What the Form Is For

Form 706-NA is the federal estate tax return used specifically for people who died while they were not U.S. citizens and not U.S. residents. Think of it as the international version of the regular estate tax return (Form 706), but it only covers assets physically located in the United States at the time of death.

When a nonresident alien passes away owning U.S. property—such as real estate in Florida, stocks in American companies, or bank accounts at U.S. institutions—the executor of their estate uses Form 706-NA to calculate and report the estate tax owed to the IRS. The form also handles something called the "generation-skipping transfer" (GST) tax, which applies when property passes directly to grandchildren or more distant descendants, skipping a generation.

The key distinction is simple: this form only taxes the deceased person's U.S.-based assets. Property located outside the United States gets reported for calculation purposes but isn't subject to U.S. estate tax. This is fundamentally different from U.S. citizens and residents, whose worldwide estates are taxable.

IRS Form 706-NA Information

When You’d Use This Form (Late/Amended Filings)

Standard Filing Deadline

For most deaths occurring in 2011, Form 706-NA must be filed within 9 months after the date of death. However, 2011 had a special exception: for decedents who died between January 1, 2010, and December 16, 2010, the IRS extended the deadline to September 19, 2011, due to legislative changes under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

When Filing Is Required

You must file Form 706-NA if the total value of U.S.-situated assets exceeds $60,000 at the date of death. This $60,000 threshold may be reduced by certain prior gifts. This is dramatically lower than the $5 million filing threshold that applied to U.S. citizens and residents in 2011, reflecting the more restrictive treatment of nonresident estates.

Extensions

If you need more time, file Form 4768 (Application for Extension of Time To File) to request an automatic 6-month extension. This gives you more time to file the return, but it doesn't extend the time to pay the tax. Any tax owed is still due by the original 9-month deadline, and interest accrues on unpaid balances.

Amended or Supplemental Returns

If you discover errors or omissions after filing, you can submit a supplemental Form 706-NA. Write "Supplemental Information" across the top of page 1, attach a detailed statement explaining what changed, and include copies of pages 1-4 from your original return. Mail it to the same IRS address (Internal Revenue Service, Cincinnati, OH 45999).

Instructions for Form 706-NA (2011)

Key Rules for 2011

Filing Threshold and Unified Credit

For 2011, the crucial numbers were:

• Filing threshold: $60,000 in U.S.-situated gross estate
• Unified credit: Generally $13,000 (though this could be prorated under certain tax treaties)
• Maximum estate tax rate: 35%
• GST tax rate: Zero for transfers in 2010; 35% for transfers in 2011

What Qualifies as U.S.-Situated Property

Located IN the United States (taxable):

• Real estate physically located in the U.S.
• Tangible personal property in the U.S. (cars, jewelry, artwork)
• Stock in U.S. corporations (regardless of where certificates are kept)
• Debt obligations of U.S. persons, corporations, or governments

Located OUTSIDE the United States (not taxable):

• Real estate and tangible property physically abroad
• Stock in foreign corporations
• Bank deposits with U.S. banks (if not effectively connected with a U.S. business)
• Life insurance proceeds on the decedent's life
• Certain debt obligations meeting specific exemption criteria under section 2105(b)

Special 2011 Provisions

The 2010 Tax Relief Act introduced temporary provisions affecting 2011 estates:

• Extended exemption for certain regulated investment company (RIC) stock through December 31, 2011
• Special carryover basis election for 2010 deaths (Form 8939)—if this election was made, Form 706-NA shouldn't be filed at all

Treaty Considerations

If the decedent's home country had an estate tax treaty with the U.S. (such as Canada, France, Germany, Italy, Japan, or the U.K.), the estate might qualify for increased unified credits or other benefits. Treaties can significantly reduce or eliminate U.S. estate tax, but you must attach documentation and specifically claim treaty benefits on the return.

IRS Estate Tax FAQs

Step-by-Step (High Level)

Step-by-Step Filing Process (High Level)

1. Gather Essential Documentation

Before touching the form, collect:

• Certified copy of the death certificate
• Certified copy of the will (if the person died "testate")
• Complete inventory of all U.S.-situated assets with date-of-death values
• Appraisals for real estate, closely held business interests, and valuable personal property
• Records of any U.S. gift tax returns (Form 709) previously filed
• Balance sheets for any U.S. business interests
• Documentation proving executor status (court orders, letters testamentary)

2. Determine Executor Status

The executor must provide official documentation of their appointment—a certified court order or will designation. A simple self-declaration won't suffice. If no formal executor exists, anyone holding the decedent's U.S. property must file.

3. Complete Part I: Decedent Information

Enter the decedent's full name, date of death, social security number or individual taxpayer identification number (ITIN), and country of residence. This section establishes basic identity and non-U.S. status.

