How Rally Tax Protected a $5M Indian Inheritance from the IRS.

Rahul, a Silicon Valley-based H1B holder, must navigate complex IRS reporting requirements for a $5 million Indian inheritance.

The Hero: Rahul, a Senior Software Architect at a Tier-1 Cloud Computing firm in San Jose.The Status: H1B Visa Holder / "Resident Alien for Tax Purposes." The Conflict: A $5,000,000 USD inheritance sitting in India, a ticking clock on IRS reporting, and a maze of international tax treaties.

For a decade, Rahul lived the quintessential Silicon Valley life. He navigated the complexities of RSU vesting cycles, optimized his 401(k) contributions, and built the infrastructure that powers the modern web. But in the eyes of the Internal Revenue Service, Rahul was caught in a unique web. As a resident alien, his "tax home" was the United States, meaning the IRS claimed a right to know about—and potentially tax—every rupee, property, and asset he held anywhere on Earth.

Rahul was an "Accidental American"—someone who, by virtue of their time spent in the U.S., had unknowingly signed up for the most aggressive global tax regime in existence.

Rahul faces losing over $1.25 million to tax penalties and reporting errors while trying to transfer his $5 million Indian inheritance to the U.S.

The phone call came at 3:00 AM PST. Rahul’s father, a self-made industrialist in Mumbai, had passed away. Amidst the fog of grief and the logistics of a sudden flight across the Pacific, a massive financial reality began to crystallize.

His father’s estate was substantial:

The total valuation hovered near $5,000,000 USD. In India, this was a legacy. To the U.S. Treasury, this was a "Foreign Financial Event" of the highest order. Rahul’s goal was simple: liquidate the assets in India and move the proceeds to the U.S. to secure his family’s future and fund his children’s Ivy League aspirations.

He assumed it was as simple as a wire transfer. He was wrong.

Before initiating the transfer, Rahul spoke with a high-street CPA. The news was devastating.

"The IRS doesn't tax inheritances," the CPA told him, "but they punish the secrecy of them. If you wire $5M and fail to file Form 3520 on time, the penalty is 5% of the gift amount for every month you are late—capping at 25%."

The Math of Panic: On a $5,000,000 inheritance, a 25% penalty is $1,250,000. Rahul was facing the prospect of losing over a million dollars simply because he didn't know which "box" to check on a form he had never heard of. Furthermore, India’s Tax Deducted at Source (TDS) on property sales for Non-Resident Indians (NRIs) is notoriously high. He was terrified that between Indian capital gains tax and U.S. reporting penalties, his father’s life work would be cannibalized by two different governments.

The "Villain" was clear: The Information Gap. Rahul was paralyzed. If he moved the money, he risked a life-altering audit. If he left it in India, the funds remained in a depreciating currency, inaccessible for his U.S. needs.

Rally Tax saved Rahul from overpayment and massive penalties by leveraging U.S. basis step-ups, ensuring strict Form 3520 compliance, and optimizing foreign tax credits.

When Rahul approached Rally Tax, we didn't just look at his bank statement. We looked at the U.S.-India Double Taxation Avoidance Agreement (DTAA).

Our analysis revealed three critical "Pain Points" that the average CPA misses:

Most taxpayers believe that if their father bought land for $100,000 in 1990 and it’s now worth $5,000,000, they owe tax on the $4.9M gain. Under Internal Revenue Code Section 1014, Rahul was entitled to a "Step-Up in Basis." This means his "cost" for U.S. tax purposes became the value of the land on the day his father passed away. However, proving this to the IRS requires specific, contemporaneous appraisals that meet U.S. standards—not just a letter from a local Indian broker.

Form 3520 is an "information return," not a tax return. This is why it’s so dangerous. You can owe $0 in tax but still owe $1.25M in penalties. The IRS uses this form to track potential money laundering and hidden offshore income. For an H1B holder, a $5M incoming wire without a 3520 is a "Red Flag" that triggers an automatic audit.

India taxes capital gains on property sales for NRIs at approximately 20% (plus surcharges). The U.S. federal capital gains rate is 20% (plus the 3.8% Net Investment Income Tax). Without a strategic Form 1116 filing, Rahul might have paid 20% to India and then another 23.8% to the U.S.

Rally Tax eliminated U.S. tax liability and audit risk by resetting the property's cost basis, claiming foreign tax credits, and synchronizing all international compliance filings.

Rally Tax deployed a four-pillar defense strategy to move the capital safely across borders.

We coordinated with Indian valuation experts to create a "Fair Market Value" report as of the date of death. By documenting the $5M value at the moment of inheritance, we effectively reset the "gain" to zero in the eyes of the IRS.

We didn't wait for the IRS to ask. We prepared a comprehensive Form 3520 that detailed the source of the funds as a "Bequest from a Foreign Estate." We ensured the filing was tied to Rahul's 1040, creating a clear, transparent paper trail that prevented any "Suspicious Activity Reports" from his U.S. bank.

As the property was sold in Mumbai, India withheld tax. We utilized Section 901 of the IRC to claim every rupee paid to the Indian government as a dollar-for-dollar credit against his U.S. liability.

Large movements of cash require updates to the FinCEN 114 (FBAR) and Form 8938 (FATCA). We synchronized these reports to ensure that the balance in his Indian account (post-sale) matched the amount wired to the U.S., leaving no "unexplained wealth" for an auditor to question.

Rahul successfully moved $5M to the U.S. tax-free, securing his family's wealth and neutralizing all legal risks.

The outcome was a total strategic victory. Rahul moved the $5,000,000 into his U.S. brokerage account with the following results:

If you are an H1B holder, a Green Card holder, or a U.S. Citizen with assets abroad, you are living in a high-stakes environment. Whether it's an inheritance in Bangalore, RSUs from a pre-IPO startup, or a multi-state tax complication, the "villain" is always the same: Complexity.

At Rally Tax, we turn financial panic into financial relief. We don't just file forms; we build shields.

The Relief is just one plan away.

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Frequently Asked Questions

Form 3520 is an informational return used to report the receipt of large gifts or bequests from foreign sources.

It is generally due on the same date as your individual income tax return (April 15), including extensions (to October 15). Crucially, Form 3520 must often be mailed separately to the IRS office in Ogden, Utah, and cannot always be e-filed with your standard 1040.

Not if you use the Foreign Tax Credit (FTC) via Form 1116.

Before you wire the money to the U.S., you must comply with: