What Form 706-NA Is For
Form 706-NA is the official estate tax return the Internal Revenue Service requires for the estates of individuals who were not citizens or residents of the United States at death. It reports the gross estate located in the U.S. and is used for estate tax and generation-skipping transfer tax purposes. Executors file this tax form to compute estate tax liabilities and determine any unified credit exemption or applicable estate tax treaties affecting the taxable estate.
When You’d Use Form 706-NA
You must file Form 706-NA when a decedent’s estate includes U.S.-situated assets exceeding the $60,000 filing threshold. This estate tax return covers real estate located in the U.S., tangible personal property, and companies’ debt obligations. Executors may file late or amended returns to correct estate value, claim benefits from the estate tax exemption, or apply a death tax treaty. Always send your tax return paperwork to the Internal Revenue Service, Attn: Estate Tax Division, within nine months of the decedent’s date of death.
Key Rules or Details for 2015
- Filing threshold: Estates of nonresident individuals must file when U.S. assets exceed $60,000 in fair market value at the alternate valuation date.
- Unified credit exemption: The unified credit exemption equals $13,000, protecting roughly $60,000 of the decedent’s gross estate from estate and gift taxes.
- Taxable estate definition: The taxable estate includes tangible property, debt obligations, and physical personal property located in the United States at the time of death.
- Non-U.S. assets: Bank accounts and certain assets under the Foreign Investment and Real Property Tax Act are excluded from the gross estate for estate taxation.
- Treaty benefits: Estate tax treaties, also known as death tax treaties, including the Canada income tax treaty, may increase exemption amounts or exempt certain assets entirely.
- Generation-skipping transfer: Transfers to grandchildren or other skip individuals that are subject to the generation-skipping transfer tax at a rate of 40 percent.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine Filing Requirement
Evaluate whether the decedent’s estate exceeded the filing threshold. Include adjusted taxable gifts, lifetime gifts, and worldwide estates to compute estate tax liabilities accurately.
Step 2: Gather Documentation
Collect all required information, including the will, appraisals, administration expenses, and records of any gift tax-specific exemption previously claimed for gift tax purposes.
Step 3: Value All Assets
Determine the fair market value for all U.S. assets within the gross estate. Include tangible personal property, real estate located in the U.S., and foreign corporations with U.S. holdings.
Step 4: Complete the Estate Tax Return
List every asset on the estate tax return schedules. Tax return preparers for estates should calculate tax liabilities, apply any applicable treaty, and confirm that estate planning strategies comply with tax laws.
Step 5: Apply Deductions and Credits
Include allowable administration expenses, charitable deductions for qualified gifts, and marital deductions if the surviving spouse qualifies. Compute estate tax exemptions and unified credit carefully.
Step 6: Submit the Return and Payment
Send the completed return to the Internal Revenue Service, Attn: Estate Tax Office. Payment may be submitted through private delivery services or authorized representatives making requests.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Incorrect residency classification: Executors sometimes treat a decedent as a U.S. resident. To avoid this, apply the substantial presence test and confirm residency under foreign law.
- Omitting adjusted taxable gifts: Executors occasionally exclude prior adjusted taxable gifts. Prevent this by reviewing records of lifetime gifts that adjusted taxable gifts refer to for accuracy.
- Improper asset valuation: Some estates use original purchase prices instead of fair market value. Avoid this error by using qualified appraisals at the decedent’s date or alternate valuation date.
- Ignoring estate tax treaties: Failure to apply an estate tax treaty can increase tax liability. Check all applicable treaties, including any death tax treaties or the Canada income tax treaty.
- Missing deductions: Executors sometimes overlook administration expenses or charitable deduction claims. Ensure every qualified deduction is reported to reduce estate tax liabilities effectively.
- Late Filing: Missing the nine-month deadline results in penalties. Avoid this by filing Form 4768 early to obtain an extension and prevent penalties for willful or reckless conduct.
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 you file Form 706-NA, the Internal Revenue Service reviews the return to verify accuracy and compute the estate tax. The agency may issue an estate tax closing letter or letters confirming final acceptance. If additional tax is due, the IRS will notify the estate tax return preparers. Estates may request payment extensions for insufficient liquidity or elect to pay tax liabilities over time. Once reviewed, an estate tax closing letter serves as proof that estate taxes and generation-skipping transfer tax obligations are resolved.
FAQs
Who must file Form 706-NA for estate taxes?
Any executor handling a decedent’s estate that includes U.S.-situated property exceeding $60,000 in fair market value must file Form 706-NA for estate tax purposes.
What assets are included in the decedent’s gross estate?
The decedent’s gross estate includes tangible personal property, real estate located in the United States, and certain debt obligations or shares held in U.S. corporations.
How do estate tax treaties or death tax treaties affect my filing?
An estate tax treaty, also known as a death tax treaty, such as the Canada income tax treaty, can reduce estate tax liabilities or exempt specific property from the United States estate tax.
What is the estate tax exemption for nonresident aliens?
For 2015, the estate tax exemption provided a unified credit of $13,000, effectively exempting the first $60,000 of the decedent’s taxable estate from United States estate tax.
How is the generation-skipping transfer tax applied?
The generation-skipping transfer tax applies when property passes to grandchildren or other individuals who are not direct descendants of the transferor. The applicable rate equals the highest estate tax rate in effect.
How can I obtain an estate tax closing letter?
Authorized representatives making requests can obtain estate tax closing letters by submitting Form 4506 or an online transcript request through the Internal Revenue Service’s estate and gift tax division.
What deductions can reduce estate tax liabilities?
Common deductions include administration expenses, real property tax act obligations, charitable deductions, and marital deductions available for transfers to a surviving spouse or a qualified domestic trust.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