4. Answer Part III: General Information

This questionnaire covers crucial details:

• Was the decedent ever a U.S. citizen who expatriated?
• Did the decedent hold any powers of appointment over U.S. property?
• Were there generation-skipping transfers requiring additional schedules?

Honest, complete answers prevent future complications.

5. Complete Schedule A: Gross Estate

List every U.S.-situated asset with detailed descriptions:

• For stocks: Include CUSIP number, number of shares, par value, and market quotations
• For bonds: Include denomination, maturity date, interest rate, and CUSIP number
• For real estate: Provide full legal descriptions and appraisals

Use fair market value as of the date of death (or elect alternate valuation)
If you need to claim deductions that require Form 706 schedules (charitable gifts, marital deductions), attach the appropriate schedules from Form 706.

6. Complete Schedule B: Taxable Estate and Deductions

Calculate your taxable estate by subtracting allowable deductions:

• Funeral expenses
• Estate administration costs
• Debts and mortgages
• State death taxes (prorated based on U.S. assets)
• Charitable bequests to U.S. organizations
• Marital deductions (if spouse is a U.S. citizen or assets go to a qualified domestic trust)

7. Complete Part II: Tax Computation

Work through the tax calculation using Table A (Unified Rate Schedule) from the Form 706 instructions. Apply the unified credit and any applicable treaty benefits. Calculate generation-skipping transfer tax if applicable using Schedules R or R-1.

8. Sign, Pay, and File

The executor must sign under penalty of perjury. Make checks payable to "United States Treasury" and mail everything to:

Internal Revenue Service
Cincinnati, OH 45999

IRS Executor Information

Common Mistakes and How to Avoid Them

Mistake #1: Misclassifying Asset Location

Many executors incorrectly assume that where stock certificates are physically kept determines taxation. Wrong: U.S. corporate stock is always U.S.-situated property, even if certificates sit in a Swiss bank vault. Conversely, shares in a French company are foreign assets even if certificates are in New York.

Prevention: Carefully review the situs rules in the instructions. When in doubt about bank deposits or debt obligations, check sections 2104 and 2105 of the Internal Revenue Code.

Mistake #2: Missing the Filing Requirement Entirely

Some executors don't realize that the $60,000 threshold for nonresidents is far lower than the $5 million threshold for U.S. persons. A modest U.S. rental property or stock portfolio can trigger filing requirements.

Prevention: Calculate total U.S. assets immediately after death. Don't assume no return is needed just because the estate seems "small."

Mistake #3: Incorrect Valuation Methods

Using original purchase prices, tax assessments, or outdated appraisals leads to valuation errors. The IRS requires fair market value—what a willing buyer would pay a willing seller on the date of death.

Prevention: Obtain professional appraisals for real estate and business interests. For publicly traded stocks and bonds, use actual trading prices on the date of death per the detailed instructions in Form 706's Schedule B instructions.

Mistake #4: Failing to Document Executor Status

The IRS requires proof of executor authority. Simply claiming to be the executor isn't sufficient and will cause processing delays.

Prevention: Attach certified copies of court orders, letters testamentary, or relevant will provisions when filing.

Mistake #5: Not Claiming Treaty Benefits

Estates from treaty countries often overpay taxes by failing to claim available benefits. Treaty provisions can increase the unified credit or exempt certain assets entirely.

Prevention: If the decedent was from Australia, Canada, Finland, France, Germany, Greece, Italy, Japan, Norway, Switzerland, or the U.K., review the specific treaty. Attach a statement referencing the treaty and showing your credit calculation. Include a copy of any foreign estate tax return filed.

Mistake #6: Confusing Extension to File with Extension to Pay

Getting a 6-month filing extension via Form 4768 does not postpone the tax payment deadline. Interest accrues on unpaid taxes from the original due date.

Prevention: Estimate tax owed and pay by the 9-month deadline even if you request a filing extension.

Mistake #7: Incomplete Schedule Attachments

When claiming charitable or marital deductions, you must attach the corresponding schedules from Form 706 (Schedule M for marital, Schedule O for charitable). Missing schedules cause disallowances.

Prevention: Carefully read the instructions noting when Form 706 schedules are required, and attach them completely filled out with all supporting documentation.

What Happens After You File

Initial Processing (2-4 Months)

The IRS processes Form 706-NA at its Cincinnati campus. They'll:

• Check mathematical accuracy
• Verify executor documentation
• Confirm all required schedules are attached
• Process any payment included

If there are obvious errors (math mistakes, missing signatures), you'll receive a notice explaining the issue.

