Q. My father moved to Australia in 1987 and became a citizen there (I am a born and raised American citizen). He is setting up my inheritance (bank, home, stocks). Australia does not have inheritance tax, but I heard the IRS will tax the heck out of me. I suggested he put me on his house, bank and stocks to reduce or eliminate taxes. Is this correct? Do I have any other options? The total of the above will be just under $500,000. Thanks. Sparky, Florida
A: I will have to take you at your word that the inheritance will not be taxed under Australian law before it is distributed to you. I can tell you that there will be no income tax imposed by the IRS. If your inheritance is over $100,000, then you will need to file IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
This form must be filed on the date your income tax return is due. For example, if you receive the inheritance in 2013, it would be reported on your 2013 income tax return, due on April 15, 2014.
The instructions for preparing the form state that, if there is a failure to file the return when due, a penalty equal to 5% of the amount of the inheritance applies for each month for which the failure to report continues, up to a maximum of 25%. No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.