Do I need to file 3520+8938+FinCEN114 if I received foreign cash gift in my foreign account? Do I need to file FinCEN114 next year if I keep my foreign cash in foreign account

[Yangza]

Scenario: my dad in China transferred cash (equivalent to USD 220k)  into my Chinese bank account as gift in 2022, several questions:

1. Should I file form 3520 + form8938(fill part IV line15) + efile FinCEN114 for tax year 2022? Any other forms I should submit for this foreign cash gift?

2. The gift is for me only and deposited into my individual Chinese bank account, can I file 3520 individually(not check 1i box)? But I file 1040 together with my husband.

3. Because of currency control in China I can't transfer all money to my US account within 1 year, If I keep >100K cash gift in my Chinese account for tax year 2023, 2024, do I need to efile 3520, 8938, FinCEN114 again in year 2023,2024? 

Thank you in advance for whoever willing to help answer the questions.

[Anonymous_]

Paging @pk. Stay tuned.

[pk · Accepted solution]

@Yangza , should  one assume that you  and your spouse are both US persons ( Citizen / Green Card / Resident for tax purposes ) ?  Additionally should we assume that your parents ( donors) are US persons  (or foreign i.e. Non-Resident Aliens?)?

 If I assume  both to be true  i.e. you/spouse  are both US persons and the donors are foreign persons, then

(a) for a gift of that size -- above US$ 100,000-- form a foreign person you must  use form 3520 to recognize  the gift. It has no effect on your taxes  or those of the donor(s).  This is only for the year in which you constructively received the amount.

(b) If any  amount above US#10,000 rests in  your foreign bank account you would need to recognize this  on FinCen form 114  by the return filing date -- again this has no tax implications.  You have to continue doing this as long as  a foreign bank account/ financial account at any time in the year has more than US$10,000 or equivalent -- no tax implications but if not reported the penalties are quite onerous. Each person whom owns  or has signature authority over a foreign bank account is subject to FBAR  ( form 114, FinCen  ) requirements.

(c) form 8938 -- FATCA , may also need to be filed  and again this has nil tax implications but not filing  penalty is onerous.

(d) note that both these forms  ( Fincen 114 and  8938 ) are individual  ownership related not per  joint filing.

(d)  When you  choose to transfer these amounts from a foreign account to US bank account  there  will be SAR ( Suspicious  Activity  Report ) raise by your bank to treasury but generally this is just routine paperwork.  However if you do move a million or more , if I remember correctly , you will need treasury permission.

(e) also please note that any amounts sitting in foreign bank or otherwise  that generates  income ( interest / dividend  etc. ), you need to recognize  these amounts as income on your  return for the year .

Does this answer your query?   Is there more I can do for you ?

Xie Xie

pk

[Yangza]

Thank you so much PK! Your answer is precise and very helpful! Your assumption is correct, me and my husband are US person and donor is Chinese citizen. 

Thank you for also reminding the interest generated in foreign bank account I need to file that part as income. 

One follow up question: If the cash gift is a fixed deposit (I can't withdraw or transfer until 2 years later), do I still need to recognize the interest as part of my income next year? Or I only need to recognize it in 2 years later when I can withdraw or transfer it?

Appreciate if you can advise about the 3520 filing: Do I need to joint file 3520 with my husband since we will file 1040 as joint? Can I file 3520 for myself only? 

[pk · Accepted solution]

@Yangza  I apologize for missing to reply to your question about form 3520 ---- it is form for the individual whom received the gift -- so if it is a gift ONLY to you then you include  only your name / details on the gift ( even when filing as MFJ). Same thing is true for form 114 ( FBAR form at FinCen ) , assuming the  foreign account is ONLY in the name of you alone -- if joint then each owner must file his/her own FBAR form ( kind of stupid because the same amount shows up in each of the forms  -- but it is an individual responsibility ).

Does this cover your query?   Is there more I can help you with ?

pk

[ppttcomm23]

I learned a lot for these posts.  I am the primary income tax filer and my spouse is the secondary in our married filing jointly.  We both are US residents.  My spouse's brother (who is not US resident) sold an inherited foreign property which she has a share of it with other siblings in January this year 2023.   The net proceeds from the sales exceeds US$150,000 which was deposited into her foreign bank account (in her name only) and then almost immediately wired to our US bank account. Questions:

1. Based on what I read in your posts here, we only need to put her name on FinCEN114 (FBAR) and form 8938 when we file income tax for tax year 2023 even if we will file jointly on form 1040 next year, correct?

