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 excellent advice about keeping documentation! I'm going through something similar with an inheritance from Germany and my tax preparer emphasized how important it is to keep everything organized from day one. The IRS can ask for proof of the inheritance source even years later. One thing I'd add is to also keep records of the exchange rates you used for any conversions, especially if you need to report interest income. Having a consistent method documented can save you headaches if questions come up later. I use a simple spreadsheet to track all foreign account activity with dates and exchange rates. @Nora Bennett - sounds like you ve'got a good handle on this now, but definitely keep all those Chilean documents safe!

This is really helpful timing information! I'm new to dealing with foreign accounts and had no idea about the FBAR automatic extension to October. That gives us some breathing room if we can't get everything together by April 15th. Quick question - you mentioned that interest over $10 needs to be reported. Is that $10 total for the year, or $10 per transaction? The account has been earning a small amount of interest each month, probably around $15-20 total for the year so far. Want to make sure I understand the threshold correctly. Also, does anyone have recommendations for finding a tax professional who specializes in international issues? My regular CPA admitted they don't handle much foreign account reporting and suggested I find someone with more experience in this area.