What the Form Is For

Form 706-NA, officially titled "United States Estate (and Generation-Skipping Transfer) Tax Return Estate of nonresident not a citizen of the United States," is the IRS form used to compute estate tax and generation-skipping transfer (GST) tax liability for deceased individuals who were neither U.S. citizens nor U.S. residents at the time of death.

The estate tax isn't imposed on what beneficiaries receive, but rather on the transfer of the decedent's taxable estate itself. Importantly, Form 706-NA only deals with property located within the United States—not the decedent's worldwide assets. This is a crucial distinction from Form 706 (used for U.S. citizens and residents), which covers all assets regardless of location.

A nonresident alien decedent is defined as someone who was neither domiciled in nor a citizen of the United States at death. For purposes of this form, citizens of U.S. possessions are not considered U.S. citizens. The executor—or personal representative, administrator, or anyone in actual or constructive possession of the decedent's U.S. property—must file this return if certain thresholds are met.

When You’d Use Form 706-NA (Late/Amended Filing)

Standard Filing Deadline

Form 706-NA must be filed within 9 months after the date of death unless an extension has been granted.

Extension Requests

If you cannot file by the due date, use Form 4768 (Application for Extension of Time To File a Return and/or Pay U.S. Estate and Generation-Skipping Transfer Taxes) to apply for an automatic 6-month extension. Check the "Form 706-NA" box in Part II of Form 4768. This extension applies to the filing deadline, not necessarily the payment deadline.

Amended Returns

If you discover errors after filing the original return, you must file another Form 706-NA. Write "Supplemental Information" across the top of page 1, and attach a copy of pages 1, 2, 3, and 4 of the original Form 706 that was already filed. There is no separate "amended return" form—you simply file a corrected version with proper notation.

Late Filing

If filing after the due date (including any extensions), attach a detailed explanation to demonstrate reasonable cause for the delay. Without reasonable cause, penalties will apply for both late filing and late payment of tax.

Key Rules or Details for 2016

Filing Threshold

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 $60,000. This is dramatically lower than the $5.45 million threshold for U.S. citizens and residents in 2016.

Unified Credit

Nonresident aliens receive a maximum unified credit of $13,000 (equivalent to a $60,000 exemption), compared to the $2,125,800 credit available to U.S. citizens in 2016. For citizens of U.S. possessions, the maximum unified credit is the greater of $13,000 or a proportional calculation based on the fraction of U.S.-situated assets to worldwide assets.

Tax Treaty Benefits

Death tax treaties with certain countries (including Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the United Kingdom) may provide higher exemptions or other favorable treatment. If claiming treaty benefits, you must attach a statement indicating the return position is treaty-based.

U.S.-Situated Assets

Only assets physically or legally located in the United States are included on Form 706-NA. This typically includes:

• Real estate physically located in the U.S.
• Tangible personal property physically in the U.S.
• Stock in U.S. corporations (regardless of certificate location)
• Certain debt obligations of U.S. persons or entities

Assets Located Outside the U.S.

The following are generally treated as located outside the United States:

• Stock in foreign corporations
• Life insurance proceeds on the decedent's life
• Bank deposits not effectively connected with a U.S. trade or business
• Portfolio debt obligations eligible for tax exemption under section 871(h)

Special 2016 Requirement—Form 8971

Beginning in 2016, estates filing Form 706-NA after July 31, 2015, must also file Form 8971 (Information Regarding Beneficiaries Acquiring Property from a Decedent) with Schedule A within 30 days of filing Form 706-NA. This reports the estate tax value of property to both the IRS and beneficiaries to ensure consistent basis reporting.

Step-by-Step (High Level)

Step 1: Determine Filing Requirement

Calculate the total value of U.S.-situated assets at the date of death, add any gift tax specific exemption (for gifts made between September 9, 1976, and December 31, 1976), and add adjusted taxable gifts made after December 31, 1976. If this total exceeds $60,000, filing is required.

Step 2: Gather Required Documentation

• Certified copy of the will (if the decedent died testate)
• Copy of the death certificate
• Balance sheets and financial statements for closely held corporate stock
• Appraisals for real estate and other significant assets
• Copies of all available U.S. gift tax returns the decedent filed
• English translations of all foreign-language documents

Step 3: Obtain Form 706 Materials

You must obtain Form 706 and its instructions because certain schedules from Form 706 must be attached to Form 706-NA if you claim a marital deduction, charitable deduction, qualified conservation easement exclusion, or credit for tax on prior transfers. Ensure you use the version corresponding to the decedent's date of death.

