If you are a citizen or permanent resident, you must report all income to the IRS annually even if it’s taxed somewhere else. Also, unless you have been living under a rock you should KNOW that you must report your foreign bank accounts. There’s been so much press coverage of these issues recently it is harder to claim ignorance of these rules than in the past.
But what about inheritances from your foreign family members?
First, start with the presumption that if you receive a gift or inheritance, it isn’t income. If there is a gift or estate tax, that would be addressed by the person giving you the money or property. So when you receive a gift or inheritance, you generally don’t owe tax on it.
But the IRS likes to keep tabs on such things you see, and if you’re concerned about proving that something was a gift or inheritance, you’d better file IRS Form 3520.
File a Form 3520 if you receive either of the following during the tax year:
- More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or
- More than $14,375 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.
You are required to report bequests on Form 3520 when you actually or constructively receive them. Thus, report a gift in the year you actually receive it (e.g., title is taken in your name) or the year you could have acquired title in your name, whichever occurs first.
The penalty for reporting a gift late is 5 percent of its value for each month the gift is not reported (capped at 25 percent) even if no tax was initially owed.