thebrit123

The probate solicitor for my mother's estate is going to start distributing the funds between us 3 siblings. He is going to transfer the proceeds from closing her bank accounts and at a later date the proceeds from the sale of the house.

My question is about the IRS form 3520 as it states you must report gifts/inheritance if they are over $100,000. What do you do if the solicitor splits up the proceeds in two lots. Do you later account for the two lots as one if they are over $100,000? If both lots are each under $100,000 do you still need form 3520 even if they are over $100,000 when combined?

nun

If you receive the inheritance in the same year you'd add them together and if they are over $100k file the 3520. If you receive the money in separate tax years you'd only file the 3520s if the individual checks were over $100k.

Cook_County

Don't forget the FBAR and the 8938.

nun

Those won't be necessary if you have the money sent to you directly in the USA.

JAJ

Also check if your state has a tax on receipt of an inheritance.

Cook_County

Not necessarily true. The interest in the foreign estate is probably itself a foreign financial asset for 8938 purposes.

nun

I'd argue that if the inheritance is held in probate in a foreign account and it is then wired directly to a US account there is no 8938 or FBAR required because the foreign estate has no US tax liability, any taxes will be paid by the estate to the foreign country. The US beneficiary does not have an "interest" in the probate estate because there's no income, gain, loss, expense from it that would be reported on their tax return until they actually receive the inheritance. Once the inheritance is paid to the US person then a US tax liability is created and if the money is held by the US person in a foreign account FBAR and 8938 might be required along with 3520.

If the US person is an executor with signature authority over the account in probate then 8938 and FBAR might be required.

Nutmegger

When I was in a similar position, at the time the Executor wired my share to me he sent a statement along with the Revenue Form R185 which he had filed. His instruction to me was that I had to declare on my tax return the net income during the Administration Period (he gave me the number), along with the fact that the UK tax was paid (again he provided the number). I just provided that information to my accountant when she prepared my return that year.

nun

So did she file FBAR or 8938? You certainly have to file the R185 when you do your UK taxes to see if you get a refund or have to pay more tax than the estate withheld

Nutmegger

Neither. The interest earned went as income on Sched B of the 1040 (can't see where the tax-paid part was entered). Only additional form filed was the reporting 3520.

Cook_County

I fail to see how an interest in a foreign estate is not reportable on form 8938 from 2011 onwards. See:

http://taxblawg.files.wordpress.com/...h-sheppard.pdf

nun

If there is income generated by the estate in probate and then distributed to the beneficiary that would be US taxable so you'd probably have to file 8938, but maybe not and FBAR, and report it on the Schedule B and Schedule E. If there is no income and you just get a check or wire transfer directly from the foreign executor there is no US taxable event. Check out the definition of having an "interest" for the purposes of FBAR and 8938 on page 31 of your link.

PS actually I can see that if the inheritance is over $100k you have to file a 3520, so you've reported it on your income taxes so you should file an 8938, but you don't have to include information about the trust just fill in Part IV of 8938 to let the IRS know the information is on 3520. This points out the "Alice in Wonderland" flavour of US taxation.......you need to file a form to inform the IRS that you've filed a form!!!!!