Step 4: Complete Part I—Decedent Information

Enter the decedent's name, Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) if previously used for U.S. tax returns. If the decedent has an IRS-assigned Internal Revenue Service Number (IRSN), enter that; otherwise, leave line 2 blank and the IRS will assign one.

Step 5: Answer Part III—General Information

Carefully answer all questions, particularly those about citizenship, expatriation, powers of appointment, and property transfers. Several questions require attaching additional schedules from Form 706.

Step 6: Complete Schedule A—Gross Estate

List only assets located in the United States with detailed descriptions. Value property as of the date of death unless you elect alternate valuation. The alternate valuation date (6 months after death) may only be elected if it decreases both the gross estate value and the net estate tax due.

For stocks, include: corporation name, number of shares, type (common/preferred), par value, nine-digit CUSIP number, and quotation price.

For bonds, include: quantity, denomination, obligor's name, maturity date, interest rate, interest payment dates, CUSIP number, and series number.

Step 7: Complete Schedule B—Taxable Estate

Enter total U.S.-situated assets on line 1 and assets located outside the U.S. on line 2. Calculate allowable deductions on line 4 (funeral expenses, administration expenses, claims, mortgages, unpaid debts, casualty losses) and line 6 (charitable and marital deductions, if applicable).

Step 8: Calculate Tax (Part II)

Use Table A—Unified Rate Schedule from the corresponding Form 706 instructions to calculate tentative taxes. Apply the unified credit ($13,000 maximum) and any applicable treaty benefits. Deduct state death taxes and any other allowable credits.

Step 9: Calculate GST Tax (if applicable)

If generation-skipping transfers are involved, complete Schedules R and/or R-1 from Form 706, listing only property on Schedule A of Form 706-NA.

Step 10: Sign and File

The executor must sign under penalties of perjury. If multiple executors exist, only one signature is required, though all are responsible for the return. Mail to: Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.

Step 11: File Form 8971 (if required)

Within 30 days of filing Form 706-NA, file Form 8971 with the IRS and provide Schedule A to each beneficiary showing the estate tax value of property they receive.

Common Mistakes and How to Avoid Them

Mistake 1: Incorrectly Determining Asset Location

Many executors misclassify assets as U.S.-situated or foreign-situated. Remember: U.S. corporate stock is U.S. property regardless of where certificates are held, but life insurance proceeds and bank deposits may be excluded. Carefully review sections 2104 and 2105 of the Internal Revenue Code and the instructions.

Mistake 2: Missing the $60,000 Threshold Calculation

Executors sometimes forget to include adjusted taxable gifts and the gift tax specific exemption when determining if the $60,000 threshold is exceeded. The threshold isn't just the value of assets at death—it includes these additional amounts.

Mistake 3: Failing to Attach Required Schedules from Form 706

If you answer "Yes" to questions 5, 7, 8, 9a, 9b, or 11 in Part III, or if you claim marital, charitable deductions, or certain credits, you must attach the corresponding schedules from Form 706. Missing schedules will delay processing.

Mistake 4: Inadequate Asset Documentation

Providing insufficient detail for stocks, bonds, and real estate is common. Always include CUSIP numbers for securities, complete legal descriptions for real estate, and professional appraisals for significant assets. The IRS must be able to identify and value each asset from your description alone.

Mistake 5: Neglecting State Death Tax Documentation

When claiming the state death tax deduction on line 7 of Schedule B, you must file a certificate signed by the appropriate state official showing total tax charged, discounts, penalties, interest, actual tax paid, and payment dates. Attach this certificate or file it as soon as possible—claims must generally be made within 4 years.

Mistake 6: Ignoring Treaty Benefits

Many executors overlook favorable death tax treaty provisions. If the decedent was a citizen or resident of Australia, Canada, Finland, France, Germany, Greece, Italy, Japan, Norway, or Switzerland, special unified credit rules may apply under section 2102(b)(3)(A). Always review applicable treaties.

Mistake 7: Forgetting Form 8971

For estates with Form 706-NA filed after July 31, 2015, failing to file Form 8971 within 30 days triggers penalties. This new requirement catches many executors off guard. Set a calendar reminder for 30 days after filing to ensure compliance.

Mistake 8: Improper Alternate Valuation Election

Executors sometimes elect alternate valuation thinking it's always beneficial. This election is only permitted if it reduces both the gross estate value AND the net estate tax. It cannot be used strategically to increase basis for beneficiaries without reducing tax.

What Happens After You File

Processing Timeline

After mailing Form 706-NA to Cincinnati, the IRS will process the return. This typically takes several months. Do not request any correspondence until sufficient processing time has elapsed.

