Your Indian beneficiary ordinarily receives a U.S. term-policy death benefit without U.S. withholding or Form 1042-S, while a direct Indian-policy payout to your U.S. beneficiary does not itself require Form 3520; estate-tax exposure depends on your domicile and policy rights.

§ 101(a)(1)

Except as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j), gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured.

(b)(2)(i)

Items of income that are excluded from gross income under a provision of law without regard to the U.S. or foreign status of the owner of the income, such as interest excluded from gross income under section 103(a) or qualified scholarship income under section 117, shall not be treated as fixed or determinable annual or periodical income under chapter 3 of the Internal Revenue Code.

(c)(2)(i)

Subject to the exceptions described in paragraph (c)(2)(ii) of this section, amounts subject to reporting on Form 1042-S are amounts paid to a foreign payee or partner (including persons presumed to be foreign) that are amounts subject to withholding as defined in § 1.1441-2(a) , distributions of effectively connected income under § 1.1446-4 , or amounts realized from transfers of PTP interests under § 1.1446(f)-4 .

Income codes

Use code 55 (taxable death benefits on life insurance contracts) to report taxable death benefits, such as benefits paid on an insurance contract that was acquired on a transfer for valuable consideration.

§ 101(a)(2)

In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by paragraph (1) shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee.

§ 101(c)

If any amount excluded from gross income by subsection (a) is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.

Foreign gift or bequest

In general, a foreign gift or bequest is any amount received from a person other than a U.S. person (a foreign person) that the recipient treats as a gift or bequest and excludes from gross income.

Reporting of foreign gifts

For gifts or bequests from a nonresident alien or foreign estate, you are required to report the receipt of such gifts or bequests only if the aggregate amount received from that nonresident alien or foreign estate, or foreign person that you know or have reason to know are related to the nonresident alien or foreign estate, exceeds $100,000 during the taxable year.

Part III

If a foreign trust makes a distribution to a U.S. person, the U.S. person must report the amount as a distribution in Part III, rather than as a gift in Part IV.

When To File

Form 3520 is due by the 15th day of the 4th month following the end of the taxpayer’s tax year.

(b)(1)

A “resident” decedent is a decedent who, at the time of his death, had his domicile in the United States.

(c)(1)

Section 2042 requires the inclusion in the gross estate of the proceeds of insurance on the decedent's life not receivable by or for the benefit of the estate if the decedent possessed at the date of his death any of the incidents of ownership in the policy, exercisable either alone or in conjunction with any other person.

What's New

The basic exclusion amount is $15,000,000.

§ 2105(a)

For purposes of this subchapter, the amount receivable as insurance on the life of a nonresident not a citizen of the United States shall not be deemed property within the United States.

Who Must File

The executor must file Form 706-NA if the date of death value of the decedent’s U.S.-situated assets, together with the gift tax specific exemption and the amount of adjusted taxable gifts, exceeds the filing threshold of $60,000.

Section 4371

Section 4371(2) imposes an excise tax at the rate of 1 cent on each dollar, or fractional part thereof, of the premium paid on a policy of life, sickness, or accident insurance, or annuity contract.

Article 2 explanation

In the case of the United States, as indicated in paragraph 1(a), the covered taxes are the Federal income taxes imposed by the Code, together with the excise tax imposed on insurance premiums paid to foreign insurers (Code section 4371).

Section 3.01 of Rev. Proc. 2003-78

Section 3.01 of Rev. Proc. 2003-78 provides that a person otherwise required to remit the insurance excise tax on account of premiums paid to a foreign insurance or reinsurance company may consider the premiums exempt from the insurance excise tax under an income tax treaty if the premiums are paid to an insurer or reinsurer that is a resident for treaty purposes of a country with which the United States has a treaty containing an excise tax exemption and, prior to filing the return for the taxable period, such person has knowledge that there was in effect for such taxable period a closing agreement between the Internal Revenue Service and the foreign insurer or reinsurer under Rev. Proc. 2003-78; Rev. Proc. 92-39, 1992-1 C.B. 860; Rev. Proc. 87-13, 1987-1 C.B. 596; or Rev. Proc. 84-82, 1984-1 C.B. 779.

Foreign insurance taxes

The person who pays the premium to the foreign insurer (or to any nonresident person such as a foreign broker) must pay the tax and file the return.

§ 2035(a)(1)

the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent's death,

When to file

Generally, the estate tax return is due nine months after the date of death.