[lygio]

Hello,

I will be receiving in 2008 an inheritance from my father, who passed away a few months ago and I am seeking advise to how to report it on my 2009 tax return.

I will also be receiving a donation from one of my sister.

I have been advised by two lawyers and an accountant, who are following this matter for my siblings in Italy, that an Italian inheritance from an Italian citizen and Italian donation from and Italian sibling are to be regulated by the Italian tax law and not the American tax law even though I have dual citizenship and file taxes in the USA since 1992.

Is that true?

Would you know what kind of treaty there are between Italy and the USA regarding inheritance and donation tax law? I am asking because donation, in Italy, between siblings, are taxed at 8% for any amount above €100K and inheritance are taxed at 4% for any amount above € 1Mil.

It could make a considerable difference if I were to be taxed in the USA than in Italy.

Thank you,
Lygio

[AtlantaTaxExpert]

Normally, an inheritance from a foreign country is NOT subject to federal estate or state inheritance taxes.

The inheritance is definitely not subject to U.S. or state income taxes.

The donation from your sister is considered a GIFT in U.S. tax terms. Again, under U.S. tax law, the giver pays any gift taxes due and your sister, being an Italian citizen in Italy, is NOT subject to U.S. gift tax laws.

So, off-hand, based on your posting, I would say you owe ZERO taxes of any kind in the United States.

Now, when the money is transferred to you, the IRS may contact you to find out the nature of the money transfer, so be ready with the appropriate documentation to explain the nature of the funds.

Other than that, you should be okay.

[MukatA]

lygio:
In the U.S. there is no tax on gifts received or inheritance. The U.S. has estate taxes, but if your father is a foreign person than you don't need to worry about this. Also if your sister is not a U.S. person, she need not worry about the gifts. If she is a U.S. person she must file gift tax return if gift to a single person exceed $12,000.
However, since it is coming from a foreign country, the IRS wants to make sure that it is a actually a gift. So you must file File 3520 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts if the amount in 2007 is more than $13,258.
You should read instructions to Form 3520.

[AtlantaTaxExpert]

MukatA covers an issue that I neglected to address.

Thanks for covering my backside!