Closing Letter Procedure

Effective for returns filed on or after June 1, 2015, estate tax closing letters are no longer automatically issued. You must request one. Wait at least 4 months after filing Form 706-NA before requesting a closing letter. Contact the IRS at (866) 699-4083 to request the letter.

The closing letter provides evidence that the IRS has accepted Form 706-NA as filed or after agreed-upon adjustments. It's important for executors to document that estate administration is complete and that beneficiaries can take title to property without tax concerns.

Account Transcripts as Alternative

Instead of a closing letter, you may request an account transcript, which reflects transactions including acceptance of Form 706-NA and completion of any examination. Registered tax professionals can obtain transcripts online through the Transcript Delivery System (TDS), or authorized representatives can request them using Form 4506-T.

IRS Examination

The IRS may select your return for examination. If additional documentation is requested, respond promptly and completely. During examination, the statute of limitations on assessment remains open.

Statute of Limitations

Generally, the IRS has 3 years from the filing date to assess additional tax, provided there is adequate disclosure. The statute may be extended in cases of substantial undervaluation or fraud.

Payment of Tax Due

Pay any balance due within 9 months after death unless an extension to pay was granted. Make checks or money orders payable to "United States Treasury" in U.S. dollars. The IRS cannot accept single checks of $100 million or more—amounts above this must be split across multiple checks or paid electronically.

Refund Claims

If you later recover any state death tax for which you claimed a deduction, you must notify the IRS within 30 days of receiving the refund. Send notification to: Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.

Transfer Certificates

For information about transfer certificates for U.S. assets (which may be needed to transfer property), write to: Internal Revenue Service, Cincinnati, OH 45999, Stop 824G.

FAQs

Q1: What's the difference between Form 706 and Form 706-NA?

Form 706 is for estates of U.S. citizens and residents and covers worldwide assets with a $5.45 million exemption (in 2016). Form 706-NA is exclusively for nonresident aliens who were not U.S. citizens at death, covers only U.S.-situated assets, and has just a $60,000 exemption. The forms also differ in available deductions—charitable and marital deductions are more restricted for Form 706-NA.

Q2: Can I take a marital deduction on Form 706-NA?

Yes, but with strict limitations. You may only take a marital deduction if the surviving spouse is a U.S. citizen OR if the property passes to a qualified domestic trust (QDOT) described in section 2056A and you make a proper election on Schedule M of Form 706. Without these conditions, no marital deduction is allowed, regardless of treaty provisions (unless the treaty specifically allows otherwise).

Q3: What if the decedent was a "U.S. expatriate" who renounced citizenship?

Special rules apply depending on when expatriation occurred. For decedents who expatriated before June 17, 2008, and were still subject to the 10-year alternative tax regime of section 877(b) at death, section 2107 rules apply. These individuals may be treated as owning a proportional share of U.S. property held by foreign corporations they controlled. Attach documentation if claiming that tax avoidance wasn't a principal purpose of expatriation.

Q4: Are life insurance proceeds taxable on Form 706-NA?

Generally, no. Proceeds of insurance policies on the decedent's life are considered property located outside the United States and aren't included on Form 706-NA—even if the insurance company is based in the U.S. This is a significant benefit for nonresident aliens compared to U.S. citizens, whose life insurance is fully taxable.

Q5: How do I determine if stock is U.S.-situated?

Stock of corporations organized under U.S. law is U.S.-situated property regardless of where certificates are physically located. Foreign corporate stock is not U.S.-situated. For Regulated Investment Companies (RICs), special rules apply: for decedents dying after 2004 and before 2012, a portion may be treated as foreign property based on the RIC's qualifying assets ratio.

Q6: What happens if I miss the filing deadline?

Section 6651 provides penalties for both late filing and late payment unless there's reasonable cause. The late filing penalty is typically 5% of the unpaid tax for each month the return is late, up to 25%. The late payment penalty is generally 0.5% per month. If you receive a penalty notice, send an explanation—the IRS will determine if you meet reasonable cause criteria. Don't attach explanations to the original return; they won't be considered.

Q7: Do I need to file Form 706-NA if the estate is below $60,000?

No. Filing is only required if the date-of-death value of U.S.-situated assets, plus the gift tax specific exemption and adjusted taxable gifts, exceeds $60,000. However, filing voluntarily may be advisable for documentation purposes or if you anticipate needing a transfer certificate for certain assets.

This guide is based on the September 2016 revision of Form 706-NA instructions and other official IRS publications. For the most current information and forms, visit IRS.gov/form706na.

Source: IRS.gov - Instructions for Form 706-NA (Rev. September 2016)