Form 706-NA Checklist: Tax Year 2011
Overview and Tax Year Context
Form 706-NA applies to estates of nonresident alien decedents who died after December 31, 2009, and before January 1, 2012. This form computes estate and generation-skipping transfer tax liability for nonresident noncitizens of the United States. The 2011 version reflects provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which established specific tax rates and filing requirements for this period.
Key Tax Year 2011 Amounts
Filing Threshold: $60,000
Unified Credit: $13,000 (maximum)
Maximum Estate Tax Rate: 35%
GST Tax Rate: 35% (for decedents dying after 2010)
Filing Deadline: 9 months after date of death (or September 19, 2011, for decedents dying between January 1, 2010, and December 16, 2010)
Where to File: Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999
Filing Requirements
A Form 706-NA return must be filed if the value of U.S.-situated assets at the date of death, combined with any adjusted taxable gifts made after December 31, 1976, and any gift tax specific exemption for gifts made between September 9, 1976, and December 31, 1976, totals $60,000 or more. This threshold remains unadjusted for inflation and applies specifically to nonresident alien estates.
Transfers Not Subject to Form 706-NA
Direct payments for qualified tuition expenses paid directly to educational institutions are excluded from the gross estate. Direct costs for medical expenses paid directly to medical care providers are also excluded. Gifts to political organizations for their exclusive use are not subject to estate tax reporting. Property transferred to qualified charitable organizations may qualify for a deduction if specific conditions are met.
Notable Limitations for Nonresident Aliens
Nonresident alien decedents cannot claim deceased spousal unused exclusion amounts. Standard marital deductions are unavailable unless the surviving spouse is a U.S. citizen or property passes to a qualified domestic trust with proper election. Portability elections available to U.S. citizens and residents do not apply to nonresident alien estates.
Step-by-Step Filing Checklist
Step 1: Determine Filing Requirement
Calculate the total value of all U.S.-situated assets owned by the decedent at the date of death. Add any adjusted taxable gifts made after December 31, 1976. Add any specific gift tax exemption claimed for gifts made between September 9, 1976, and December 31, 1976. If the combined total equals or exceeds $60,000, Form 706-NA must be filed within 9 months of the decedent’s date of death.
Step 2: Gather Decedent and Executor Documentation
Obtain a certified death certificate from the appropriate governmental authority. Secure a certified copy of the will if the decedent died testate, or obtain court orders designating the executor if the decedent died intestate. Executors must provide accredited documentation proving their status, such as letters testamentary or letters of administration. Simple attestation by the executor is insufficient. Record the decedent’s full legal name, U.S. taxpayer identification number if assigned, exact date and place of death, citizenship status, and domicile at the time of death.
Step 3: Identify All U.S.-Situated Property
List every asset physically located in the United States or legally considered U.S.-situated property. U.S. situs property includes real estate located within the United States, tangible personal property physically present in the United States, stock of U.S. corporations regardless of certificate location, and debt obligations of U.S. persons or entities. Value each asset as of the decedent’s date of death unless an alternate valuation date election is made under section 2032.
Works of art owned by nonresident aliens receive special treatment. If works of art were imported solely for public exhibition, loaned to nonprofit public galleries or museums, and either on exhibition or en route to or from exhibition at the date of death, they are treated as property located outside the United States.
Step 4: Complete Schedule A—Gross Estate in the United States
Describe each U.S.-situated asset with sufficient detail for IRS identification. For corporate stock, include the corporation’s name, number of shares, whether standard or preferred stock, par value when needed for identification, nine-digit CUSIP number, and price quotation. For bonds, include quantity and denomination, obligor’s name, maturity date, interest rate, interest payment dates, nine-digit CUSIP number, and series number if applicable.
Enter the fair market value of each asset in the appropriate column. If electing alternate valuation, check the yes box at the beginning of Schedule A and complete all columns showing values six months after death or at earlier disposition dates.
Step 5: Complete Schedule B—Taxable Estate
Enter on Line 1 the total gross estate located in the United States from Schedule A. Enter on Line 2 the total value of assets located outside the United States if applicable. Enter on Line 3 the sum of Lines 1 and 2, representing the entire gross estate wherever located. Complete Lines 4 through 7 showing allowable deductions, including funeral expenses, administration expenses, debts, mortgages, liens, losses during administration, charitable transfers, and marital transfers if qualifying conditions are met.
Calculate the proportional deduction allowed on Line 5 using the formula: Line 1 divided by Line 3, multiplied by Line 4. This formula limits deductions to the proportional amount attributable to U.S.-situated property. Enter the taxable estate amount on Line 9, which will carry forward to Part II, Line 1.
Step 6: Calculate Adjusted Taxable Gifts
Determine all taxable gifts of tangible and intangible property located in the United States that the decedent transferred after December 31, 1976, and not already included in the gross estate. Exclude gifts previously reported and accounted for on prior gift tax returns. These adjusted taxable gifts are computed under section 2511 and must be entered on Part II, Line 2.
Step 7: Compute Tax Using Part II
Enter the taxable estate from Schedule B, Line 9, on Part II, Line 1. Enter adjusted taxable gifts on Part II, Line 2. Add Lines 1 and 2 and enter the sum on Line 3. Using Table A of the Unified Rate Schedule from the Form 706 instructions corresponding to the decedent’s date of death, compute the tentative tax on the Line 3 amount and enter it on Line 4. Compute the tentative tax on the Line 2 amount only and enter it on Line 5. Subtract Line 5 from Line 4 to determine the gross estate tax, entering the result on Line 6.
