Reporting Foreign Inheritance with Form 3520
After receiving a foreign inheritance, you may not even consider your IRS reporting requirements. However, depending on the value of your inheritance, you may be required to report it to the IRS using Form 3520.
American citizens and resident aliens who receive a foreign inheritance valued at over $100,000 must report it using IRS Form 3520. Completing this form requires the determining the fair market value of inherited foreign assets and property, which can be complicated. Depending on where you hold your foreign inheritance, you may have additional reporting requirements. Generally, Form 3520 is due on Tax Day and can be submitted along with your annual tax return. If you fail to comply with reporting requirements after receiving a foreign inheritance, you can face steep financial penalties from the IRS.
Our tax CPAs are here to help you properly report your foreign inheritance to the IRS using Form 3520. To learn more about the tax accountants at US Tax Help, call today at (541) 362-9127.
Do You Need to Report a Foreign Inheritance Using Form 3520?
If you receive a foreign inheritance, whether as an American citizen or resident alien, you may have to report it to the IRS. Whether you do or not depends on the value of the total inheritance you receive.
Both resident aliens and American citizens, whether they live abroad or domestically, must use Form 3520 to report foreign inheritances valued at over $100,000. Whether your inheritance comes from a foreign estate or family member, you must inform the IRS if it exceeds the threshold.
It’s important to note that foreign inheritances don’t have to be chase. If you inherited foreign assets, like property, you might still need to report such to the IRS, depending on the combined value of the inherited assets. To better evaluate your foreign inheritance and properly comply with IRS reporting requirements, turn to an experienced tax accountant for help.
If you receive a foreign inheritance, you should know that reporting it using Form 3520 doesn’t mean you’ll be taxed. There aren’t federal taxes on foreign inheritances in the United States. That said, your state of residence may impose taxes on a foreign inheritance. Because of that, you may have to report your foreign inheritance to your state tax collection agency as well as the IRS.
How to Complete Form 3520 to Report a Foreign Inheritance
IRS Form 3520 is a six-page document that can be confusing. This form is used to report transactions with foreign trusts as well as receipts of foreign gifts, meaning depending on your inheritance, you may only be responsible for completing part of Form 3520. Since even a small mistake can have serious consequences, it’s best to turn to a skilled professional for guidance.
While IRS Form 3520 can appear complex, foreign inheritance recipients are generally only responsible for completing Part IV of the document. That said, Americans and foreign persons living in the United States may need to have detailed information regarding an inheritance and a foreign donor on hand while completing Form 3520, making the process a bit more complicated.
You will also need to provide descriptions of the property or funds you received and their fair market value. Evaluating the fair market value of inherited assets is crucial, as inherited foreign financial assets valued above a certain amount can make you responsible for filing additional forms. For example, if you are an American living abroad and your foreign inheritance caused your foreign financial assets to go above the threshold, you may need to file Form 8938 in addition to Form 3520.
Or, suppose your foreign inheritance was placed in a foreign bank account you own. In that case, you may have to file Form 114 with the Financial Crimes Enforcement Network.
As you complete Form 3520, your other reporting requirements may become clear. Without an experienced tax accountant by your side, you may incorrectly report your foreign inheritance to the IRS or be unaware of additional reporting responsibilities you may have.
When is Form 3520 Due?
Understanding your reporting requirements for a foreign inheritance is important. What’s equally important, however, is knowing when IRS Form 3520 is due. As with any tax form, filing Form 3520 on time is crucial.
Those responsible for completing Form 3520 must do so by Tax Day. You can submit this form alongside your annual tax return and any other tax forms due by the same date. Foreign inheritance recipients can also file for an extension if they cannot complete Form 3520 by the due date.
Your tax accountant can help you file for an extension if necessary. Extensions for filing Form 3520 are generally six months long, giving you ample time to comply with IRS reporting requirements for foreign inheritances.
What Happens if You Don’t Use Form 3520 to Report a Foreign Inheritance?
Should you fail to report a foreign inheritance using IRS Form 3520 when required, you may face serious consequences. The IRS tends to impose steep financial penalties on American citizens and residents who don’t comply with reporting requirements.
Although the IRS doesn’t tax foreign inheritances, it can penalize you if you fail to report yours. For errors on Form 3520 or late filing, you can face penalties of either $10,000 or 35% of your inheritance, whichever amount is greater. Americans who are required to file other forms after receiving a foreign inheritance, such as IRS Form 8938 or FinCEN Form 114, can face additional financial penalties.
Getting penalized for failure to report a foreign inheritance is simply unnecessary. Instead of risking making mistakes on Form 3520, or forgetting to report your foreign inheritance altogether, turn to a reliable tax accountant you can trust. Otherwise, your foreign inheritance can be significantly reduced because of financial penalties.
Our Tax CPAs Can Help You Report a Foreign Inheritance Using Form 3520
If you need to report a foreign inheritance to the IRS, our experienced professionals can help. To learn more about the tax accountants at US Tax Help, call today at (541) 362-9127.