CPA for U.S. Citizens Who Inherited Money from Foreign Relatives

Learning that you were left an inheritance from a relative is often a welcome development for a person. While you cannot replace the loss of a loved one, the inheritance they left for you could make a substantial impact on your financial situation. Still, it is normal to worry about whether you will have to pay taxes on that inheritance. Meet with a CPA for U.S. citizens who inherited money from foreign relatives to learn about your reporting requirements.

After receiving money from a foreign relative, you may be unsure of whether this money could be taxed by the United States. With the help of CPA Ted Kleinman of U.S. Tax Help, you will be able to confidently file your tax returns without fear that you made a serious error. Call us at (541) 362-9127.

Reporting Requirements for Inherited Money from Foreign Relatives

A person that receives an inheritance or gift from another person is typically not required to pay a federal inheritance tax. The individual that offered the gift would be responsible for paying the gift tax. If the gift was given as an inheritance, then the estate of the decedent must pay it.

While you may not have to pay taxes on money inherited from a foreign relative, the Internal Revenue Service (IRS) may still require you to report the gift. This also means that you could be subject to tax penalties for failing to report the gift even though you did not have to report it as income. Fortunately, our CPA for U.S. citizens who inherited money from foreign relatives is here to make sure that you do not receive a surprise tax bill for being unaware of your reporting duty for foreign gifts.

Using Form 3520 to Report Inherited Money from Foreign Relatives

As mentioned, if you are a U.S. citizen that has received money from relatives outside the country, it must be reported to the IRS to avoid penalties. To report your inheritance, you will need to use Form 3520, entitled “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

When a taxpayer receives money from a foreign relative or their estate, they are required to report the total amount of the gift when its value is more than $100,000 during the taxable year. If the aggregate value of the money received is more than $100,000 and it was received at different times, you will need to identify every instance where you received more than $5,000.

It is important to note that you cannot escape inheritance reporting regulations by separating money given from relatives. For example, if spouses individually gifted you money on different dates in the same tax year, you will need to report it to the IRS depending on the amount of the gift.

When to File Form 3520

Form 3520 must be filed by April 15th of the taxable year and must be filed separately from your income tax return. If you believe that you will have trouble meeting the filing deadline, you should request an extension. If granted, you may be given until October 15th to file your case.

Penalties for Not Reporting Inheritance Money

If you do not report your inheritance to the IRS, you could be subject to a 5% to 25% penalty of the value of the inheritance. This penalty would be incurred every month until you report your money inheritance to the IRS. There may also be other penalties assessed if you used incorrect or false information on your Form 3520.

Note that the IRS may forgo a penalty if you could show that you did not willfully fail to report money given to you by foreign relatives. Speak with our CPA for U.S. citizens who inherited money from foreign relatives to get more knowledge on defenses from unintentional tax reporting violations.

Filing an FBAR After Inheriting Money from a Foreign Relative

The form in which a foreign relative decides to give you your inheritance will affect your tax liability and what you must report to the IRS. For example, when a taxpayer is given cash as their inheritance, they will likely only need to use Form 3520 to report it. However, if your foreign relatives chose to provide you with authority over a foreign financial account so that you could access your money, this may trigger foreign bank account reporting (FBAR).

A taxpayer must file an FBAR with the IRS if they have ownership or control over one or more foreign financial accounts that have an aggregate value of at least $10,000. It is vital to note that under FBAR, a taxpayer could be subject to taxes for an inheritance, so you should ensure that you are compliant with the reporting requirements.

If a taxpayer does not report their foreign financial account, they may be subject to penalties that are much more severe than those imposed for violating Form 3520 requirements. Talk with our CPA for U.S. citizens who inherited money from foreign relatives about whether your inheritance is subject to FBAR.

Contact a CPA for U.S. Citizens Who Inherited Money from Foreign Relatives

If you inherited money from a relative outside the country, call our CPA for U.S. citizens who inherited money from foreign relatives. Ted Kleinman of U.S. Tax Help has assisted clients in navigating through U.S. and international tax law for over 30 years, and he is here to offer you his CPA services. To get started on your tax return for your inheritance, call (541) 362-9127 or use our website to begin the consultation process.

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