What Form 706-NA (2018) Is For
Form 706-NA is the tax form used to report and pay estate and generation-skipping transfer (GST) taxes for a decedent’s estate when the individual was not a citizen or resident of the United States at death. The Internal Revenue Service uses this tax return to determine estate tax liability on U.S.-situated assets within a nonresident’s gross estate. Unlike a worldwide estate report, this form focuses on property physically located or legally connected to the United States for estate tax purposes.
When You’d Use Form 706-NA (2018)
Executors must file this estate tax return if the total value of the United States estate exceeds the $60,000 filing threshold. The decedent’s gross estate includes tangible personal property, real estate, and companies’ debt obligations located in the U.S. The return is due within nine months of the decedent’s date of death. Filing Form 4768 before that deadline grants an automatic six-month extension to submit paperwork, but not to pay estate taxes owed. Executors can amend prior transfers or corrected valuations by filing a supplemental tax return.
Key Rules or Details for 2018
- Filing Threshold: Executors must file when the decedent’s gross estate, adjusted taxable gifts, and gift tax specific exemption exceed $60,000 for estate tax purposes.
- Unified Credit Exemption: Nonresident non-citizens receive a $13,000 unified credit exemption, compared to the larger amount for U.S. citizens, which reduces the total estate tax owed.
- Tax Rates: The Internal Revenue Service applies progressive tax rates, ranging from 18% to 40%, to compute estate tax liabilities under the Unified Rate Schedule.
- Included Assets: The taxable estate encompasses real estate, tangible personal property, and debt obligations associated with U.S. individuals or corporations.
- Excluded Assets: Deposits with U.S. banks and stock in foreign corporations are excluded unless connected to a U.S. business.
- Treaty Benefits: Estate tax treaties and death tax treaties—such as the Canada income tax treaty—may reduce liability through applicable treaty provisions.
- Alternate Valuation Date: Executors can use the alternate valuation date (six months after death) to lower the estate value, thereby decreasing overall tax liabilities.
- Deductions: Allowable deductions include administration expenses, funeral costs, mortgages, and claims against the estate, all of which reduce the decedent’s taxable estate.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Documentation
Collect the death certificate, the will, and financial statements showing all gross estate located in the United States. Include appraisals to establish the fair market value of tangible property and intangible assets located within U.S. jurisdiction.
Step 2: Verify Executor Authority
Provide certified letters of appointment or other proof confirming executor status. Executors represent the decedent’s estate in all dealings with the Internal Revenue Service and must ensure that estate and gift taxes are calculated correctly.
Step 3: Value All Assets
Determine the fair market value at death value or use the alternate valuation date to compute the estate value. The calculation helps establish the taxable estate and the total estate tax liability.
Step 4: Complete the Form
Enter information for the decedent’s date of death, list of assets, applicable deductions, and total tax liability. Refer to relevant schedules to calculate tax liabilities accurately.
Step 5: Calculate Deductions
Allowable deductions reduce the gross estate to arrive at the taxable estate. These include debts, funeral expenses, administration expenses, and qualified conservation easement exclusion amounts.
Step 6: File and Pay
Send completed tax return paperwork to the Internal Revenue Service, Kansas City Service Center. Use approved private delivery services or electronic payments through EFTPS to pay estate tax owed promptly.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing the Filing Threshold: Many executors underestimate the value of the estate. To avoid errors, include all tangible personal property and intangible assets located in the U.S. when computing the gross estate.
- Incomplete Documentation: Omitting death certificates or fair market appraisals can cause delays in processing. To prevent delays, confirm that all documents accompany the tax return.
- Incorrect Form Year: Filing an outdated tax form causes rejection. Always download the correct 2018 version from the Internal Revenue Service website before filing.
- Undervaluing Property: Reporting property below fair market value may result in penalties. Hire registered tax professionals or estate tax return preparers for accurate valuations.
- Ignoring Death Tax Treaties: Failing to Utilize Applicable Treaty Benefits May Increase Tax Obligations. Review all death tax treaties and applicable treaty terms before submission.
- Late Filing: Filing after the nine-month deadline results in penalties. To avoid penalties, file Form 4768 before the due date to obtain an automatic extension of time.
- Incorrect Payment Method: Mailing payments without tracking may cause errors. To avoid lost payments, use the IRS electronic system or certified private delivery services.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After filing, the Internal Revenue Service reviews the estate tax return to verify fair market value and deductions. If accepted, the executor may request an estate tax closing letter to confirm the tax computation and compliance. Estate tax closing letters are no longer issued automatically; executors must order them through Pay.gov. The estate tax closing letter serves as official proof of acceptance and is often needed before transferring property.
If selected for audit, the IRS reviews estate planning strategies, allowable deductions, and prior transfers to determine if they are compliant with tax laws. Once all estate tax liabilities are paid, the estate administration concludes.
FAQs
Who must file Form 706-NA (2018) for estate tax purposes?
Executors must file when a nonresident, not a citizen of the United States, leaves a taxable estate exceeding $60,000, including both tangible and intangible property within U.S. borders.
How do estate and generation-skipping transfer taxes apply to a decedent’s estate?
Estate and generation-skipping transfer taxes apply to assets transferred at death or skipped to grandchildren. Executors must calculate estate and GST taxes in accordance with Internal Revenue Service tax laws.
What estate tax exemption applies to a nonresident’s estate?
A $13,000 unified credit exemption applies, reducing the decedent’s taxable estate. Certain estate tax treaties may increase this exemption under applicable treaty provisions.
How do estate tax liabilities differ for U.S. residents and nonresidents?
Nonresidents pay United States estate tax only on U.S.-situated assets, while residents report their worldwide estate. This difference changes how estate tax liabilities are calculated and reported.
When will the Internal Revenue Service issue an estate tax closing letter?
Executors can request an estate tax closing letter approximately nine months after filing. It verifies that the estate tax liability amount owed has been accepted and processed.
Can debt obligations reduce the gross estate for estate tax purposes?
Yes, mortgages, loans, and other companies’ debt obligations connected to the estate qualify as allowable deductions that reduce the decedent’s taxable estate under estate taxation rules.
Do death tax treaties or the Canada income tax treaty affect estate taxes?
Yes, death tax treaties, including the Canada income tax treaty, may provide relief by allowing credits or exemptions that reduce estate tax liability on foreign investment or such property.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
