When a foreign national who isn't a U.S. resident dies owning property in the United States, their estate may need to file Form 706-NA with the Internal Revenue Service. This specialized tax form handles a unique situation: taxing U.S.-based assets of someone who lived abroad and wasn't a U.S. citizen. While the concept might sound complicated, understanding the basics can help executors and family members navigate this requirement with confidence.

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"—serves two primary purposes. First, it calculates the estate tax owed on U.S.-situated assets owned by a nonresident alien at death. Second, it computes any generation-skipping transfer (GST) tax that might apply when assets pass to beneficiaries more than one generation removed from the deceased, such as grandchildren.

The key distinction is location: this form only concerns property physically located in or connected to the United States. If a Brazilian businessman who lived in São Paulo owned a vacation home in Florida, stock in American companies, or tangible personal property in the U.S., those assets would be reportable on Form 706-NA. However, his bank accounts in Brazil, real estate in Europe, or shares in non-U.S. corporations would not be included (though they must be documented separately for calculation purposes).

The estate tax itself is imposed on the transfer of the deceased person's taxable estate, not on what any individual beneficiary receives. This means the estate pays the tax before distributing assets to heirs. The generation-skipping transfer tax adds an additional layer when wealth bypasses a generation, preventing families from avoiding estate taxes by skipping their children and passing assets directly to grandchildren.

When You’d Use It (Including Late or Amended Returns)

The executor or personal representative must file Form 706-NA within nine months after the date of death if the value of U.S.-situated assets, combined with any gift tax specific exemption and adjusted taxable gifts made after 1976, exceeds $60,000. This $60,000 threshold is notably lower than the multi-million-dollar exemption available to U.S. citizens and residents, making it more likely that foreign nationals with even modest U.S. holdings will need to file.

If you cannot meet the nine-month deadline, you can request an automatic six-month extension by filing Form 4768 before the original due date. This extension gives you time to gather documentation, but it only extends the filing deadline—not the payment deadline. Any tax owed is still due within the original nine months, and interest accrues on unpaid balances.

Late filing occurs when you miss the deadline entirely without having requested an extension. The IRS imposes penalties for both late filing and late payment unless you can demonstrate reasonable cause. If you receive a penalty notice, you must submit a written explanation of why the delay occurred. Simply attaching an explanation to your late return won't be considered—you must wait for the notice and respond then.

Amended returns follow a different process. If you discover errors after filing your original Form 706-NA, you must file another complete Form 706-NA with "Supplemental Information" written across the top of page 1. Attach copies of pages 1 through 4 of your original return. Common reasons for amendments include discovering additional assets, correcting asset valuations, or claiming deductions that were overlooked initially.

Key Rules or Details for 2019

Several specific rules governed Form 706-NA for deaths occurring in 2019. Understanding these provisions helps executors determine their obligations and calculate tax liability accurately.

Filing threshold

The critical $60,000 threshold remains fixed—it's not indexed for inflation like the exemption for U.S. citizens. This means the executor must file if U.S.-situated assets plus lifetime gifts and the gift tax specific exemption exceed this amount.

Unified credit

In 2019, estates of nonresident aliens received a unified credit of $13,000, which translates to exempting approximately $60,000 of estate value from tax. This credit is substantially less than what U.S. citizens and residents received. Some tax treaties with specific countries (including Australia, Canada, Finland, France, Germany, Greece, Italy, Japan, Norway, and Switzerland) provide more favorable treatment, potentially increasing this credit based on a proportional calculation.

Property location rules

Determining which assets count as "U.S.-situated" follows specific rules. Real estate physically located in the U.S. is always included. Tangible personal property—cars, jewelry, furniture, artwork—is included if physically present in the U.S. at death. Stock in U.S. corporations is considered U.S. property regardless of where certificates are held. However, life insurance proceeds and certain bank deposits are treated as located outside the U.S. and excluded from the taxable estate.

Valuation dates

Generally, assets are valued as of the date of death. However, executors may elect alternate valuation, valuing assets either as of six months after death or on the date of earlier disposition if sold within that period. This election can only be made if it decreases both the gross estate value and the net estate tax liability.

Treaty benefits

If the deceased was a citizen or resident of a country with an estate tax treaty with the United States, special rules may apply. These treaties can provide reduced tax rates, higher exemptions, or special deductions. Executors must attach a statement to the return identifying the treaty provision being claimed.

