What Form 706-NA Is For
Form 706-NA is used to report and calculate the United States estate and generation-skipping transfer tax for a decedent who was not a citizen or resident of the United States at the time of death. This Internal Revenue Service tax form helps determine the estate tax owed on U.S.-situated assets, including real estate located in the U.S., tangible personal property, and certain intangible assets situated in the country. It also ensures proper reporting of adjusted taxable gifts, allowable deductions, and applicable treaty benefits for estate tax purposes.
When You’d Use Form 706-NA
Executors must file Form 706-NA when the decedent’s gross estate located in the United States, combined with adjusted taxable gifts, exceeds the $60,000 filing threshold. The estate tax return is due within nine months after the decedent’s date of death, though an extension may be requested using Form 4768. Late filing may result in penalties and interest, unless the executor can demonstrate reasonable cause. Amended returns can be filed if the estate value or deductions change after submission.
Key Rules or Details for 2023
- Filing Threshold: Estates must file Form 706-NA when the United States estate exceeds $60,000 in value, including prior transfers and adjusted taxable gifts. This requirement applies to all decedents who were not U.S. citizens at the time of their death.
- Included Assets: The gross estate includes real estate located in the U.S., tangible personal property such as vehicles or jewelry, and shares in a foreign corporation doing business in the country.
- Excluded Assets: Certain intangible assets located abroad, deposits in U.S. banks, and some life insurance proceeds are excluded for estate tax purposes.
- Estate Tax Rates: The estate tax is progressive, ranging from 18% to 40% on amounts above the unified credit exemption.
- Gift Tax Specific Exemption: Gifts made between September 9, 1976, and December 31, 1976, qualify for this exemption when computing the taxable estate.
- Estate Tax Treaties: Applicable treaties, such as the Canada income tax treaty or death tax treaty with the United Kingdom, may reduce the estate tax liability.
- Allowable Deductions: Administration expenses, debt obligations, and charitable contributions to qualified U.S. organizations are deductible when calculating tax liabilities.
- Marital Deduction: The unlimited marital deduction applies only if the surviving spouse is a U.S. citizen or if assets are transferred to a Qualified Domestic Trust (QDOT).
- Alternate Valuation Date: Executors may use an alternate valuation date six months after death if it results in a lower gross estate and tax owed.
- Qualified Conservation Easement Exclusion: A qualified conservation easement exclusion may apply to real property tax assessments held for environmental purposes.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine If Filing Is Required
Review the decedent’s gross estate located in the United States and adjusted taxable gifts. If the total exceeds $60,000, an estate tax return must be filed to accurately compute estate and transfer taxes.
Step 2: Gather Documentation
Collect the will, certified death certificate, proof of ownership for tangible property, records of companies’ debt obligations, and any applicable treaty documents. Ensure all documents in foreign languages include certified English translations.
Step 3: Obtain an EIN for the Estate
The decedent’s estate must have an Employer Identification Number (EIN) for income tax purposes and to file Form 706-NA. You can apply online through the Internal Revenue Service website or by submitting Form SS-4.
Step 4: Value All U.S. Assets
Determine the fair market value of such property on the decedent’s date of death or alternate valuation date. For tangible personal property or real estate located in the U.S., professional appraisals are recommended to calculate tax liabilities accurately.
Step 5: Complete and File the Form
Fill out the tax return paperwork completely, including schedules for gross estate, deductions, and tax computation. Use private delivery services or mail to the IRS Kansas City address. Attach supporting documents and pay any estate tax owed.
Step 6: Wait for IRS Review
After submission, the Internal Revenue Service reviews the filing. Accepted returns post a Transaction Code 421, indicating completion. You may later request an estate tax closing letter to confirm that the estate’s federal estate taxation process is finalized.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Incomplete Documentation: Many executors fail to attach the required documents, such as certified wills or treaty claims. To avoid delays, create a comprehensive filing checklist that includes all the necessary forms and documents.
- Incorrect Asset Classification: Some filers mislabel intangible assets located abroad as U.S. property. Verify that all tangible property and real estate located within the country are correctly identified for estate tax purposes.
- Undervaluation of Assets: Executors often understate estate value, increasing audit risk. To prevent this, hire registered tax professionals or estate tax return preparers to determine the fair market value accurately.
- Missing Treaty Benefits: Executors often overlook benefits from applicable treaties, such as the Canada income tax treaty or other death tax treaties. Review treaty provisions to reduce estate tax liability where possible.
- Late Filing or Payment: Failure to file within nine months can result in penalties. Use Form 4768 to request an extension before the deadline to maintain compliance with federal tax laws.
- Unsigned Returns: The IRS rejects estate or GST tax filings that lack valid signatures. Ensure the executor signs under penalty of perjury and that all required parties sign, particularly when multiple executors are involved.
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 the estate tax return is submitted, the Internal Revenue Service assigns a document locator number and begins processing the return. If the return is accurate and complete, the IRS accepts it as filed. If errors are found, they will issue correspondence or request supporting documentation. The executor can request an estate tax closing letter after nine months to confirm that the estate tax owed has been satisfied. Alternatively, an IRS transcript can serve as evidence of completion for estate planning strategies or probate proceedings.
FAQs
Who must file Form 706-NA estate tax return?
The executor must file Form 706-NA if the decedent’s United States estate exceeds $60,000. This includes gross estate assets such as tangible personal property, real estate, and adjusted taxable gifts.
What assets are included in the taxable estate for U.S. estate tax purposes?
The taxable estate includes gross estate property physically or economically located in the U.S., such as tangible personal property, real estate, and debt obligations tied to American entities.
What estate tax exemption or unified credit applies to 2023?
Nonresident estates receive only a $60,000 estate tax exemption, unlike the much higher unified credit exemption available to U.S. citizens and residents under current tax laws.
How do estate tax treaties and death tax treaties affect tax liability?
Estate tax treaties and death tax treaties with countries like Canada or the United Kingdom can reduce or eliminate double taxation by allowing credits or exemptions for certain assets.
How is fair market value used to compute estate taxes?
Fair market value represents the price a willing buyer would pay a willing seller on the decedent’s death value date. It ensures accurate computation of estate tax liabilities under IRS regulations.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