Examination Selection (Typically 6 Months)

Not all estate returns are audited, but the IRS typically decides whether to examine Form 706-NA within six months of filing. Factors increasing audit likelihood include:

• Large estates with complex assets
• Significant valuation discounts claimed
• Closely held business interests
• Claims of treaty benefits
• Assets valued just below the filing threshold
• Estates of high-profile individuals

If Selected for Examination

An IRS estate tax examiner will contact the executor or their authorized representative (via Form 2848, Power of Attorney). The examination may be conducted by correspondence or in-person. The examiner will:

• Request additional documentation supporting valuations
• Question deductions claimed
• Verify proper situs classification
• Review treaty benefit calculations

You have the right to representation by an attorney, CPA, or enrolled agent. Most executors prefer professional representation during examinations.

Estate Tax Closing Letter

Once the IRS completes processing (and any examination), estates could historically request an Estate Tax Closing Letter (Form 627) confirming no further tax is due. However, starting in 2017, the IRS began phasing out automatic issuance of closing letters. Instead:

• Account transcripts are now the primary confirmation (free)
• Formal closing letters can be requested for a fee
• Most estates can use transcripts obtained via Form 4506-T or through the IRS Transcript Delivery Service

IRS Estate Tax Closing Letter Information

Transfer Certificates

If U.S. property (like real estate or stocks) needs to be transferred to beneficiaries, buyers or transfer agents often require a transfer certificate showing estate taxes were paid. Contact the IRS at the Cincinnati address to request these certificates.

Statute of Limitations

Generally, the IRS has three years from the return's filing date to assess additional tax. This extends to six years if substantial valuation understatements exist. There's no statute of limitations if no return was filed when required.

FAQs

1. What if the decedent owned U.S. property worth $50,000—do I need to file?

No. The $60,000 threshold means estates with U.S. assets below this amount generally aren't required to file Form 706-NA. However, beneficiaries or brokers transferring that property might still request documentation proving no estate tax is due. Consider filing a protective return or obtaining a transfer certificate even when not strictly required.

2. Can I deduct funeral expenses and debts incurred outside the United States?

Yes. Schedule B allows deductions for funeral expenses, administration expenses, debts, and mortgages regardless of where they were incurred or paid. However, these deductions may be limited by the proportional relationship between U.S. and worldwide assets.

3. My relative held a green card but lived abroad—which form do I use?

This depends on "domicile." Having a green card doesn't automatically make someone a U.S. resident for estate tax purposes. If they maintained a primary home abroad with no intention of returning permanently to the U.S., they likely remained a nonresident despite the green card. Use Form 706-NA. However, if they were domiciled in the U.S. (even while temporarily abroad), use Form 706. The domicile determination is fact-specific and often requires professional guidance.

4. Are bank deposits with U.S. banks considered U.S. property?

Generally, no. Bank deposits, savings accounts, and amounts held by insurance companies are treated as property located outside the United States if they're not effectively connected with a U.S. trade or business. However, stocks, bonds, and real estate are still U.S. property even if related funds pass through U.S. banks.

5. What's the generation-skipping transfer (GST) tax and when does it apply?

The GST tax is an additional tax (35% in 2011) imposed when property passes to someone two or more generations younger than the decedent—typically grandchildren when children are still alive. For 2011 Form 706-NA, GST tax only applies to "direct skip" transfers of U.S.-situated property. If GST tax applies, you must complete Schedule R (or R-1) from Form 706. Note that the GST tax rate was zero for all of 2010.

6. Can I elect alternate valuation to reduce the estate tax?

Yes, but only if two conditions are met: (1) the alternate valuation will decrease the gross estate value, AND (2) it will decrease the net estate tax due. Alternate valuation means valuing assets either six months after death or on their disposition date if sold/distributed within six months. This election is made on Schedule A and applies to all property—you can't pick and choose which assets to value alternatively.

7. What if I discover I should have filed Form 706-NA but the deadline has passed?

File the return immediately, even if late. Write "LATE FILING" across the top. Include payment of all tax due plus interest calculated from the original due date. The IRS assesses failure-to-file penalties (5% per month, up to 25% of tax due) and failure-to-pay penalties (0.5% per month) plus interest. Filing voluntarily before the IRS contacts you demonstrates good faith and may reduce penalties. Consider including a penalty abatement request explaining any reasonable cause for the delay.

Additional Resources

For more information about Form 706-NA and estate tax issues:

• IRS Form 706-NA Current Version and Instructions
• Estate Tax FAQs for Nonresident Not Citizens
• Transfer Certificate Requirements
• Publication 559: Survivors, Executors, and Administrators

Note: This summary provides general guidance based on 2011 rules and is not a substitute for professional tax or legal advice. Estate tax law is complex, particularly for nonresident aliens. Consider consulting with an estate tax attorney or CPA experienced in international estate matters before filing Form 706-NA.