Step-by-Step (High Level)

Filing Form 706-NA involves several interconnected steps. While tax professionals often handle this process, understanding the workflow helps executors fulfill their responsibilities.

Step 1: Determine filing requirement

Calculate the total value of U.S.-situated assets as of the date of death. Add any gift tax specific exemption and adjusted taxable gifts made after December 31, 1976. If this sum exceeds $60,000, filing is required.

Step 2: Gather documentation

Collect death certificates, wills (certified copies preferred), deeds to U.S. real estate, stock certificates or brokerage statements, bank statements, appraisals of valuable property, and records of any gifts the deceased made during life. For closely held corporate stock, obtain balance sheets and earnings statements for the five years preceding death.

Step 3: Identify and value all assets

List every U.S.-situated asset on Schedule A of Form 706-NA, providing detailed descriptions including CUSIP numbers for securities. Determine fair market value as of the date of death (or alternate valuation date if elected). You may need to obtain professional appraisals for real estate, business interests, or collectibles.

Step 4: Calculate allowable deductions on Schedule B

These include funeral expenses, administration expenses, claims against the estate, mortgages, and certain taxes. Charitable deductions are allowed only for transfers to U.S. entities or for use in the U.S. Marital deductions are limited to situations where the surviving spouse is a U.S. citizen or the property passes to a qualified domestic trust.

Step 5: Complete tax computation

Part II of Form 706-NA guides you through calculating the estate tax using the unified rate schedule. Apply the unified credit (or enhanced credit if treaty benefits apply). If generation-skipping transfers occurred, complete Schedule R from Form 706 and calculate the GST tax.

Step 6: File and pay

As of 2019, Form 706-NA was filed with the IRS in Cincinnati, Ohio (before July 1) or Kansas City, Missouri (after July 1). Make payment by check or money order payable to "United States Treasury." Note that the IRS cannot accept single checks for $100 million or more—larger payments must be split across multiple checks.

Step 7: File Form 8971

Estates must also file Form 8971 to report the estate tax value of property distributed to beneficiaries, ensuring consistent basis reporting. This form is due within 30 days of filing Form 706-NA.

Common Mistakes and How to Avoid Them

Even experienced executors make errors when preparing Form 706-NA. Being aware of common pitfalls helps prevent costly mistakes and delays.

Mistake #1: Misidentifying U.S.-situated assets

Executors sometimes include foreign assets or exclude U.S. assets due to confusion about location rules. Remember: U.S. corporate stock is always included even if certificates are held abroad, but life insurance proceeds are always excluded even if the policy was issued by a U.S. company. Review the detailed location rules in the instructions carefully.

Mistake #2: Failing to document executor status

The IRS requires proof that the person filing the return has legal authority to act for the estate. A simple self-attestation isn't sufficient. Attach a certified copy of the will, court order appointing you as executor, or other official documentation establishing your authority.

Mistake #3: Inaccurate asset valuations

Undervaluing assets can trigger substantial penalties—up to 20% of the underpayment if the understatement exceeds $5,000. Overvaluing assets means paying more tax than necessary. Use professional appraisers for hard-to-value assets, and document all valuation methods. For publicly traded securities, use the mean between high and low prices on the date of death.

Mistake #4: Missing the alternate valuation election deadline

If you want to use alternate valuation, you must elect it on a timely filed return (including extensions). You cannot make this election on a late return. Carefully evaluate whether alternate valuation benefits the estate before filing—once made, the election cannot be revoked.

Mistake #5: Overlooking treaty benefits

If the deceased was from a treaty country, significant tax savings may be available. However, you must specifically claim treaty benefits and attach required documentation. The IRS won't automatically apply favorable treaty provisions.

Mistake #6: Neglecting to file Form 8971

This companion form, which reports asset basis to beneficiaries, is mandatory and has its own penalties for non-compliance. Don't treat it as optional paperwork—file it within 30 days of filing Form 706-NA.

Mistake #7: Paying tax late while requesting a filing extension

Many executors mistakenly believe that a filing extension also extends the payment deadline. It doesn't. Interest accrues on any unpaid tax from the original nine-month deadline, even if you have a valid extension to file the return later.

What Happens After You File

Once Form 706-NA arrives at the IRS processing center, several things occur, though the timeline varies depending on the return's complexity and whether it triggers additional review.

Initial processing

The IRS logs your return, processes your payment, and performs preliminary reviews to ensure all required schedules and attachments are included. If information is missing or unclear, you'll receive a request for additional documentation.

