16 Foreign Accounts, PFICs, Inheritance and Gifts — Signs That a Specialist Is Needed
Question for this chapter. If a household has bank, brokerage or fund accounts in its home country, what should it know about reporting them on a U.S. return, and does reporting mean paying more tax?
Answer. Reporting a foreign account on the asset-disclosure form only tells the IRS the account exists; it is separate from the forms that work out and pay tax, which is where interest, dividends and gains are reported. Penalties can arise for skipping the disclosure form and, separately, for paying too little tax because income was left off the return. Home-country funds that may count as PFICs, and inheritances or gifts from abroad, follow involved rules that are best handled by a specialist.
What to check
- List every deposit, brokerage and savings account held in the home country, including any held jointly.
- Check whether funds or ETFs bought abroad could be classified as PFICs, using the prospectus or fund manager documents.
- Note any sales or distributions from those funds, and any interest or dividends the accounts paid.
- Record any inheritance, property or large gift received from family abroad, and whether it still sits in a foreign account or earns rent or interest.
- Look at whether income tax paid in the home country was reflected on past U.S. returns, since a foreign tax credit may still be claimable.
What to confirm. Confirm whether the household meets the filing requirement for the foreign asset form and whether any held products are PFICs, ideally with a tax specialist who works with cross-border households.
One-line summary. Disclosing foreign accounts and assets is a reporting step distinct from paying tax, and complex holdings like PFICs, inheritances and gifts call for specialist help.
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