ncCPAp on the GO!

Foreign "IRA" Income

  • 1.  Foreign "IRA" Income

    Posted 07-23-2019 09:16
    I have a client who is a US citizen residing in the US. He inherited the equivalent of a IRA from his deceased mom who lived in Spain. Question is, do the conventional IRA distribution rules apply to this?

    Thank you.


    Daniel Levine
    Scottsdale AZ

  • 2.  RE: Foreign "IRA" Income

    Posted 07-25-2019 16:45
    Your client has a number of issues to deal with.

    1.  A foreign retirement account does not have the same tax deferral to a US person that a US retirement account offers.
    2.  You would have IRD - income in respect of a decedent.
    3.  Foreign Financial account reporting for the foreign retirement account since your client is now a beneficial owner of the account.
    4.  Since the account is a retirement account, it is highly probable that your client will need to file the Form 3520 for a foreign trust as many foreign retirement accounts held by US persons as beneficiaries are required to do thi.  This is a very common "gotcha" that most are not aware of.
    5.  So to address your direct question of whether the US IRA distribution rules apply, the short answer is no.
    7.  Look to Article 220 of the US/Spain income tax treaty.  If it was subjected to tax in Spain already upon her death, you would have some different outcomes.  But it will be interesting for you.
    8.  Oh and depending on the value of the account, your client may also have to file Form 8938 reporting the foreign financial asset on their Form 1040 for the years they own it.

    Steven Miller CPA
    Dallas TX