Oversea Inheritance From a US Permanent Resident

ray2829

I received an oversea real estate inheritance from a relative who was a US Green card holder and resided in the US. I'm just wondering whether I would need to report this on form 3520 or not considering the inheritance is oversea? What kinds of reporting are needed in this situation? Thanks!

MatthewD

Hi ray2829,

Thank you for the question. Let me restate the facts and if needed, please reply back with any relevant facts. I am assuming you're a US citizen?

1. You received real estate as part of an inheritance
2. The real estate is overseas in a foreign country
3. The inheritance was from a relative who is a resident alien (US Green card holder)
4. The relative was also living in the US

The form 3520 has several filing requirements and defines important terms relating to U.S. Person and Foreign Trusts.

For simplicity, we can assume that your relative, holding the Green card, is also considered a U.S Person in the Form 3520 Instructions.

After a review of filing requirement for Form 3520, there is one requirement which may apply to you. See #2 under the filing requirements. The IRS says, "2. You are a U.S. person who, during the current tax year, is treated as the owner of any part of the assets of a foreign trust under the rules of sections 671 through 679. U.S. person and owner are defined later.Complete the identifying information on page 1 of the form and Part II. See the instructions for Part II .

Note. You are required to complete Part II even if there have been no transactions involving the trust during the tax year. You may also be required to complete a substitute Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, and attach it to your Form 3520. See Penalties , later."

The question you need to answer here, is this. Was the real estate part of a foreign trust? The IRS defines a Foreign Trust and Domestic trust in the Form 3520 Instructions. This IRS says, "Foreign Trust and Domestic Trust

A foreign trust is any trust other than a domestic trust.

A domestic trust is any trust if:

1. A court within the United States is able to exercise primary supervision over the administration of the trust, and
2. One or more U.S. persons have the authority to control all substantial decisions of the trust."

Did your relative, who is a U.S. person, set up a trust? If not, then in my opinion, you are not required to file the Form 3520. If your relative did set up a trust, was it a domestic or foreign trust?

If there is a foreign trust, then follow the instruction for #2 in the filing requirements and "Complete the identifying information on page 1 of the form and Part II. See the instructions for Part II".

There is one more thing, which you must consider. If you collect any rental income from the real estate, that must be reported on your US Income Tax Return, Form 1040, Schedule E. If you sell the real estate, report any capital gains. Keep in mind that you use the step-up value (fair market value) as the basis at the time you inherited the real estate.