Foreign Inheritance & Gift Tax Reporting
Freeman Tax Law has decades of experience representing individuals with complex overseas tax issues. We help people protect their assets while avoiding civil and criminal liability.
If you have received an inheritance or gift from a foreign country, you may be subject to numerous IRS filing requirements. Non-compliance can lead to very severe financial penalties.
Learn more below or contact us now to schedule a free, no-obligation consultation.
Foreign Gifts and Inheritances
Have you Received a Foreign Inheritance or Gift?
Foreign Assets May Be Putting You at Risk
If you have received money from a foreign country, you need to insure you are meeting all of the reporting requirements of the IRS. Our experienced team will help you:
- Protect Your Assets
- Insure All Reporting Requirements are Met
- Avoid All Civil & Criminal Liability
Foreign Inheritance & Gift Reporting requirements
In the United States, those who receive inheritances or gifts are not required to pay Federal inheritance or gift tax. The burden of paying gift tax falls on the gift-giver, and inheritance tax is paid by the estate of the deceased. The above is true no matter where the gift originated, be it the U.S., or anywhere else in the world. However, in certain situations, the IRS requires that certain informational forms be filed, with severe penalties for those who do not file when they are required to do so. Below we examine some of the general reporting requirements and various forms you might be liable to prepare if you have received an inheritance or gift from a foreign person. Below are the main forms that you may be required to file:
If you are a U.S. person who received foreign gifts of money or other property, you may need to report these gifts on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Form 3520 is an information return, not a tax return, because foreign gifts are not subject to income tax. However, there are significant penalties for failure to file Form 3520 when it is required. The IRS requires taxpayers to file IRS Form 3520 if they receive:
- Gifts or inheritances 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).
Penalties for Failure to File Form 3520
You may be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest for each month for which failure to report continues. You may also be subject to a penalty if you file IRS Form 3520 but it is incomplete or inaccurate.
This form is also often referred to as FBAR (Foreign Bank Accounts Report). FBAR is a requirement of any US Citizen or Green Card Holder with financial interest in one or more foreign accounts in which the aggregate total is at least $10K. If you have inherited ownership of or signing authority on a foreign account containing $10K or more, you will be required to file FinCEN114. However, if your inheritance is transferred directly to your US-based account from a foreign account in which you have no financial interest, you may not be required to file this form. If you do need to file FBAR, your form must be received by the US Department of Treasury no later than June 30; the postmark date rule that applies to your tax return does not apply to FBAR.
Penalties for Not Filing FBAR
If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply.
This form needs to be filed if you have foreign interests of $50,000 on the last day of the tax year, or $75,000 or more at any time of the year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad). You are considered to have a foreign interest if you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return. Form 8938 is due by the due date, including extension, of your income tax return. The penalties for not filing can be quite severe.
Penalties for Not Filing Form 8938
Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.
OFFSHORE VOLUNTARY DISCLOSURE PROGRAM
Below are two of the forms that you may be required to file if you have or have had income or assets in foreign countries:
FinCEN From 114
FinCEN Report 114, Report of Foreign Bank and Financial Accounts, is used to report a financial interest in or signature authority over a foreign financial account. United States persons that have a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. Foreign financial accounts include bank accounts, brokerage accounts, mutual funds and trusts.
Form 8938 is used to report “specified foreign financial assets” if the total value of all specified foreign financial assets in which you have an interest is more than the reporting threshold (which varies depending on your filing status and whether you live in the U.S. or abroad). You are required to include a reportable asset even if you receive no income or distributions with respect to that asset. Form 8938 must be filed with your income tax return. The penalty for failure to file this form or late filing is $10,000. If you receive a notice from the IRS for failure to file this form and do not file it within 90 days of the IRS notice, additional penalties may be imposed.
FBAR FILING SERVICES BY FREEMAN TAX LAW
Why do people choose Freeman Tax Law?
- Straight-Forward, Easy to Understand Style
- Years of Experience Handling Cases of All Sizes and Types
- Will Handle All Communication with the IRS on Your Behalf
- Free, No-Obligation Initial Consultation
Jeffrey S. Freeman, Esq. has personally represented and counseled hundreds of clients with regard to their tax matters. During his early career, Mr. Freeman worked for a large international tax firm specializing in international tax issues. He has extensive experience representing Fortune 100 clients and high net worth families. By combining large firm training and attention to detail, with a boutique firm approach and a personal focus on resolving complex tax matters efficiently, creatively and strategically, Mr. Freeman’s priority is always to provide his clients with the highest level of representation.
Mr. Freeman holds a Masters of Law in Taxation (LL.M.) from Georgetown University Law Center in Washington, D.C. and Juris Doctor, Cum Laude, from the Detroit College of Law at Michigan State University and a Bachelor of Arts in Accounting, with honor, from Michigan State University.
“The client is the most important person at our firm….it is our job to understand their facts, clearly explain all options to resolving a problem, treat them with integrity and provide the highest level of representation.”
— Jeffrey S. Freeman, J.D., LL.M., Attorney and Counselor
Freeman Tax Law is a comprehensive firm, comprised of a full-service team of Attorneys, CPA's and former IRS agents. We have handled hundreds of offshore disclosure cases, and will help you understand your obligation in regards to the receipt of foreign gifts and bequests.
We will clearly explain your options in making all necessary disclosures to the IRS.
OFFSHORE FILING REGULATIONS
Federal and state laws change frequently. For current tax or legal advice, an attorney or CPA should be consulted.
The information contained in this article is not exhaustive, and is not a substitute for competent legal advice. If you have a question concerning a foreign account or offshore holdings, please contact us. The initial consultation is always free, and of course all communication will be confidential.
GET IN COMPLIANCE WITH FOREIGN ACCOUNT FILING REQUIREMENTS
If you have not been filing FBAR returns, or have been contacted by the IRS - you need to take action. Contact us today to schedule a free, no-obligation consultation.