Hi and welcome to Just Answer!
Hi. Did you receive my question?
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).
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...?
Is it the principal or the distribution that is taxable?
Part of the distribution that is a distribution of earnings is your taxable income.
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.
So if the entire amount was principal, it doesn't need to be reported?
That is correct - if the total amount of distribution was a distribution of principal - you would not have any taxable income.
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?
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.
Great - thank you!
Please let me know if you need any help or clarification.