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    #1

    Foreign inheritance

    Taxpayer's mom (a foreign national) in oversea passed away. His portion of the inheritance is about $300,000 USD. The money will be remitted to US here later this year.

    His former accountant told him he will have to pay 40% tax on it. I have no idea what it is about. Based on my knowledge, recipient of inheritance will not be taxed (please correct me if I am wrong here). Does anyone know what his former accountant is talking about?
    Tags: None
    #2
    Revire Form 3520

    It may or may not apply but to be on the safer side pls. review.

    You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

    Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

    or

    Gifts valued at more than $13,258 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).

    You must aggregate gifts received from related parties. For example, if you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000. Report them in Part IV of Form 3520. Treat gifts from foreign trusts as trust distributions you report in Part III of Form 3520.
    Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

    Comment

      #3
      Originally posted by ATSMAN View Post
      It may or may not apply but to be on the safer side pls. review.

      You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

      Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

      or

      Gifts valued at more than $13,258 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).

      You must aggregate gifts received from related parties. For example, if you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000. Report them in Part IV of Form 3520. Treat gifts from foreign trusts as trust distributions you report in Part III of Form 3520.
      Thank you ATSMAN.

      I understand the reporting requirement. My question is mainly about the 40% tax on the foreign inheritance that his former accountant mentioned. Please correct me if I am wrong here, but I have always thought that recipient of an inheritance has no tax to pay. Could it because it is inheritance from oversea?

      Comment

        #4
        Originally posted by RightOn View Post
        Taxpayer's mom (a foreign national) in oversea passed away. His portion of the inheritance is about $300,000 USD. The money will be remitted to US here later this year.

        His former accountant told him he will have to pay 40% tax on it. I have no idea what it is about. Based on my knowledge, recipient of inheritance will not be taxed (please correct me if I am wrong here). Does anyone know what his former accountant is talking about?
        What country is it being transferred from?

        Comment

          #5
          Originally posted by jimmcg View Post
          What country is it being transferred from?
          It is Taiwan.

          Are there some countries that the inheritance tax rules will apply differently?

          Comment

            #6
            Estate Tax

            If your client is a US citizen or resident alien, then I don't understand how any inheritance could possibly be taxable to him, regardless of who or where it came from. Under US tax law, an inheritance is not taxable income to the heir.

            It is certainly possible the other accountant was wrong, or very confused about the facts.

            But it is also possible that the other accountant might have had some information that your client has not shared with you.

            For example...

            Ummm, you said your client's deceased mother was a foreign national. What exactly does that mean? I get the fact that she died in Taiwan, and I think it is fair for me to assume that she was not a US citizen.

            But was she a permanent resident? Was she ever in the US? If so, what was her status? Did she get a green card, and live here for many years, but never became a citizen? And then she went home to her native land in her final years?

            How far down this rabbit trail do you want to go?

            Is your client the executor of his mother's estate?

            Even if his mother was never present in the US, did she have any assets here?

            It may well be that the other accountant did not have all the facts, and made some inaccurate assumptions.

            But it could be the other way around. You gotta ask a lot of questions here.

            If the mother immigrated into this country and became a resident alien, then she is subject to US taxation just like any US citizen.

            But she wouldn't be liable for federal estate tax if the value of the estate was only $300K...

            Are you sure you are dealing with an estate?

            Or is the money flowing to your client from a trust?

            BMK
            Burton M. Koss
            koss@usakoss.net

            ____________________________________
            The map is not the territory...
            and the instruction book is not the process.

            Comment

              #7
              Foreign Inheritance

              I agree with Koss. I recall that the foreign inheritance is not taxable.

              Comment

                #8
                I don't recall a 40% inheritance tax under US laws. There may be some taxes due in the foreign country, but that is something they will have to deal with separately.

                Perhaps the accountant was talking about Estate taxes, but this woman is a foreign citizen that died in a foreign country, so US tax laws don't apply there.
                Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

                Comment

                  #9
                  Maybe the inheritance is from a retirement account.

                  Or, maybe, the client just asked how much tax she'd pay on an extra $300,000 with no explanation and accountant told her 40%.

                  By the way, why did she leave that accountant and come to you?

                  Comment

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