Dear Tax Talk,
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I am a U.S. citizen. My father is not a citizen, and doesn't reside in the U.S. He wants to pass some of his estate to me as an inheritance and/or gift.
Last year, he used his own money and bought a condo for me in the town where he lives. I am listed as the owner of the condo, and he has the power of attorney on the deed, in accordance with the local laws where he lives.
Also last year, I opened a non-U.S. brokerage account. He has been transferring stocks to this account in my name. This year, I opened a non-U.S. bank account and he puts a little money in his local currency every year into my account. The money mostly comes from the sale of his other assets and dividend checks from stocks.
I have not transferred any of the monies from my non-U.S. accounts to my American accounts. As for the condo, my father is living in it and pays all the property taxes and utilities. Obviously, I don't receive any rental income.
At this point, I am not clear what I need to declare to the IRS. Do I owe any U.S. taxes on assets in my father's homeland that he has put in my name?
Dear Nathan, It seems you have some foreign issues regarding taxation. Because foreign assets are a hot topic with the Internal Revenue Service lately, I recommend you sit down with a good certified public accountant specializing in the area of U.S. taxes on foreign transactions.
The brokerage and bank accounts are considered foreign accounts. If their combined value is $10,000 or more at any time during the year you have to report their details to the Treasury Department (of which the IRS is part.) Use Treasury Department form 90-22.1 to report the accounts on or before June 30 of each year. Although you can find the form on the IRS website, don't include it with your tax return. Rather, mail it to the address in Detroit that appears on the form.
If the foreign accounts generate income in your name -- other than the deposits your dad makes -- the income would need to be included in your tax return. Tax rules similar to those that pertain to qualified dividends and capital gains apply to the activity of the accounts. Because these accounts are not reported directly to the IRS, you'll need to get an annual recap on a calendar year basis for purposes of filing your taxes.
IRS form 3520 is used to report certain gifts from foreign persons in excess of a threshold that varies, depending on whether the gift is from an individual or an entity. It also covers situations with trusts. You may have various issues that are reportable.
But it would be best to get the informed opinion of a trusted tax adviser who is familiar with your situation regarding foreign assets, and would therefore be in the best position to advise you of strategies.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.