What Form 706-NA (2021) Is For
Form 706-NA is used for estate tax and generation-skipping transfer tax purposes when a person who was not a citizen or resident of the United States owned assets in the country at death. The Internal Revenue Service requires this estate tax return to report and calculate tax liabilities on a decedent’s gross estate located within the United States. The form helps determine the taxable estate and ensures compliance with U.S. estate and gift tax laws, as outlined in applicable tax regulations.
When You’d Use Form 706-NA (2021)
Executors must file this tax form within nine months of the decedent’s date of death if the U.S.-situated estate value exceeds the $60,000 filing threshold. If more time is needed, a six-month extension can be requested using Form 4768, but payment of estate taxes is still due on time. Late or amended estate tax returns should include explanations for delays to reduce penalties and interest. Estate tax return preparers or registered tax professionals can assist with compliance under the Internal Revenue Service requirements.
Key Rules or Details for 2021
- Filing threshold: Estates with gross estate assets located in the United States exceeding $60,000 must file Form 706-NA to report taxable estate and calculate tax liabilities.
- Included assets: Real estate, tangible personal property, U.S. corporate stock, and companies’ debt obligations are part of the decedent’s gross estate located in the U.S. for estate tax purposes.
- Excluded assets: Certain assets, such as bank deposits not connected to a U.S. business, portfolio debt obligations, and stock in a foreign corporation, are exempt from taxation under U.S. estate tax rules.
- Unified credit exemption: Nonresident estates receive a $13,000 unified credit exemption, excluding up to $60,000 in value from U.S. estate tax.
- Treaty relief: The United States estate tax treaties and death tax treaties, as well as the Canada income tax treaty, may offer deductions or exemptions for qualifying estates.
- Deductions allowed: Administration expenses, charitable deduction amounts, and the marital deduction are available, including transfers to a qualified domestic trust for a surviving spouse.
- Valuation method: The fair market value or alternate valuation date method is used to compute estate value for tax purposes.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Required Documents
Collect certified copies of the death certificate, the will, and all appraisals establishing the fair market value of such property. Include documentation of lifetime gifts, debt obligations, and any generation-skipping transfer items.
Step 2: Identify U.S.-Based Assets
List all tangible property, real property, and other U.S.-situated holdings within the decedent’s estate. Determine which assets are included for estate tax purposes and verify each item’s location and ownership records.
Step 3: Calculate Estate Value
Compute estate and gift taxes by totaling the gross estate, including adjusted taxable gifts and certain assets. The death value of property is based on fair market appraisals or alternate valuation date figures.
Step 4: Apply Deductions and Credits
Apply deductions such as administration expenses, charitable contributions, or the unlimited marital deduction if the surviving spouse qualifies. These deductions reduce the decedent’s taxable estate under current U.S. tax laws.
Step 5: Complete and File the Return
Prepare the estate tax return paperwork accurately, attach supporting schedules, and file it with the Internal Revenue Service, Attn: Estate and Gift Tax. Private delivery services can be utilized to ensure the timely submission of tax forms.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing filing threshold: Executors sometimes misjudge the $60,000 filing threshold. Always calculate the worldwide estate and confirm U.S. holdings to avoid IRS penalties.
- Incorrect asset valuation: Using outdated values can lead to distorted estate tax liabilities. Always use the current fair market value or a properly elected alternate valuation date.
- Ignoring Estate Tax Treaties: Many estates overlook the benefits available under applicable treaty provisions. Review all estate tax treaties and death tax treaties to reduce or eliminate U.S. estate taxes legally.
- Omitting adjusted taxable gifts: Executors must report adjusted taxable gifts made during the decedent’s lifetime. Keep complete records to comply with estate and gift taxes.
- Improper documentation, such as missing translated wills or appraisals, delays processing. Submit clear copies and certified translations to the Internal Revenue Service for accuracy.
- Not consulting professionals: Estate planning strategies can be complex. Work with authorized representatives, making requests to registered tax professionals who are familiar with both foreign law and U.S. estate procedures.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once the estate tax return is submitted, the Internal Revenue Service typically takes eight to nine months to review it. During this time, they verify the decedent’s taxable estate, adjusted taxable gifts, and compute estate tax liabilities. If the estate qualifies, a closing letter for the estate tax may be issued upon request, confirming completion of the review. Executors can also request estate tax closing letters or account transcripts through authorized representatives. Refunds for overpayments or corrections are processed based on fair market value calculations and other verified documentation.
FAQs
Who must file Form 706-NA for estate taxes?
Any executor responsible for a decedent’s estate that includes U.S.-situated assets exceeding $60,000 in fair market value must file this estate tax return.
How does the generation-skipping transfer tax apply to Form 706-NA?
This tax applies when wealth passes to grandchildren or others more than one generation below the decedent. Report all generation-skipping transfer amounts accurately to avoid penalties.
Can deductions reduce estate tax liabilities?
Yes, deductions for charitable contributions, administration expenses, and the marital deduction help reduce estate tax liabilities and lower the decedent’s taxable estate when properly documented.
How can executors claim the estate tax exemption for nonresidents?
Executors must apply the unified credit exemption of $13,000, which shelters up to $60,000 of U.S. property from estate taxes for estates of non-citizens.
What is included in the decedent’s gross estate for gift tax purposes?
The gross estate includes tangible personal property, real property, and lifetime gifts subject to the gift tax specific exemption. Executors must list and value these assets for estate tax purposes.
Do estate tax closing letters confirm final approval?
Estate tax closing letters confirm that the Internal Revenue Service has completed its review of the estate and accepted reported values and deductions. They serve as the official closure of the estate’s federal tax obligations.
How do death tax treaties and debt obligations affect tax liability?
Death tax treaties can reduce or eliminate tax on certain assets. Companies’ debt obligations owed to the decedent are generally included in the estate’s fair market value unless treaty provisions exempt them.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
