Reporting related to Foreign Inheritance (bank account and land)

[JWS5]

Hello,  

I have few questions about reporting related to inheritance and foreign bank accounts.

I am a married US citizen and my father is not a US resident.

Last year, I inherited several bank accounts (2 checking and 5 savings, total value $400,000 exceeds US $150000) and vacant lands (mountains, value $600,000 also exceeds US $150,000).

From what I understand, it appears that I need to file 

1. form 3520 to inform the total amount of gift
2. Fincen 114 to report the foreign bank accounts since total value exceeds $10,000 reporting threshold
3. In my tax return, fill out form 8938 since total financial asset value exceeds the reporting threshold of $150,000

I have few questions related to each of the forms.

Q1: (Form 3520) I believe I need to fill in only Part IV, is this correct?

Q2: (Form 3520) How should I fill in 54(b) Description of property received? Is following enough or does it need to be in more detail (for example, listing account numbers etc.)?

Bank accounts (2 checking and 5 savings) inherited from father (not a US citizen or resident)

Vacant lands (about 13.6 acres of mountain in XX province in YY country)

Q3: (form 3520) 54(C), FMV of property. Specifically for bank accounts.

I had a sibling that I had to split and wire her portion out of the inherited bank accounts. In that case, should I exclude her share from FMV? I also had to pay significant amount of tax (unlike US, inheritance is heavily taxed there) related to this inheritance. Should I deduct the tax and other costs related to the inheritance?

Q4: (Fincen 114) The accounts inherited were total 7 as described but the same day, I closed most of them and consolidated to two accounts. Should I report all the accounts including the closed ones or only the remaining ones. If I report all including the closed ones, maximum value sort of gets close to doubled so wasn’t sure.

Q5: (form 8938) I had foreign bank accounts that did not require form 8938 submission before but now I do because of inheritance. In that case, do I report the account not related to this inheritance in Part I and Part V?

Thank you for your help.

[DaveF1006]

Yes, let's answer these questions one at a time.

1. Starting with the simplest question, Part 1V would be the only section you would complete unless the distribution was made from a foreign trust. Occasionally, foreign assets may be placed in a foreign rust account by an individual to protect the inheritance and if this is the case, then you would fill out part 3. If the assets were inherited  directly through the deceased father, then only Part 1V would be filled out.
2. Doesn't need to be a detailed description. Just a description that identifies the asset inherited and the FMV.
3. There doesn't seem to be a clear precedence for this with the IRS. But since you first received this inheritance, I would suggest reporting the full inheritance. Form 3520 states that you are to report the property received in the inheritance and does not account for any transactions that occur after the inheritance. You will not deduct any costs or taxes related to the inheritance. Just remember this form is informational only.
4. According to FenCen114 requires that an FBAR be filed if the combined balance of all the foreign accounts you own or have a financial interest or signature authority is more than $10,000 at any point during the calendar year. This means if you gained the financial control over the asset before closing it, then it must be reported regardless how long the account remained opened before closing.
5.  This is a good question. According to Part 1V instructions, the amount reported on form 3520 is exempted and you do not report these on Form 8938.  Here it gets murky. My suggestion is to file the form, even if your previous account balances are below the threshold,  then indicate on Part 1V that you have filed form 3520. If Turbo Tax kicks this out and claims that the form does not need to be filed because it is below the reporting threshold or if the form is not included in your return then ignore it. i only suggest that you attempt to report so that you can rest assured you are in full compliance of your reporting responsibilities.

Hope that this helps and don't hesitate to reach out to us if you have additional questions. Here are additional resources that support my answers.

FBAR Reporting Requirements

8938 Instructions

3520 instructions