2. I believe we need to report the sales of the inherited foreign on form 8949 to calculate capital gains and then to schedule D, correct?

3. In addition to receiving the sales of foreign property, she also received a cash gift of nearly US$80,000 in January 2023 from her sister who is also not a US resident.  Her sister wired the gift directly from her sister's foreign bank account to our US bank account.  Do we have to file form 3520 because the total of the two wire transfers is now more than US$100,000 even if the nature of the two transactions is not the same?

  Unlike the proceeds from the sales of foreign property, her sister sent gift money from her sister's personal bank account (not from my spouse' foreign bank account).  Since it's less than US$100,000, I believe we don't have to report it on Form 3520 even if the total of these two wire transfers (one for sales of property, the other for gift)  is more than US$100,000.

[ppttcomm23]

Please ignore my last paragraph which I should have deleted before I submitted.

[pk]

@ppttcomm23 ,  just to make sure  that I have got the facts of the situation correct, let me  first articulate my understanding   ( please correct me if need be ) thereof:

(a)  You and your spouse  are US persons (  citizen/ GreenCard /  Resident for Tax purposes ) and your tax home is US

(b) Spouse has a foreign account  in home country ( where? ) in her name ONLY and you both have at least one joint bank account in the USA

(c) Spouse owned jointly property acquired through inheritance   ( which country ,  what was Fair Market Value at the time of death of  decedent ,  when was  the passing of the decedent and how was the property held thereafter --  within the Estate till disposal or registered in the name of the inheritors ? ).

(d) This inherited property was sold in 2023 and the proceeds  distributed  to the inheritors.   ( what happened to the property in the meantime -- rented out or what ? ).   Spouse's share of the distribution was US$150,000 and deposited in her Local/ foreign bank account.  It was then trasnferred to the joint account in the USA.

(e) The spouse also received a gift of $80,000  from a Non-Resident Alien  Additionally the decedent was also a Non Resident Alien.

Now the questions  is  how to report these transactions  to the US taxing authorities.

Assuming  that the inherited property was held within the Estate of the decedent,  till  disposal / sale ,  then form 3520 is sufficient to report  the  "cash" inheritance ( US$150,000 ) and the  "cash" gift of  US$80,000.   This is not a tax event, just recognizing / reporting the  receipt of foreign cash benefits.

On the other hand , if the inherited property  ownership  was jointly  or individually held by the inheritors then the sale  needs to be recognized .   Thus ,and assuming that the property was not used as income property in the mean time, the sale must be recognized on form  8949 ( with a Basis of  allocated  FMV at the time of passing of the decedent ) and on to Schedule-D.  TurboTax will do the needful .

In this second case the form 3520 is really optional because the US$80,000 gift is under the required threshold. 

Because the monies rested in a foreign bank account owned by the spouse, FBAR ( form 114 at FinCen.gov ) is required to be filed.  Additionally you may need to file  FATCA form 8938  because monies above the threshold (for individual owner of foreign bank account) .  Note that these forms  ( FBAR and FATCA ) do not result in  additional taxes -- just informational .  My view is when near the threshold, just go ahead and file the forms ( to be safe ).

Also note that for each of the transactions in local currency , you should use the exchnage rate of the day  ( from the bank or local sellers/ finacial institutions.

Hope this answers your question.   Is there more i can do for you ?

pk 

[ppttcomm23]

Hi pk, thank you so much for your quick response. To clarify your questions:

(a) Yes, my spouse and I are US citizens living in California and all others are none US residents in Taiwan.
(b) Yes, in Taiwan
(c) My spouse's father passed away in Nov 2009, she inherited his house with other siblings and registered as co-owners.
(d) Correct, and the property (house) was never rented out.
(e) Correct.

Based on my clarification above, if I understand your response correctly, we do NOT have to file form 3520 but we need to file FBAR (online for my spouse only), form 8939 (for my spouse only), form 8949 (joint) and schedule D (joint) for the proceeds of the sales of the inherited property.  Is that correct? Please advise.

[pk]

@ppttcomm23 , yes , your interpretation is correct.

pk