The IRS inheritance tax requires the preparation of Form 706-CE in order to report any foreign taxes paid on inheritances received. This may have occurred when proceeds from a deceased person’s estate were received by an heir or beneficiary who resided in a foreign country at the time of death. The form facilitates the processing of a credit on the taxes of a citizen’s domestic return, in the amount of the taxes paid to a foreign country.
No Estate Tax on Overseas Inheritances
The IRS, however, does not impose a federal estate tax on inheritances received from overseas or a foreign country. Most all states also follow this guidance and also do not assess an estate tax on property inherited from overseas. The IRS requires the filing of an informational return regarding the receipt of the foreign asset, which is IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The form, which does not result in a tax, can be found via the IRS website.
There is no indication that any changes will be made by the IRS or Congress to begin taxing foreign estates or inheritances received by U.S. citizens. Efforts to recover taxes on amounts invested in off-shore trusts and accounts only relate to income earned in the United States that was hidden in these accounts for the purpose of avoiding income taxes and has nothing to do with overseas inheritances.