Hi, I?m a naturalized US citizen with foreign parents (living abroad) who passed away recently. I understand that I need to declare the inheritance as a foreign gift on form 3520, but the IRS really doesn?t give you much detail on how to do so in their instructions. Specifically:=>>Any US person who, during the current tax year of 2016, received either: a. More than $100k from a nonresident alien individual or a foreign estate( but not a foreign trust) that you treated as gifts or bequests needs to file form 3520 due on the date that your income tax return is due, including extension. 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
Your parents overseas UNLESS they are US residents do not need to file form 706;
Also, for most beneficiaries , they will never have to worry about inheritance taxes because only 6 states currently collect them - Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, and only Nebraska and Pennsylvania collect inheritances taxes on property passing to children and grandchildren.however in general unless inherited estate is more than $1M, you donot need topay inheritance tax to the states.so if yu live in one of the states here, you need to contact your state dept of revenue.
1. Do I understand it correctly that both real estate and cash / securities should be reported here?=======>correct; you need to report the FMV at the time of transfer of the remainder interest to you
2. Assuming real estate should be included, how should the FMV be determined? Can I estimate it myself based on comparable sales in the area and/or free valuation services or does the valuation need to be certified in some way? If/when I finally sell the property, will this value be used as the basis?===>You need a certified/translated copy of a foreign appraisal report or other related paper. the asset get a step-up to FMV on the death date of decedent and is usually established and documented by the trustee of the estate. As this is a foreign asset, it would be wise to get a valuation that can test audit i.e. a certification by competent authority (foeign appraiser/ realtor, tax assessment office, valuator etc. ) -- you must show date of the valuation and should be as close to the date of death of the decedent. The basis of the asset(s) for the inheritors is the same as that of the decedent on the date of death or thereabouts i.e.FMV of that date.
3. How detailed should the reporting on line 54 be? Is total sum of all assets enough, or should it be itemized? If so, what level of itemization is appropriate? (E.g. should each account / security be specified separately?)
===>>To calculate the threshold amount ($100k), you must aggregate bequest from different foreign nonresident alien / foreign estates .yu may attach note/stmt to specify each security in separation since there is no ?p-enalty in attaching a note/stmt.
4. What date should be used to determine the time and value of the gift / inheritance? Is it the date that the deceased passed away or the date when I received the funds from the estate or perhaps the date when the inheritors were legally acknowledged?===>
as that of the decedent on the date of death
5. What date should be used to determine the exchange rate to USD for reporting purposes? The same date as in 4 or the end of the year?====>no yu need to apply weighted average exchange rate for the FMV of the assets when you actually report the fmv to the IRS/your state
6. Finally, my mother had a flat in a housing association (coop). Technically, the coop owns the physical real estate, but she, or now rather her Estate, owns a ?share? in the coop with rights to reside in ?her? flat. This ?share? can be freely sold on the open market, but any buyer has to be approved by the coop before they can take possession. I am the only inheritor, but I can?t take possession of it unless I apply for membership in the coop and they approve me. None of this has happened yet. Do I include the FMV of her flat on my 3520 now, or do I wait until I either become a member and take possession of it or the Estate sells the flat and passes the proceeds on to me?=====>aslongas you receive bequests from certain foreign person, you must report it onyour form 3520; when you receive More than $100k from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts / bequests; remember form 3520 is an info return NOT tax return.