Please..... Help needed with stock held abroad

Question

My wife is a naturalized US citizen. She received shares held at a depository in the UK after a protracted probate process when her deceased father's estate was settled early in 2021. The depository continues to hold the shares in the UK but sends my wife dividends in US dollars to her checking account here in the US.

So, my questions are:

(1) What are the reporting requirements for this foreign stock holding?
(2) Also, how do I report the dividends into my turbotax program since I did not receive a 1099-Div from them?

Thanks for any assistance you can provide.

Cheers,
Doc.

pk12_2 · Accepted Answer

So, I am kinda confused now. PLEASE help me....
Please allow me to recap so that I can get the situation handled for my tax return:

Upon his demise, my wife's father left her some stock of a firm traded on the London Stock Exchange.

The inherited stock is held in the UK in a depository account.

At the time of the bequest (June 2021), it was worth about $190K USD.

My first question is: What documents must be filed to acknowledge this holding of foreign stock?

I am told that FBAR, and Form 3520 are needed. These are informational only, correct? Should they be filed as joint ownership even though it is my wife's father that left her the stock?
Is the Form 8938 needed also?
Which form is needed in the actual income tax return?

Then in Aug, this foreign stock holding provided a cash dividend of about $4,300USD that was sent to our joint bank account.

The dividend income must be declared as taxable income.

My question here: How do I do this in Turbotax Premier given that I received no documents about the dividend from the UK stock depository?
They do not report to the IRS but I want to disclose those dividends and pay the tax on the dividends received as that is the ethical thing to do. There is nothing to import into Turbotax unlike my account at Fidelity.

THANKS so much for any help you can provide here.

Cheers,

Doc..

PS: Why do they make it so difficult to navigate this ugly web called taxes??? The myriad forms and schedules are enough to scare anyone away!!

@DocNyr ,

As I understand the situation -- 1. you and your wife are both US persons ( citizen / Green Card /Resident for Tax purposes); 2. You both live in the USA and have been here for the whole of 2021; 3. You file jointly - MFJ; 4. Your wife inherited some stocks with a fair market value ( at the time of death of the decedent ) of US$190,000; 5. She has also received dividends from the said stocks of US$4300; 6. There is no informational return for the dividends -- just the receipt notice from the brokerage and the funds deposited to your joint bank account ( in the US or UK ? ). Yes ?

Here you have at least three items to consider:

First the easy one -- the treatment of the dividend: Because of the absence of the form 1099-DIV, you have to follow the suggestions listed earlier -- you report just like it was received from a US entity but with missing 1099-DIV. You tell TurboTax you have dividends to report --- ordinary / total dividend of US$4300. If you paid foreign taxes ( HM taxes ) then you can use the safe harbor ( hopefully) to claim that tax as a credit against the tax on the dividend income. As suggested use a dummy 1099-div to fill out , so filling out for TurboTax is facilitated.

Second : The treatment of the inheritance.

(a) You report this on form 3520. Here is a reference on this :>> https://www.irs.gov/forms-pubs/about-form-3520. There is no tax consequence now. However, you are establishing your basis in the asset on 3520. So when she sells the asset, her gain would be based on this basis value -- so you need to keep record of this ( IRS generally will use form 3520 for this ).

Note that this is reported as received by your spouse but on a joint return. The ownership generally is your wife's unless the state laws require it to be regarded as a marital asset and therefore jointly owned.

(b) Because this is a foreign asset ( the stock so owned is not traded in the USA, held in a brokerage account abroad -- not a foreign branch of a US brokerage ) it comes under FATCA regulations -- here is more on this --->https://www.irs.gov/businesses/corporations/do-i-need-to-file-form-8938-statement-of-specified-foreign-financial-assets

So you do have to report this on form 8938. TurboTax will walk you through this . There is no tax consequence.

(c) If you own or have signature authority over one or more accounts in a financial institution ( bank or a brokerage cash account) then these come under FBAR purview --- the threshold is US$10,000. If in doubt take the easy path a file FBAR form 114 at www.fincen.gov.

Note this is separate from your tax return -- does not go to the IRS. Here is more on this --> https://www.fincen.gov/sites/default/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf

Thus to your questions what forms to file -----1. form 3520 to report the receipt of inheritance; 2. form 8938 to report the holding of foreign asset in a foreign financial institution / brokerage. These are with your return and therefore using TurboTax. 3. you may also have to report FBAR at www.fincen.gov , depending on facts and circumstances -- not because of the inheritance itself or the ownership of foreign assets/ stocks.

To your question on reporting foreign dividends ---- use TurboTax to report dividends as if you had a 1099-div as discussed earlier. May have to take credit for taxes paid to HM ( if ).

Does this cover your queries ? Is there more help you need ?

To your last questions/ comment in the post script ---- this is tax code designed by committee whom are beholden to all and sundry interests -0- hence the compilations. No respite in sight.

pk

pk12_2 · Answer

@DocNyr ,

1. for reporting requirements --- (a) FBAR ( >= US$ 10,000 at any time in bank accounts , generally liquid assets . This is done at BSAe-filing see www.fincen.gov and look for form 114 , it can be done ONLY online , by the owner of the asset. No tax impact but not reporting penalties can be very onerous.; (b) form 8938 ( FATCA form ) needs to be filed with your return if you meet the threshhold. See this detail from the IRS :

https://www.irs.gov/businesses/corporations/do-i-need-to-file-form-8938-statement-of-specified-foreign-financial-assets

2. for the current year and/or in the absence of 1099-DIV, you tell TurboTax that you have dividends to report and that you do not have a 1099-DIV. This will allow you to fill out a dummy ( in-effect ) 1099-div. A good idea would be to download , print a 1099-DIV from www.irs.gov, fill it out with the information that you have about the divdend and use this as-if you had a 1099-div. Keep this for your record ( along with any paperwork from UK ) for help if challenged ( very unlikely). Note that most foreign dividends are "ordinary" and therefore taxed as ordinary income. If this income is taxed in the UK you can claim foreign tax credit on this foreign income. Note that there is safe haven amount of US$300 per tax-payer ( i.e. US$600 for a joint return ) of foreign taxes paid that does not require the normal form 1116 and foreign tax limitations. Thus you get the whole credit rather than a ratio based on your foreign income vs world income.

Is there more I can do for you ?