|
Inheriting gifts from foreigners
Dear Tax Talk:
My wife and I are retired U.S. citizens living abroad. We file a
joint return. My wife's mother, who was not a U.S. citizen and never
lived in the country, died in 2001, leaving my wife a certificate
of deposit, a savings account, some shares in three non-U.S. corporations
and one-third of a condominium (two other heirs have the other two-thirds).
The total aggregate actual or fair-market value of
these properties is more than $100,000, but certain individual items
are less than $100,000. Which of the above assets do I have to report
in Part IV of Form 3520?
Do I have to fill out a Form 5471 on the stock? I
am quite certain we do not own more than 10 percent of the corporation's
stock, and we are not officers or directors. The condominium (not
in the U.S.) has been vacant since her death, but we hope to sell
it this year. Does our partial ownership of this condominium require
the preparation of any tax form or a report for the 2001 tax year?
Thank you.
Jerald
Dear Jerald:
I see you've been busy doing some tax research, which of course
can still leave you guessing. I trust my response will help you
fill in the gaps.
Form
3520, Part 4 needs to be completed when a U.S. individual
inherits or receives as a gift property from foreign persons. Basically,
the Internal Revenue Service is asking you to tell them where you
received your wealth if it was not from the United States.
Sometimes an individual will arrange to receive money
from a foreign source that in reality is a disguised payment of
an item of income that would be taxable. Of course, the IRS frowns
on this type of activity and uses this form to require that you
report foreign gifts or bequests.
If the gift or bequest is from one foreign person
and in the aggregate exceeds $100,000, then it needs to be reported
in Part 4. I don't believe the IRS is so interested in the detail
of each property so much as that the total exceeded the threshold.
I would just describe the property as "inheritance from mother"
and put the total value of property received.
Form 5471 must be completed when you own more than
10 percent of the stock in a foreign corporation or are an officer
or director of a foreign corporation. Depending on how much stock
you own, the form requires several additional schedules to be completed.
If you own more than 50 percent of the stock, you basically need
to file a U.S. income tax return for the foreign enterprise. If
you don't have 10 percent of the company's action, you don't have
to file.
Since the condominium is vacant, there would be no
rental activity to report on your tax return. If you paid property
taxes, then you should claim them as a deduction on your schedule
A. Just like an inheritance in the United States, the cost for determining
gain or loss on the sale of the property is the fair market value
at the time of death converted into U.S. dollars at that time. When
you sell, you need to convert the proceeds into dollars to determine
if you have a gain or loss. If the currency has lost value since
your mother-in-law's death, you may have a tax loss.
-- Posted: March 1, 2002
Bankrate.com writers base their answers on our
editorial content and advice of financial professionals. We make
no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
|
