IRS form 3520 for foreign inheritance - what do I need to know?

Thanks for the info. How do we report the interest from the Chilean account on our US taxes? Do we need to convert the interest to dollars using a specific exchange rate? Also, does Chile have a tax treaty with the US that would prevent double taxation?

You'll need to convert the interest to US dollars using the foreign exchange rate that applies when the interest was credited to the account. The IRS generally accepts any published exchange rate that's used consistently. Many people use the annual average exchange rate published by the IRS or the rate on the specific date the interest was received. Regarding double taxation, the US does have a tax treaty with Chile, but it's complicated. You'll generally report the full interest amount on your US return, then claim a foreign tax credit on Form 1116 for any Chilean taxes paid on that interest. This helps prevent paying tax twice on the same income. Keep documentation of any Chilean taxes paid to support your foreign tax credit claim.

Did taxr.ai handle the exchange rate calculations automatically? I'm dealing with accounts in Brazil and the real-to-dollar conversion is a nightmare to track manually throughout the year.

I'm hesitant to use online services for tax stuff, especially with foreign accounts. How secure is it? And does it actually connect to the IRS systems or just give you guidance?

Yes, it handled all the exchange rate calculations automatically. I just uploaded my Spanish bank statements, and it extracted all the transaction data and applied the correct historical exchange rates for each date. It even calculated the annual average for some reporting requirements. Saved me from having to look up dozens of exchange rates. It doesn't connect directly to IRS systems - it's not a filing service. It analyzes your documents and tells you what you need to report and on which forms. Everything is encrypted and they don't store your actual financial data after processing. I was nervous about security too, but their privacy policy convinced me it was safe.

How does this actually work? Does it just automatically redial for you or something? Seems sketchy to have a third party involved when talking to the IRS.

Yeah right. There's no way to "skip the line" with the IRS. They're notoriously understaffed and everyone has to wait. This sounds like a scam to get people's personal info.

It doesn't redial - it uses a system that keeps your place in line without you having to stay on hold. The service navigates the IRS phone tree and then calls you when they've reached a human agent. At that point, you're connected directly to the IRS agent. No third party is listening to your actual conversation with the IRS. I was skeptical too until I tried it. It's not skipping the line - you're still in the same queue as everyone else, but the difference is you don't have to sit there listening to hold music for hours. They just hold your place and alert you when you've reached the front of the line. It's basically like having someone else wait on hold for you, then they transfer the call once an agent is available.

Is the FBAR filed with your regular tax return or separately? And what happens if you only discover you needed to file it years later?

FBAR is filed separately from your tax return. It's not submitted to the IRS but to FinCEN (Financial Crimes Enforcement Network) through their BSA E-Filing System. You can't file it on paper - electronic filing is mandatory. If you discover you should have filed FBARs in previous years, there's a procedure called the Delinquent FBAR Submission Procedures. If you reported all income from the foreign accounts on your tax returns and just didn't know about the FBAR requirement, you can file the late FBARs with a statement explaining why they're late. In many cases, the IRS won't impose penalties if you can show reasonable cause and you weren't under audit or contacted by the IRS already. But don't delay once you realize - file those past FBARs as soon as possible.

Good point! When my dad inherited from his brother in Argentina, the local banks withheld like 18% automatically before transferring the money. He had no idea until he saw the transfer amount was less than expected.

Thank you all for the helpful advice! You're absolutely right about the Chilean tax side. We actually had to file some paperwork in Chile when the inheritance was processed, and there was a small tax withheld at the source. I'll look into whether we have ongoing Chilean tax obligations. Based on everyone's comments, it sounds like we don't need to file Form 3520 since it's under $100,000, but we definitely need to do the FBAR since the account is over $10,000. I'll make sure to report the interest income on our tax return too and look into the foreign tax credit.

This is really comprehensive advice! I hadn't thought about the potential reporting requirements when we eventually move the money to a US account. We were planning to transfer most of it later this year to help with a down payment on a house. The point about Chilean tax obligations is especially important - I should probably contact a Chilean tax advisor to make sure we're compliant on both sides. Does anyone know if dual citizens typically need to file annual tax returns in both countries, or does it depend on income/residency status? Also, @Kiara Greene, when you mention setting up a tracking system - should I be tracking the USD equivalent of all transactions, or keep it in Chilean pesos and convert at the end of the year? I want to make sure I'm doing the exchange rate calculations correctly from the start.

For exchange rate tracking, I'd recommend recording both the original Chilean peso amounts AND the USD equivalent using the exchange rate on the transaction date. This gives you a complete audit trail and makes it easier to prepare your tax returns later. You can use the IRS published exchange rates or any consistent published rate (like xe.com or oanda.com), just be consistent throughout the year. Keep a simple spreadsheet with columns for: Date, Description, CLP Amount, Exchange Rate Used, USD Amount, and Source of Exchange Rate. Regarding Chilean tax obligations for dual citizens - it typically depends on your tax residency status, not just citizenship. If your husband is a US tax resident, he may not need to file Chilean returns, but Chile might still consider him a tax resident if he has significant ties there (like this bank account). Definitely worth consulting a Chilean tax advisor since the rules vary by country and can be quite complex for dual citizens. When you do transfer the money for your house down payment, make sure your US bank knows it's coming and have all your inheritance documentation ready. Large international transfers often trigger additional scrutiny, and having the paper trail prepared makes the process much smoother.

For tracking purposes, I'd recommend recording both the original Chilean peso amounts AND the USD equivalent using the exchange rate on the date of each transaction. This gives you the most accurate reporting and creates a clear audit trail if the IRS ever has questions. You can use the IRS's published annual average exchange rates for convenience, or the daily rates from a consistent source like xe.com or the Federal Reserve. Just be consistent with whichever method you choose. Most tax software and professionals prefer to see the USD amounts for reporting, but having the original peso amounts helps verify your calculations. Regarding Chilean tax obligations - dual citizenship tax requirements vary significantly by country. Some countries tax based on citizenship (like the US), others on residency. Since Chile generally taxes based on residency and your husband lives in the US, he may not have ongoing Chilean filing requirements, but definitely verify this with a Chilean tax professional. The rules can be complex, especially when you have assets or accounts in Chile. When you do transfer the funds to the US, make sure your US bank knows it's an inheritance - provide them with the documentation upfront to avoid any delays or suspicious activity reports.

@StarSurfer For tracking purposes, I'd recommend keeping records in both currencies - the original Chilean peso amounts and the USD equivalents using the exchange rate on the transaction date. This gives you flexibility and ensures accuracy for reporting. For exchange rates, use a consistent source like the IRS yearly average rates or xe.com historical rates. The key is consistency - pick one method and stick with it throughout the year. Regarding dual citizen tax obligations, it typically depends on residency status and income sources. Since your husband likely lives in the US, he probably doesn't need to file Chilean returns unless he has Chilean-source income beyond the inheritance. But definitely confirm this with a Chilean tax professional - each country has different rules for their citizens living abroad. For the house down payment transfer, document everything thoroughly. Banks will ask about large international transfers, and having your inheritance paperwork ready will make the process much smoother. Some people also notify their bank in advance about the incoming international transfer to avoid any holds or delays.