US account then you would need to file a Form 3520

If deposited in a foreign account and you are a US resident for tax purposes then a Form 8938, Statement of Specified Foreign Financial Assets or a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) would be required.

Go to this IRS website for a comparison between the two types of reporting for a foreign account - https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

[mandmeier]

Thank you so much!

This stuff is really not easy to find unless you know exactly where to look (and the poetic lingo). You people are awesome!