Proc. 22. A part of the trust may be treated as a grantor trust to the extent that only a portion of the trust assets are owned by a person other than the trust. Distributions from foreign trusts to domestic trusts that have a current determination letter from the IRS recognizing their status as exempt from income taxation under section 501(c)(3). 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. You will need to file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, with the IRS if you received: (1) Gifts or bequests valued at more than $100,000 (2020) from a nonresident alien individual or foreign estate or (2) Gifts valued at more than $16,388 (2020) from foreign corporations or foreign partnerships. Complete the identifying information on page 1 of the form and the relevant portions of Part I. Although the IRS wants you to file the form and penalizes you if you forget, you’re not taxed on inheritance received from a foreign country. Foreign Gift & Inheritance Penalty Form 3520: Despite the fact that a U.S. person may have not foreign accounts, assets or investments to speak of, the IRS may still be able to levy significant penalties for non-reporting of a foreign gift or inheritance. On the other end of the spectrum, when foreign trusts are involved, the reporting becomes much more complicated. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. The creation of a foreign trust by a U.S. person. But the IRS likes to keep tabs on such things. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. Under the HIRE Act, effective after March 18, 2010, if a foreign trust directly or indirectly loans cash or marketable securities to a U.S. person who does not repay the loan at a market rate of interest, or allows a U.S. person to use trust property without paying FMV within a reasonable period of time, the trust will be treated as having a U.S. beneficiary and is therefore treated as a grantor trust under the grantor trust rules. • Any portion of a foreign trust was included in the gross estate of the decedent. Form 3520: Reporting Foreign Trusts, Inheritances, and Gifts for Americans Abroad. Attach a copy of the authorization to Form 3520. If a trust makes a gratuitous transfer to another trust, the grantor of the transferor trust is treated as the grantor of the transferee trust, except that if a person with a general power of appointment over the transferor trust exercises that power in favor of another trust, such person is treated as the grantor of the transferee trust, even if the grantor of the transferor trust is treated as the owner of the transferor trust. A nongrantor trust is any trust to the extent that the assets of the trust are not treated as owned by a person other than the trust under the grantor trust rules in sections 671 through 679. Owner of a Foreign Trust. Form 3520 Form 3520: When a U.S. person receives a gift from a foreign person, the IRS may require the U.S. person to file a Form 3520 to report the transactions. Transfers to foreign trusts that have a current determination letter from the IRS recognizing their status as exempt from income taxation under section 501(c)(3). 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