How NRIs Can File IRS Form 3520 and Form 8938 for an Inheritance from India?

This article discuss when each form applies, how they differ, and how to file them correctly if you've inherited assets from India.

Does an Indian Inheritance Get Taxed by the IRS?

Here's the good news first: the U.S. does not tax inheritances the way it taxes income. Money or property you inherit from a relative in India isn't treated as taxable income on your Form 1040, regardless of the amount. What the IRS does care about is knowing that you received it — and that's where these two forms come in. They're informational returns, not tax bills. You could owe the IRS nothing on the inheritance or life insurance payout and still face steep penalties for failing to disclose that the inheritance existed.

Understanding these reporting requirements is also important in the context of the India-USA Double Taxation Avoidance Agreement (DTAA), which helps prevent the same income from being taxed in both countries.

Form 3520: Reporting the Inheritance Itself

Who needs to file it: Any U.S. person , citizen, green card holder, or resident alien — who receives more than $100,000 in a calendar year from a nonresident alien individual or a foreign estate must file Form 3520. This threshold applies specifically to Part IV of the form, the section covering gifts and inheritances from foreign individuals.The same reporting requirement may also apply if the inheritance includes proceeds from a term insurance policy or other assets received from a foreign estate.

The aggregation rule catches people off guard. The $100,000 threshold isn't per gift. It's the total received from a single foreign person and anyone related to them, combined, in one year. If your mother in India sends you $60,000 and your father sends $50,000 in the same year, the IRS treats that as $110,000 from related parties, which crosses the threshold even though neither amount alone would have.

What if the inheritance comes through a trust? If a relative in India has set up a trust and you receive a distribution from it, different rules apply — there's no dollar minimum, and any distribution from a foreign trust must be reported on Form 3520, regardless of size. This matters for NRIs whose family estate planning in India involves a trust structure rather than a straightforward bequest or will.It can also apply when term insurance for NRI policy proceeds are routed through a trust arrangement.

Deadline: Form 3520 is filed separately from your regular tax return, but it's due on the same date generally April 15, with an automatic extension to June 15 for taxpayers living abroad, and a further extension to October 15 available if you file for one. It gets mailed to a separate IRS address (Ogden, Utah), not attached to your 1040.

Penalties for late or missed filing: This is where Form 3520 gets serious. The penalty for failing to report a foreign gift or inheritance is 5% of the amount per month it's late, capped at 25% of the total. For a $500,000 inheritance from a parent's estate in India, that's a potential penalty of up to $125,000 — for a form that doesn't even involve any tax owed. If the inheritance came through a foreign trust distribution instead, the penalty structure is even steeper, reaching up to 35% of the distribution.

Form 8938: Reporting the Foreign Assets You Now Hold

Once the inherited money or property lands in a foreign account, a house, or Indian investments in your name, a second question kicks in: does your total foreign financial holdings now cross the FATCA reporting threshold? That's what Form 8938 (Statement of Specified Foreign Financial Assets) checks — and unlike Form 3520, it's about your ongoing foreign asset picture each year, not the one-time inheritance event.

Filing thresholds depend on where you live and your filing status:

If you're an NRI who qualifies as living abroad — generally by meeting the IRS's physical presence or bona fide residence test — you get the considerably higher thresholds in the right-hand column. Many NRIs who inherit Indian bank accounts, mutual funds, or an ancestral property assume they're clear simply because the amount feels modest, without realizing which threshold column actually applies to them.

What counts as a "specified foreign financial asset"? Indian bank accounts, mutual funds, stocks or bonds issued by Indian companies, and interests in Indian trusts or estates all count. A directly-held piece of real estate, like an inherited house in India, generally does not count on its own for Form 8938 purposes — though if that property generates rental income routed through a foreign financial account, that account itself may need to be reported.

Filing mechanics: Form 8938 is filed with your Form 1040, not separately like Form 3520. It's attached directly to your annual tax return.

Penalties: Failure to file Form 8938 when required starts at a $10,000 penalty, and can climb to $50,000 for continued non-compliance after IRS notice. If the unreported assets also generated income you didn't declare, you can additionally face a 40% accuracy-related penalty on any resulting tax underpayment.

Form 3520 vs. Form 8938: What's the Actual Difference?

It's entirely possible to need both forms in the same year — the inheritance itself gets reported on Form 3520, and if the resulting Indian assets you now hold cross the FATCA threshold, Form 8938 follows in that year and every year after, for as long as you hold those assets above the limit.

Common Situations for NRIs Inheriting from India

Inheriting an ancestral property in India. Real estate itself typically isn't a "specified foreign financial asset" for Form 8938, but if the property is sold and proceeds land in an Indian bank account, that account may now push you over the 8938 threshold — and the value of the property itself (if received via a will or as an heir) still counts toward the $100,000 Form 3520 threshold if received directly, not through a trust.

Inheriting from a parent who held mutual funds or fixed deposits in India. These are squarely "specified foreign financial assets" — both the initial inheritance (Form 3520, if over $100,000) and the ongoing holding (Form 8938, if your total foreign assets cross the threshold) need to be reported.

Multiple siblings inheriting jointly. Each U.S.-person sibling reports their own share against their own $100,000 Form 3520 threshold — the total value of the estate isn't what matters, it's what you personally received.

Receiving the inheritance in tranches over multiple years. The $100,000 threshold applies per calendar year, so if the inheritance is distributed to you over two or three years, each year is assessed separately for Form 3520 purposes.

What Happens If You've Already Missed a Filing?

If you discover often years later that a prior inheritance from India should have been reported and wasn't, don't simply file late and hope it goes unnoticed. The IRS's Streamlined Filing Compliance Procedures offer a path back into compliance with reduced or waived penalties, provided the original non-filing was non-willful (a genuine oversight, not a deliberate attempt to hide assets). Given how severe Form 3520 penalties are, this is generally worth pursuing with a tax professional experienced in cross-border filings rather than attempting a quiet late filing on your own.

Key Takeaways

• An inheritance from India is not taxable income in the U.S., but it must still be disclosed.

• Form 3520 reports the inheritance event itself, once, if it exceeds $100,000 from an individual or estate.

• Form 8938 reports your ongoing foreign asset holdings every year they exceed the applicable threshold which are notably higher for NRIs who qualify as living abroad.

• Penalties for missing either form are steep and apply regardless of whether any U.S. tax was actually owed.

• If you've missed a past filing, the Streamlined Filing Compliance Procedures may offer a way to fix it before it becomes a bigger problem.

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