What Form 706-NA Is For
Form 706-NA is the United States Estate (and Generation-Skipping Transfer) Tax Return for estates of individuals who were not citizens or residents of the United States at the time of death. It allows executors to compute estate tax, gift tax, and any generation-skipping transfer tax owed on a decedent's estate with property located in the U.S. The Internal Revenue Service uses this tax form to determine estate tax liability, assess allowable deductions, and issue the estate tax closing letter once reviewed.
When You’d Use Form 706-NA
You must file Form 706-NA if a decedent’s gross estate in the United States exceeds the $60,000 filing threshold, including tangible personal property and intangible assets located in the country. Executors file this estate tax return within nine months after the decedent’s death to calculate tax liabilities and claim the unified credit exemption. If more time is needed, an extension can be requested using Form 4768, but the estate tax owed must still be paid on time.
Key Rules or Details for 2024
- Filing Threshold Requirement: Estates of individuals who were noncitizens must file when U.S.-situated assets exceed $60,000 in fair market value as of the decedent’s date of death.
- Determining Gross Estate: The gross estate includes tangible property, companies’ debt obligations, and intangible assets located in the United States, such as U.S. corporate stock and real estate.
- Unified Credit and Estate Tax Exemption: Nonresidents generally receive a unified credit exemption of $13,000, which applies to taxable estate calculations and can reduce estate tax owed.
- Allowable Deductions and Marital Deduction: Deductible items include funeral costs, administration expenses, debt obligations, and the marital deduction if the surviving spouse qualifies under a qualified domestic trust.
- Death Tax Treaty and Estate Tax Treaty Benefits: Tax treaties, such as the Canada income tax treaty or other death tax treaty agreements, may allow reduced rates or eliminate double taxation on certain assets.
- Alternate Valuation Date Option: Executors may elect to use an alternate valuation date six months after death if it decreases the gross estate and overall tax liability.
- Estate Tax Closing Letter Request: After processing, the Internal Revenue Service provides an estate tax closing letter upon request, confirming acceptance of the estate tax return.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Essential Records
Collect the death certificate, will, appraisals, and records of tangible property and intangible assets. Include prior gift tax returns and debt obligation details.
Step 2: Determine Estate Tax Value
List all U.S.-based property and compute estate value using fair market value as of the decedent’s death. Identify any adjusted taxable gifts made during life for estate tax purposes.
Step 3: Calculate Tax Liabilities
Apply the unified credit exemption, allowable deductions, and estate tax exemption to determine the taxable estate. Then, compute the estate tax based on current U.S. tax laws.
Step 4: Complete and File Form 706-NA
Provide details about the decedent’s estate, adjusted taxable gifts, and beneficiaries acquiring property. Use private delivery services if needed to meet filing deadlines.
Step 5: Pay and Request Confirmation
Submit payment electronically or by mail to the Internal Revenue Service. After processing, request the estate tax closing letter to confirm completion.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Reporting Original Purchase Price Instead of Fair Market Value: Always use fair market value at the decedent’s death to ensure accurate estate tax computation. Avoid it by obtaining professional appraisals for all property and documenting values clearly.
- Missing Adjusted Taxable Gifts Refers to Prior Transfers: Executors sometimes overlook adjusted taxable gifts when computing the taxable estate. Avoid it by reviewing prior returns and calculating adjusted taxable gifts carefully.
- Ignoring Applicable Death Tax Treaty Benefits: Failing to apply an estate tax treaty can increase the estate tax owed unnecessarily. Avoid it by reviewing the decedent’s country of residence for treaty eligibility before filing.
- Claiming Ineligible Allowable Deductions: Deductions for administration expenses or debts must be supported with documentation. Avoid it by attaching detailed records and verifying allowable deductions before submission.
- Late Filing or Missing Payment Deadline: Delays result in increased penalties and interest. Avoid it by filing the tax return on time and paying all liabilities within the nine months.
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 IRS checks the estate tax return to make sure that all the rules about estate taxes are followed. The executor may request the estate tax closing letter as proof of acceptance if the estate is accepted. If the IRS identifies mistakes, they may request additional information or clarification to ensure the information is accurate. When the estate tax is paid, the beneficiaries can move on with their estate planning or property transfers. For at least six years, keep all the papers for your estate tax return and fair market value.
FAQs
Who must file Form 706-NA estate tax return?
Any executor managing a decedent’s estate that includes a United States estate valued above $60,000 must file Form 706-NA to determine estate tax liability.
What assets are included for estate tax purposes?
The gross estate includes tangible personal property, real estate, certain assets such as debt obligations, and intangible assets located within the United States at the time of death.
How does a death tax treaty affect estate and generation-skipping transfer taxes?
A valid death tax treaty or estate tax treaty can prevent double taxation and may offer estate tax exemption or credits for foreign investment assets.
What are allowable deductions when you file Form 706-NA?
Allowable deductions include administration expenses, debt obligations, funeral costs, and the unlimited marital deduction if property passes to a qualified domestic relations order (QDRO) or a qualified domestic trust.
How can I request an estate tax closing letter from the Internal Revenue Service?
Executors can request an estate tax closing letter through Pay.gov after the IRS completes review of the estate or GST taxes.
How is estate tax liability computed for nonresidents?
Executors compute the estate tax by calculating the gross estate, subtracting allowable deductions, and applying the unified credit exemption to determine the net taxable estate.
Can registered tax professionals help prepare Form 706-NA?
Yes, estate tax return preparers and registered tax professionals can assist in calculating fair market value, identifying prior transfers, and ensuring compliance with U.S. estate taxation laws.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
