What Form 706-NA Is For
Form 706-NA is the estate tax return used by executors of a decedent’s estate when the deceased was not a citizen or resident of the United States at death. This federal estate tax form helps compute estate tax liabilities and any generation-skipping transfer taxes on U.S.-situated property. It applies to real estate located in the U.S., tangible personal property, and certain companies’ debt obligations. Executors must ensure compliance with Internal Revenue Service requirements and pay any transfer tax before distributing assets to beneficiaries.
When You’d Use Form 706-NA
Executors must file Form 706-NA (2017) within nine months after the decedent’s date of death if the decedent’s gross estate located in the United States exceeds the $60,000 filing threshold. Late or amended estate tax returns may be accepted if reasonable cause exists. If errors are found after filing, such as in fair market value appraisals or adjusted taxable gifts, executors should file a supplemental estate tax return with supporting documentation. Filing extensions may be requested using Form 4768, but payment of estate taxes remains due within the original deadline.
Key Rules for 2017
- Filing Threshold: Executors must file if the decedent’s gross estate and adjusted taxable gifts exceed $60,000, which includes real estate located in the United States and tangible property.
- Estate Tax Rates: The federal estate tax rate ranged from 18% to 40%, depending on the decedent’s taxable estate and unified credit exemption.
- Unified Credit: Nonresident decedents received a $13,000 unified credit, effectively exempting $60,000 from estate tax purposes.
- Estate Tax Treaties: Death tax treaties and estate tax treaties, such as the Canada income tax treaty, may modify estate taxation and reduce tax liability for estates subject to U.S. estate tax.
- Marital Deduction: Property passing to a surviving spouse who is a U.S. citizen may qualify for the unlimited marital deduction. If the spouse is not a citizen, a qualified domestic trust is required for tax deferral.
- Generation-Skipping Transfer: Assets transferred to grandchildren or lower generations may be subject to an additional 40% generation-skipping transfer tax.
- Allowable Deductions: Administration expenses, funeral costs, debts, and certain real property tax act obligations may be deducted from the taxable estate.
- Treaty Considerations: Executors must attach Form 8833 if claiming benefits under applicable treaty provisions to adjust tax liabilities.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step Filing Process (High Level)
Step 1: Determine Filing Requirement
Identify all property for estate tax purposes, including tangible personal property and real estate located in the United States. Calculate the fair market value on the decedent’s date of death to determine whether the filing threshold is exceeded.
Step 2: Gather Required Documentation
Collect the death certificate, will, and records for such property included in the decedent’s gross estate. Obtain appraisals showing fair market value and any prior gift tax returns for adjusted taxable gifts.
Step 3: Complete the Estate Tax Return
Use schedules to report the decedent’s taxable estate, adjusted taxable gifts, and allowable deductions. Executors should accurately compute estate tax liabilities using current Internal Revenue Service tax laws.
Step 4: Calculate Tax Liabilities
Compute estate taxes owed by totaling the gross estate and subtracting deductions. Apply the unified credit exemption and any applicable treaty benefits to reduce the overall tax liability.
Step 5: File and Pay the Tax
Mail the tax form, supporting schedules, and payment to the Internal Revenue Service, Attn: Estate and Gift Tax Returns, Cincinnati, OH 45999. Use private delivery services if required. Include the decedent’s name, date of death, and “Form 706-NA” on the payment check.
Step 6: Obtain Transfer Certificate
After paying estate taxes, executors should request a transfer certificate or estate tax closing letter. These documents verify compliance for financial institutions holding U.S. assets and confirm the Internal Revenue Service has closed the file.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Assuming No Filing Is Required: Executors often overlook the U.S. filing threshold. To avoid this, calculate the estate value of all U.S.-situated assets, including tangible property and business holdings.
- Incorrect Fair Market Value: Some executors use outdated appraisals. Always obtain updated fair market valuations at the decedent’s death value and document each appraisal clearly.
- Omitting Treaty Benefits: Estates may incur excess tax when death tax treaties are not considered. Research applicable death tax treaties and include Form 8833 to claim benefits under the appropriate estate tax treaty.
- Failing to Include All Documentation: Missing appraisals will delay processing. To avoid penalties, ensure all attachments and translations are submitted with the estate tax return.
- Ignoring Gift Tax Reporting: Executors should disclose all prior U.S. gifts subject to gift tax purposes to ensure the Internal Revenue Service correctly calculates total tax liability.
- Late Payment or Filing: Failure to file within nine months increases estate tax liabilities. Avoid this by paying estimated taxes even when extensions are granted for paperwork.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service reviews estate tax returns for accuracy and completeness. Executors or authorized representatives making requests can obtain account transcripts or estate tax closing letters through Form 4506-T. Refunds, if applicable, are processed after review. Transfer certificates confirm that U.S. assets may be released to heirs. The statute of limitations for assessing additional federal estate tax is typically three years. A user fee may apply for formal closing letters.
FAQs
How does Form 706-NA (2017) affect estate tax on tangible personal property?
Tangible personal property, like art, jewelry, and vehicles, is included in the gross estate for estate tax purposes. Executors must report these items at fair market value in the taxable estate.
Who must file Form 706-NA for a nonresident who is not a citizen of the United States?
Executors must file Form 706-NA if the decedent’s gross estate located in the United States exceeds $60,000. This requirement applies even if the decedent’s worldwide estate remains below the filing threshold for U.S. citizens.
How does the estate tax exemption apply under U.S. estate tax rules?
In 2017, the estate tax exemption for nonresidents was limited to $13,000 in unified credit, exempting only $60,000 in U.S. assets. Larger estates must pay U.S. estate tax on amounts exceeding that value.
How are regenerative-skipping transfer taxes handled on Form 706-NA?
Generation-skipping transfer tax applies when property is transferred to beneficiaries who are two or more generations below the decedent. Executors must calculate this separately at a flat 40% rate in addition to estate taxes.
What role do death tax treaties and Canada's income tax treaties play in filing?
Death tax treaties and the Canada income tax treaty may increase exemptions or reduce double taxation for estates with cross-border property. Executors must include treaty computations when claiming these benefits.
How does the unified credit help compute estate taxes?
The unified credit allows a small portion of U.S. assets to be exempt from estate taxation. Executors use it to calculate tax liabilities and reduce the amount owed on the estate tax return.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