Step 8: Apply Unified Credit
Enter the unified credit amount on Line 7. The maximum unified credit is $13,000 for general nonresident aliens. For citizens of U.S. possessions under section 2209, the maximum unified credit is the greater of $13,000 or the product of $46,800 multiplied by a fraction. The numerator of this fraction is the gross estate located in the United States from Schedule B, Line 1. The denominator is the entire gross estate, wherever located, as shown on Schedule B, Line 3. Any unified credit previously claimed against gift taxes reduces the estate unified credit dollar for dollar.
Step 9: Claim Allowable Deductions with Supporting Schedules
For funeral and administration expenses, debts, mortgages, liens, and losses during estate settlement, attach itemized schedules specifying the nature and amount of each item. Identify creditors by name and describe property to which claims relate. Calculate allowable deductions using the proportional formula from Schedule B, Line 5.
For marital deductions, attach Schedule M from Form 706 only if the surviving spouse is a U.S. citizen or property passes to a qualified domestic trust under section 2056A with proper election. Attach a statement showing the computation of the marital deduction claimed. For charitable deductions, attach Schedule O from Form 706 only if the beneficiary is a domestic entity or the property will be used within the United States.
For state death tax deductions, attach certificates from state tax officials that show the total tax imposed, discounts allowed, penalties, interest, and payment dates.
Step 10: Claim Available Credits
For credit for tax on prior transfers, attach Schedule Q from Form 706 with complete computations. For credit for foreign death taxes paid, attach Schedule P from Form 706 and Form 706-CE certifying foreign death tax payments. For generation-skipping transfer tax obligations, attach Schedule R or Schedule R-1 from Form 706 if the estate includes transfers to skip persons. The GST tax rate for 2011 decedents is 35 percent.
Step 11: Consider Special Elections
If permitted under the circumstances, elect alternate valuation by checking the yes box on Schedule A and valuing all property either six months after the decedent’s death or at the earlier date of sale, distribution, or disposition.
This election must decrease both the total gross estate value and the net estate tax liability after applying all credits. To claim the qualified conservation easement exclusion under section 2031, attach Schedule U from Form 706 with all required documentation and information.
Step 12: Assemble and File the Return
The executor must sign the return under penalties of perjury in the designated area on page one. If multiple executors are appointed, all are responsible for the return, but only one signature is required. Paid preparers must complete and sign the paid preparer section, providing all necessary information.
Attach the certified death certificate to the return. Assemble all pages in proper order, including Part I, Part II, Part III, all schedules, and supporting documentation. Include English translations for all documents prepared in languages other than English. Express all monetary amounts in U.S. dollars.
Mail the completed Form 706-NA to the Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999. Ensure the return is postmarked within nine months after the decedent’s date of death unless an extension has been granted. If unable to file by the due date, submit Form 4768 to request an automatic six-month extension of time to file.
Important Filing Considerations
Documentation Requirements for Proportional Deductions
To claim the proportional deduction on Schedule B, Line 5, proper documentation of foreign assets must be provided. Attach a certified copy of any foreign death tax return filed. If no foreign death tax return was filed, attach a certified copy of the estate inventory and schedule of debts filed with foreign probate courts or estate administration proceedings. Supplement these documents with additional attachments if they do not fully describe the entire gross estate outside the United States.
State Death Tax Deduction Formula
Calculate the allowable state death tax deduction using the following formula: total state death taxes paid, multiplied by a fraction. The numerator is the total value of assets in the gross estate subject to state death taxes. The denominator is the gross estate located in the United States from Schedule B, Line 1. Enter the calculated amount on Line 7 of Schedule B. The deduction must generally be claimed within four years of filing the return, subject to exceptions under section 2058.
Property Valuation Date Rules
Property must generally be valued as of the decedent’s date of death. The alternate valuation date election allows property to be valued six months after death or at an earlier disposition if the property was distributed, sold, exchanged, or otherwise disposed of during that six-month period. The alternate valuation election applies to all property in the estate and cannot be applied selectively. The election is only permitted if it results in a decrease in both the total gross estate value and the net estate tax liability after applying all applicable credits.
Transfer Certificate Requirements
Executors may need to obtain transfer certificates for U.S. assets. For information about transfer certificate procedures and requirements, contact the Internal Revenue Service, Cincinnati, OH 45999, Stop 824G. Transfer certificates facilitate the transfer of U.S.-situated assets and provide certainty that estate tax obligations have been satisfied.
Special Provisions for 2011 Tax Year
Modified Carryover Basis Election
Executors of estates of decedents who died in 2010 may make a special election to apply modified carryover basis treatment under section 301 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. If this special election is made, the estate will not be subject to federal estate tax, and Form 706-NA should not be filed. Instead, executors must file Form 8939 in accordance with the procedures outlined in Notice 2011-66 and related guidance.
Extended Due Date for Early 2010 Decedents
For decedents who died between January 1, 2010, and December 16, 2010, the due date for Form 706-NA was extended to September 19, 2011. This special deadline applied regardless of the normal nine-month filing requirement and provided executors additional time to address the unique legislative circumstances affecting estates during this transitional period.
Generation-Skipping Transfer Tax Rates
The applicable rate for generation-skipping transfers was zero for transfers occurring in 2010. For transfers occurring after 2010, including those reportable on 2011 Form 706-NA returns for decedents dying in 2011, the GST tax rate is 35 percent. Prior gifts and GST transfers must be calculated using the tax rate in effect at the decedent’s date of death.
Regulated Investment Company Stock Treatment
For nonresident alien decedents who died after 2004, a portion of stock in a regulated investment company may be treated as property located outside the United States. The excluded portion is determined by the proportion of qualifying assets held by the RIC relative to total assets at the end of the quarter immediately preceding the decedent’s death. Qualifying assets include bank deposits, portfolio debt obligations, certain original issue discount obligations, debt obligations treated as foreign source income, and other property not within the United States.
This provision, extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, applies to estates of nonresident alien decedents dying on or before December 31, 2011.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
