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Q: Inheritance Tax ( Answered 5 out of 5 stars,   1 Comment )
Question  
Subject: Inheritance Tax
Category: Relationships and Society > Law
Asked by: pkeng-ga
List Price: $20.00
Posted: 31 Aug 2005 15:32 PDT
Expires: 30 Sep 2005 15:32 PDT
Question ID: 562816
I'm married with 2 children. All of us are US green card holder, except
my youngest son who is a US citizen.

My parents are NOT a US resident and has NO business ties to the US whatsoever.
When they die and leave some money to me, what/how much taxes do I
need to pay to the State (California) and Federal goverment from their
inheritance?
Answer  
Subject: Re: Inheritance Tax
Answered By: nenna-ga on 31 Aug 2005 16:37 PDT
Rated:5 out of 5 stars
 
Good evening pkeng and thank you for your question.

Below you will find the tax publication stating that you do NOT have
to pay state or federal taxes on any gift/inheritance.

IRS Publication 950, Introduction to Estate and Gift Taxes states:

"No tax on the person receiving your gift or estate. The person who
receives your gift or your estate will not have to pay any federal
gift tax or estate tax because of it. Also, that person will not have
to pay income tax on the value of the gift or inheritance received."

Source: ( http://www.irs.gov/pub/irs-pdf/p950.pdf )

However, if you earned any INCOME while a non-citizen while living in
the US on a green card, you must file taxes.

First of all, if you are a nonresident or resident alien and you do
not have and are not eligible to get an SSN, you must apply for an
ITIN.  For details on how to do so, see Form W-7 and its instructions
at:

Form & Instructions: ( http://www.irs.gov/pub/irs-pdf/fw7.pdf )

If you already have an ITIN, enter it wherever your SSN is requested
on your tax return.

Note. An ITIN is for tax use only. It does not entitle you to social
security benefits or change your employment or immigration status
under U.S. law.

If your spouse is a nonresident alien and you file a joint or separate
return, your spouse must have either an SSN or an ITIN.

= = = = = = = = = =

According to ( http://www.irs.gov ), you are considered a resident
alien of the United States for tax purposes if you meet either the
green card test or the substantial presence test for the calendar year
(January 1-December 31).

"Green Card Test:  You are a resident, for tax purposes, if you are a
lawful permanent resident of the United States at any time during the
calendar year.  This is known as the "green card" test. You are a
lawful permanent resident of the United States, at any time, if you
have been given the privilege, according to the immigration laws, of
residing permanently in the United States as an immigrant. You
generally have this status if the U.S. Citizenship and Immigration
Service (USCIS) has issued you an alien registration card, also known
as a "green card." You continue to have resident status, under this
test, unless you voluntarily renounce and abandon this status in
writing to the USCIS, or your immigrant status is administratively
terminated by the USCIS, or your immigrant status is judicially
terminated by a U.S. federal court. If you meet the green card test at
anytime during the calendar year, but do not meet the substantial
presence test for that year, your residency starting date is the first
day on which you are present in the United States as a lawful
permanent resident."

Source:  IRS
( http://www.irs.gov/businesses/small/international/article/0,,id=96314,00.html )

?International Taxpayer - Substantial Presence Test - You will be
considered a U.S. resident for tax purposes if you meet the
substantial presence test for the calendar year.  To meet this test,
you must be physically present in the United States on at least:

1.	31 days during the current year, and

   2.  183 days during the 3-year period that includes the current
year and the 2 years
        immediately before that, counting:

	All the days you were present in the current year, and

	1/3 of the days you were present in the first year before the current year, and

	1/6 of the days you were present in the second year before the current year.

Example:

You were physically present in the United States on 120 days in each
of the years 2002, 2003, and 2004. To determine if you meet the
substantial presence test for 2004, count the full 120 days of
presence in 2004, 40 days in 2003 (1/3 of 120), and 20 days in 2002
(1/6 of 120). Since the total for the 3-year period is 180 days, you
are not considered a resident under the substantial presence test for
2004.

