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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22655
Experience:  Taxes, Immigration, Labor Relations
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My family lives in England. Last year, I received a family

Resolved Question:

My family lives in England. Last year, I received a family trust distribution over 12 months, wired into my bank account, that came to $22,328. Do I need to pay tax on this? How would I record this in my tax return?
Also, I refinanced my mortgage in June of last year. They asked that I had $10,000 in my savings account in order to prove that I had liquid assets. The trust sent over $10,000 on 1st June, and I wired it back to the trust on 27th July. Do I need to pay taxes on this, and how do I record it on my tax return?
Thanks so much for your help!
Kate
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!

Customer:

Hi. Did you receive my question?

LEV :

Several issues...


Generally the distribution from a foreign trust to an US person should be reported on the form 3520 - http://www.irs.gov/pub/irs-pdf/f3520.pdf is the amount of distribution is more than $10,000 - so in your situation no reporting required.


The amount of $10,000 you borrowed from the trust to “trick” your mortgage company – is not a distribution but a loan which was paid back – so it is not your taxable income.


The distribution of $22,328 may be partly taxable. You need to determine which part represent a distribution of earnings and which part represents a principal – contact the trustee and ask for detailed statement for that distribution.


Part of the distribution that is a distribution or earnings is your taxable income and should be included into your tax return (federal and state).

Customer:

I am confused - first you said that 'is the amount of distribution is more than $10,000 - so no reporting required' - but the amount was $22.328, so...?

Customer:

Is it the principal or the distribution that is taxable?

LEV :

Part of the distribution that is a distribution of earnings is your taxable income.

LEV :

I may not know which part is earning and which part is a distribution of principal. You should contact the trustee and ask for detailed statement for that distribution.

Customer:

So if the entire amount was principal, it doesn't need to be reported?

LEV :

That is correct - if the total amount of distribution was a distribution of principal - you would not have any taxable income.

Customer:

Ok. So when I fill out my taxes (I usually do it online), I don't have to report the $10,000 (because it was a loan) or the $23,328 (if it is principal)? Or are there forms that I would need to fill out regardless? Do I need to include a statement from the trust stating that it was principal?

LEV :

You do not need to include a statement from the trust with your tax return - which you should keep with your supporting documents and provide in case of audit or if specifically asked by the IRS.


If none of the $23,328 - you do not need to report it.


If part is taxable - you need to know amounts and types of these earnings. For instance interest income is reported as interest income, rental income is reported as passive income, etc - that is why you need a statement.

Customer:

Great - thank you!

LEV :

Please let me know if you need any help or clarification.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22655
Experience: Taxes, Immigration, Labor Relations
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