Estate tax closing letter

Unlike past practice, the IRS no longer automatically issues estate tax closing letters. You must specifically request one, and should wait at least six months after filing (nine months in updated guidance) to allow adequate processing time. The closing letter confirms the IRS has accepted the return and indicates the final estate tax liability. Many executors request this letter because it provides protection when distributing assets to beneficiaries—showing they fulfilled their tax obligations before making distributions. Alternatively, you can request an account transcript showing the estate's tax account status, including acceptance of the return and completion of any examination.

Examination

Some returns are selected for audit. The IRS may question asset valuations, request additional proof of deductions, or verify the decedent's residency status and citizenship. Examinations can take months or years to resolve. If your return is under examination, wait at least 30 days after the examination concludes before requesting a closing letter.

Refunds

If you overpaid estate tax, the IRS will issue a refund with interest calculated from the date of overpayment. Refunds are typically processed within several months of return acceptance, though examinations can delay them.

State tax considerations

Some states impose their own estate or inheritance taxes. If you claimed a deduction for state death taxes on line 7 of Schedule B, and you later receive a refund of any state tax, you must notify the IRS within 30 days. Failing to report state tax refunds can result in additional federal tax liability.

FAQs

1. Do I need to file Form 706-NA if the estate owes no tax?

Yes, if the value of U.S.-situated assets plus lifetime gifts and the gift tax specific exemption exceeds $60,000, you must file even if the estate owes no tax after applying credits and deductions. The filing threshold is separate from the tax liability calculation. Additionally, filing may be advisable even when not strictly required if you want certainty that the IRS agrees with your position on residency status or asset valuation.

2. What's the difference between Form 706 and Form 706-NA?

Form 706 is for estates of U.S. citizens and residents, while Form 706-NA is specifically for nonresident aliens. Form 706 includes the worldwide assets of the deceased, while Form 706-NA only includes U.S.-situated assets. The exemption amounts differ dramatically: U.S. citizens received an $11.4 million exemption in 2019, while nonresident aliens received only $60,000.

3. Can I deduct the deceased person's debts from the taxable estate?

Yes, but only to the extent they were contracted in good faith for full consideration. Deductible items include funeral expenses, administration expenses, valid claims against the estate, and unpaid mortgages or liens. These deductions are generally allowed regardless of whether they were incurred or paid in the United States. However, the total deductions are limited to the value of U.S.-situated assets on line 3 of Schedule B.

4. What if the deceased had both U.S. and foreign assets?

You report only U.S.-situated assets on Schedule A of Form 706-NA. However, you must separately document the total value of foreign assets on line 2 of Schedule B. This is necessary because certain calculations require knowing the ratio of U.S. assets to worldwide assets, particularly when claiming treaty benefits or calculating the proportional unified credit.

5. How long do I have to request a closing letter, and is it necessary?

You can request a closing letter at least six months after filing Form 706-NA (nine months under updated guidance), but it's not mandatory. Many executors find closing letters valuable because they provide concrete evidence that the IRS has accepted the return and confirmed the final tax liability. This protects executors from potential beneficiary claims that they distributed assets before properly settling tax obligations. You can request a closing letter by calling 866-699-4083 or through online transcript delivery systems if you're a registered tax professional.

6. What happens if I discover I filed an incorrect return?

File a supplemental Form 706-NA with "Supplemental Information" written across the top of page 1. Include complete, corrected information and attach pages 1-4 of the original return. If the correction results in additional tax owed, file the supplemental return and pay the additional tax as soon as possible to minimize interest charges. If you're entitled to a refund, file within the statute of limitations (generally within three years of the original return's due date, including extensions).

7. Are there penalties for errors or late filing?

Yes. The IRS imposes penalties for late filing (generally 5% per month up to 25% of the unpaid tax), late payment (0.5% per month up to 25%), and substantial understatement of estate tax value (20% of the underpayment if the undervaluation exceeds $5,000). However, penalties may be waived if you can demonstrate reasonable cause for the error or delay. Willful attempts to evade tax or reckless conduct result in much higher penalties. Return preparers face separate penalties for unreasonable positions or willful misconduct.

Sources

• IRS Form 706-NA Instructions (Rev. June 2019)
• IRS About Form 706-NA
• IRS Frequently Asked Questions on Estate Taxes
• IRS Frequently Asked Questions on the Estate Tax Closing Letter

This guide provides general information based on 2019 tax law and should not be considered legal or tax advice. Consult with qualified estate tax professionals for guidance specific to your situation.