What Form 706-NA (2012) Is For
Form 706-NA (2012) is used by executors to report the U.S. assets of a nonresident alien who died owning property within the United States. This estate tax return, issued by the Internal Revenue Service, determines the federal estate tax, gift tax, and generation-skipping transfer tax due under the Internal Revenue Code. It calculates the gross estate, taxable estate, and applicable estate tax exemption based on the fair market value of property acquired at death.
The form ensures proper taxation and compliance with estate and gift taxes, supporting tax relief provisions introduced under the American Taxpayer Relief Act, the Job Creation Act, and related legislation governing estates, deductions, and transfer taxes.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our IRS Form 706-NA (2012): Estate Tax Guide for Nonresidents.
When You’d Use Form 706-NA
Executors use Form 706-NA when a nonresident alien dies owning property in the United States with a value exceeding $60,000. The form must be filed within nine months of the person’s death, though an automatic six-month extension may be requested using Form 4768. It is also used for amended filings when new assets are discovered or valuation errors are identified. Filing ensures proper reporting of the taxable estate and compliance with federal estate tax requirements.
Key Rules or Details for 2012
For 2012, estates of nonresident aliens were required to file if U.S.-situated property exceeded $60,000 in value. The federal estate tax rate ranged from 18% to 35%, with a unified credit of only $13,000 allowed. These limits, established under the American Taxpayer Relief Act and related provisions, meant most estates were taxed on property such as real estate, stocks, and tangible assets located in the United States. Estate tax treaties could provide additional exemptions or credits depending on the decedent’s country of residence.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for Estate, Gift, and Trust Forms.
Step-by-Step (High Level)
Filing IRS Form 706-NA (2012) involves several main stages that determine the fair market value of property and the amount of federal estate tax owed.
Step 1: Determine if Filing Is Required
The executor must calculate the total value of all U.S.-situated property at the time of death. If the amount exceeds $60,000, the estate must file the form.
Step 2: Gather Documentation
Executors must collect all supporting records, including the death certificate, will, property appraisals, brokerage statements, debt documentation, and any prior gift tax returns filed by the decedent.
Step 3: Value All U.S. Assets
All property must be valued at its fair market value on the date of death or under alternate valuation six months later if it reduces both the taxable estate and the tax due.
Step 4: Calculate Deductions
The executor can deduct funeral expenses, debts, administrative costs, and special deductions such as mortgages or state estate taxes. Only expenses related to U.S. property are deductible.
Step 5: Compute Tax Owed
The executor applies the IRS rate schedule, subtracts applicable credits, and includes any treaty benefits or generation-skipping transfer tax amounts as required by law.
Step 6: Sign and File the Return
The executor signs the federal estate tax return and submits it, along with payment for any taxes due to the IRS, to the Cincinnati center.
Common Mistakes and How to Avoid Them
- Failing to file because the estate seems small: Always calculate the total value of U.S.-based assets; estates exceeding $60,000 must file Form 706-NA even if they appear modest.
- Incorrectly identifying U.S.-situated property: Review each asset carefully—U.S. corporate stocks are taxable, while certain U.S. bank deposits may be exempt.
- Overlooking treaty benefits: Check whether an estate tax treaty applies; countries like Germany, Canada, and France offer credits or exemptions that can reduce or eliminate U.S. tax.
- Using incorrect valuation methods: Obtain professional fair market appraisals for all assets to ensure accurate reporting and prevent disputes with the IRS.
- Omitting required attachments: Include certified wills, property valuations, and debt verification documents to avoid delays or additional IRS correspondence.
- Neglecting deductions or exemptions: Claim all allowable deductions for debts, administration expenses, and property-based exemptions to reduce overall estate tax liability.
Careful valuation, documentation, and awareness of treaty and deduction rules help ensure accurate, timely, and compliant filing of Form 706-NA.
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 Form 706-NA is filed, the Internal Revenue Service reviews it for completeness and accuracy. If accepted, the IRS issues an estate tax closing letter confirming the final tax liability. Some estate tax returns may be selected for examination, particularly if complex assets or treaty benefits are claimed. The IRS generally has three years to assess additional tax, although this period may be extended if property values were substantially understated or the return was filed late.
FAQs
Who must file IRS Form 706-NA (2012)?
An executor must file IRS Form 706-NA (2012) if the decedent’s gross estate includes U.S. property exceeding $60,000 in fair market value. This estate tax return reports federal estate tax and related transfer taxes owed to the Internal Revenue Service.
What property is subject to federal estate tax for nonresident aliens?
U.S. real estate, tangible property located within the United States, and stocks in American corporations are generally part of the taxable estate. These assets are valued at fair market value for estate tax purposes under the Internal Revenue Code.
How does the estate tax exemption apply in 2012?
For 2012, nonresident estates were allowed a $13,000 estate tax exemption, protecting approximately $60,000 of U.S. assets from federal estate tax. This exemption was established under laws, including the American Taxpayer Relief Act and the Job Creation and Tax Relief Act.
Can the surviving spouse claim any deductions or exemptions?
A surviving spouse who is a U.S. citizen may claim a marital deduction or use a qualified domestic trust (QDOT). Married couples may also elect portability to transfer unused exemption amounts, reducing future estate tax liability.
How is fair market value determined for estate tax purposes?
Fair market value represents the price at which property would change hands between willing buyers and sellers. Executors must use accurate appraisals to calculate the taxable estate and determine any special deductions for real estate or inherited assets.
Are generation-skipping transfers taxed?
Yes, the generation-skipping transfer tax applies when assets skip a generation, such as from a grandparent to a grandchild. This additional tax is separate from the estate and gift taxes and helps ensure equity in the taxation of transferred wealth.
What happens if the estate files late or underpays tax?
If an estate files late or underpays tax, the Internal Revenue Service may assess additional tax, penalties, and interest. Filing within nine months after death or obtaining an approved extension can help avoid these charges and maintain compliance.
