Your mother-in-law has died and left you a foreign inheritance consisting of two foreign gifts: a bank account and a small piece of property in Fukuoka (east of Nagasaki, on the northern shore of the island of Kyushu in Japan). The value of the foreign inheritance is worth $250,000. What must you do for purposes of your Federal income tax obligations regarding this foreign inheritance?

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IRS Form 3520, entitled "Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts" is a mere 6 pages long. It requires the recipient of a gift of more than $100,000 from a nonresident alien individual or a foreign estate to describe the property and report the values. The failure to do so will result in a penalty equal to 5% of the amount of the foreign gifts for each month for which the failure to report continues, not to exceed a total of 25%. The penalties are higher in the case of distributions from foreign trusts.

Japan has its own Trusts Act (Shintake Ho), which was introduced in 1922. However, trusts are used in the commercial context, not in family situations. Therefore, the distribution from your mother-in-law's estate, even if it is delayed, is not going to be from a trust. That makes it easier in completing the IRS Form 3520, as only Part IV must be completed.

For help with your foreign inheritance or receiving foreign gifts and other complex IRS matters, contact us today. (310) 438-5176