What Form 706-NA (2016) Is For
Form 706-NA is used to compute estate tax and generation-skipping transfer tax for individuals who were not citizens or residents of the United States at the time of death. The Internal Revenue Service requires this tax form to determine the estate tax liability of a decedent’s taxable estate, which consists of assets in the United States. It applies only to gross estates located within the country and excludes worldwide estate assets held abroad. Executors or personal representatives must file this return if the estate value exceeds the filing threshold of $60,000, which includes adjusted taxable gifts and the gift tax specific exemption.
When You’d Use Form 706-NA (2016)
Executors file Form 706-NA (2016) within nine months after the decedent’s date of death to calculate estate tax liabilities and any generation-skipping transfer tax. If more time is needed, the filer may request a six-month extension by submitting Form 4768 to the Internal Revenue Service, Attn: Estate and Gift Tax. Late filing without reasonable cause results in penalties and interest on the unpaid estate tax owed. To correct errors after submission, the filer should prepare an amended estate tax return, mark it “Supplemental Information,” and attach the necessary pages from the original filing.
Key Rules or Details for 2016
- Filing threshold: The executor must file when the decedent’s gross estate located in the United States, plus adjusted taxable gifts and the gift tax specific exemption, exceeds $60,000. This determines whether an estate tax return is required for estate tax purposes.
- Unified Credit Exemption: Nonresident decedents receive a $13,000 unified credit exemption, which represents a $60,000 estate tax exemption. This is significantly lower than the exemption for U.S. citizens and residents under U.S. estate tax laws.
- Estate tax treaties: Death tax treaties and estate tax treaties, including the Canada income tax treaty, may offer benefits such as larger exemptions or deductions when calculating estate tax liabilities. Always attach documentation of the applicable treaty and compute estate values accordingly.
- U.S.-situated assets: The taxable estate includes tangible personal property, real property under the real property tax act, and stock in a U.S. corporation. Debt obligations issued by U.S. companies also count as part of the decedent’s gross estate.
- Assets excluded: Life insurance proceeds, stock in a foreign corporation, and bank deposits not tied to a U.S. trade or business are excluded from the United States estate tax base.
- Form 8971 reporting: Estates filing after July 31, 2015, must also file Form 8971 within 30 days to report property values to beneficiaries, ensuring consistent fair market value reporting for income tax purposes.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine filing requirement
Add the fair market value of all U.S. assets, adjusted taxable gifts, and any gift tax-specific exemption. If the total exceeds $60,000, filing is mandatory.
Step 2: Gather documentation
Collect the will, death certificate, asset appraisals, financial statements, and prior gift tax returns. Translate any foreign documents into English for review by the Internal Revenue Service.
Step 3: Complete required schedules
Use schedules from Form 706 to report deductions for administration expenses, prior transfers, and qualified conservation easement exclusion. Attach all supporting schedules for estate and generation-skipping transfer tax purposes.
Step 4: Calculate tax liabilities
Compute the tax owed on the decedent’s taxable estate using the unified rate schedule. Apply the unified credit exemption and any applicable treaty adjustments to calculate tax liabilities accurately.
Step 5: File the tax return
Sign under penalties of perjury and mail the completed form and schedules to the following address: Department of the Treasury, Internal Revenue Service, Cincinnati, OH 45999. Private delivery services are also accepted.
Step 6: File Form 8971
Within 30 days of submitting Form 706-NA, file Form 8971 to report estate tax property values to beneficiaries, ensuring consistency for both gift tax and income tax purposes.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Misidentifying U.S.-situated assets: Executors sometimes include assets that do not qualify under estate tax purposes. Review Internal Revenue Code sections 2104 and 2105 to identify which tangible property or foreign investment qualifies as such for the taxable estate.
- Failing to apply death tax treaties: Neglecting applicable death tax treaties or estate tax treaties can lead to overpayment. Review any applicable treaty with the decedent’s country to reduce estate tax owed or claim exemptions.
- Omitting required schedules: Failing to attach schedules for administration expenses or qualified domestic trust deductions can cause delays in processing. Include all necessary pages when computing estate tax liabilities.
- Underreporting fair market value: Using inaccurate appraisals or incomplete asset descriptions can cause audit issues. Ensure each item of tangible personal property or real estate lists the fair market value on the decedent’s date of death.
- Missing Form 8971 filing: Forgetting to file Form 8971 can trigger penalties. Mark the deadline within 30 days of submitting the estate tax return to maintain compliance.
- Incorrect alternate valuation date: Some executors elect the alternate valuation date without benefit. Use it only if it reduces both the gross estate value and the net estate tax liability.
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 submission, the Internal Revenue Service reviews the tax return to verify the decedent’s estate value and estate tax liabilities. Processing typically takes several months, and closing letters for estate taxes are no longer automatically generated. Executors must request a closing letter for the estate tax after at least four months. Registered tax professionals can obtain account transcripts showing acceptance or adjustments instead. The estate tax closing letter verifies that the Internal Revenue Service has accepted the filing and that the estate tax liability has been satisfied under current tax laws.
FAQs
What is the difference between Form 706-NA (2016) and other estate tax returns?
Form 706-NA (2016) applies to nonresident decedents who were not citizens of the United States, covering only U.S.-situated assets rather than the worldwide estate.
Can I claim a marital deduction under the estate tax exemption rules?
A marital deduction applies only if the surviving spouse is a U.S. citizen or the property transfers to a qualified domestic trust. This ensures compliance with estate and generation-skipping transfer tax requirements.
How do I apply death tax treaties or estate tax treaties to reduce estate taxes?
Death tax treaties, including the Canada income tax treaty, may reduce the United States estate tax by allowing higher exemptions. Executors should attach documentation to claim benefits.
What happens if I miss the deadline for requesting the estate tax closing letter?
Suppose you do not request closing letters for the estate tax within several months. In that case, you may still obtain an account transcript to confirm your estate tax liabilities and compliance status with the Internal Revenue Service.
How do adjusted taxable gifts affect estate tax liabilities?
Adjusted taxable gifts refer to lifetime gifts made after 1976 that are taken into account when determining the unified credit exemption. Executors must include them when calculating the decedent’s taxable estate and any transfer tax due.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