Days of Presence in the United States

You are treated as present in the United States on any day you are
physically present in the country, at any time during the day.
However, there are exceptions to this rule. Do not count the following
as days of presence in the United States for the substantial presence
test.

	Days you commute to work in the United States from a residence in
Canada or Mexico, if you regularly commute from Canada or Mexico.

	Days you are in the United States for less than 24 hours, when you
are in transit between two places outside the United States.

	Days you are in the United States as a crew member of a foreign vessel.

	Days you are unable to leave the United States because of a medical
condition that develops while you are in the United States.

	Days you are an exempt individual.

For details on days excluded from the substantial presence test for
other than exempt individuals, refer to Publication 519, U.S. Tax
Guide for Aliens,.

Exempt Individual

Do not count days for which you are an exempt individual. The term
"exempt individual " does not refer to someone exempt from U.S. tax,
but to anyone in the following categories who is exempt from counting
days of presence in the U.S.:

	An individual temporarily present in the United States as a foreign
government-related individual

	A teacher or trainee temporarily present in the United States under
a "J " or "Q " visa, who substantially complies with the requirements
of the visa

	A student temporarily present in the United States under an "F, "
"J, " "M, " or "Q " visa, who substantially complies with the
requirements of the visa

	A professional athlete temporarily in the United States to compete
in a charitable sports event

If you exclude days of presence in the United States because you fall
into a special category, you must file a fully-completed Form 8843,
Statement for Exempt Individuals and Individuals with a Medical
Condition (PDF).?

Source:  IRS
( http://www.irs.gov/businesses/small/international/article/0,,id=96352,00.html )

= = = = = = = = = 

All permanent residents (green card holders) are tax residents
according to ( http://www.nolo.com ), a site which discusses when visa
or green card holders must pay U.S. taxes.

Tax residents MUST report their entire worldwide income to the U.S.
Internal Revenue Service, including inheritance monies.  As a green
card holder, you must file U.S. tax return Form 1040 each year by
April 15th. Failure to follow U.S. tax laws may be considered a crime.
If you are found guilty of a tax crime, your green card can be revoked
and you may be deported.

The 1040 Form can be viewed here:

( http://www.irs.gov/pub/irs-pdf/f1040.pdf )

The instructions can be viewed here:

( http://www.irs.gov/pub/irs-pdf/i1040gi.pdf )

TIP:  On Line 21, Other Income, do not report any non- taxable amounts
such as child support, money or property that was inherited, willed to
you or received as a gift or life insurance proceeds received because
of a person?s death.

To find out exactly how to follow U.S. tax laws, consult an accountant
or a tax attorney, or visit the IRS website at (http://www.irs.gov )


I hope this answers your question.  If you would like clarification
before rating my answer, please do not hesitate to ask!

Nenna-GA
Google Researcher

Request for Answer Clarification by pkeng-ga on 01 Sep 2005 09:00 PDT
Toward the end, the statement: 
"Tax residents MUST report their entire worldwide income to the U.S.
Internal Revenue Service, including inheritance monies." 
seems to be in conflict with:
"TIP:  On Line 21, Other Income, do not report any non- taxable amounts
such as child support, money or property that was inherited, willed to
you or received as a gift or life insurance proceeds received because
of a person?s death."

What is 'inheritance monies'?

Clarification of Answer by nenna-ga on 01 Sep 2005 09:59 PDT
pkeng - After re-reading Form 1040, the instructions and talking to
the accounting firm of McDermott & Miller in the state I am located
in, please be advised that the inheritance you receive is NOT
considered income, therefore it does not need to be reported on Form
1040.  The only income you need to report for tax purposes can be
found on page 14 of ( http://www.irs.gov/pub/irs-pdf/i1040gi.pdf ).

I apologize but I mistakenly stated, "Tax residents MUST report their
entire worldwide income to the U.S. Internal Revenue Service,
INCLUDING INHERITANCE MONIES."  Please accept my apologies.

Nenna-GA
pkeng-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00

Comments  
Subject: Re: Inheritance Tax
From: nenna-ga on 02 Sep 2005 06:31 PDT
 
Thank you very much for the generous rating and tip!

Nenna-GA

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