What Form 706-NA Is For
Form 706-NA is used to report and calculate the United States estate tax and generation-skipping transfer tax for individuals who were not citizens or residents at the time of death. The Internal Revenue Service requires this estate tax return when a decedent’s estate includes U.S.-situated assets such as real estate located in the country, tangible personal property, or companies’ debt obligations. The form ensures accurate reporting of the decedent’s gross estate and fair market value for estate tax purposes while determining the correct tax liability under applicable treaties and estate tax laws.
When You’d Use Form 706-NA
Executors or authorized representatives must file Form 706-NA within nine months of the decedent’s date of death if the gross estate located in the United States exceeds the $60,000 filing threshold. The estate tax return includes adjusted taxable gifts and the gift tax specific exemption. The Internal Revenue Service allows a six-month filing extension using Form 4768; however, tax liabilities must still be paid by the original due date. Late or amended estate tax returns can be filed when new property or valuation corrections are discovered, ensuring compliance with United States estate and gift taxes.
Key Rules or Details for 2020
- Filing threshold: Estates must file if U.S.-situated assets, adjusted taxable gifts, and gift tax exemptions exceed $60,000 for the decedent’s estate.
- U.S.-situated assets: Include real estate located in the U.S., tangible property, and stock in domestic corporations for estate tax purposes.
- Excluded assets: Bank deposits not connected to a U.S. business, life insurance proceeds, and stock in foreign corporations are excluded from the gross estate.
- Unified credit exemption: Nonresidents are eligible for a $13,000 unified credit, which may be increased under estate tax treaties or death tax treaties.
- Estate tax rates: Estate tax rates range from 18% to 40%, depending on the taxable estate value.
- Special considerations: Use the November 2020 revision and send all estate tax returns to the Internal Revenue Service.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine if Filing is Required
Compute estate value by calculating the fair market value of all U.S. property, adjusted taxable gifts, and specific exemptions to confirm if the filing threshold applies.
Step 2: Identify the Executor
The executor or any individual with control over such property must file the tax return. Provide evidence of authority, such as a will or court appointment, for estate taxation purposes.
Step 3: Gather Required Documentation
Collect the death certificate, appraisals, prior gift tax returns, estate inventories, and any foreign law documentation needed for accurate tax return preparation.
Step 4: Complete Key Schedules
Prepare Schedule A for gross estate details and Schedule B for deductions, including administration expenses, charitable deductions, and marital deduction when applicable.
Step 5: File and Pay
Mail the completed tax form and payment to the Internal Revenue Service using private delivery services if necessary. Payment must be made in U.S. dollars to the United States Treasury.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing the filing deadline: Start preparing early and request an automatic six-month extension to avoid late penalties and willful or reckless conduct findings.
- Incorrect valuation of property: Always use fair market value and qualified appraisals to ensure accurate estate value for estate tax purposes.
- Omitting deductions or credits: Review all allowable deductions, such as administration expenses, marital deduction, or charitable deduction, before filing.
- Ignoring death tax treaties: Apply the correct estate tax treaty or applicable treaty provisions to reduce estate tax liabilities under worldwide estate rules.
- Incomplete supporting records: Include certified copies of required schedules and English translations of any foreign law documents to prevent processing delays.
- Failing to report consistently: File Form 8971 within 30 days after filing Form 706-NA to provide beneficiaries with correct fair market basis information.
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 filing, the Internal Revenue Service reviews the tax return and calculates any remaining estate tax liabilities. The IRS no longer issues automatic closing letters for estate taxes; executors must request them separately. Account transcripts can substitute for closing letters related to estate tax when verifying the completion of the estate tax process. The decedent’s estate may be selected for examination to verify valuations and deductions. Keep detailed records for at least four years to address potential questions about the taxable estate or alternate valuation date adjustments.
FAQs
Who must file Form 706-NA estate tax returns?
Executors must file if the decedent’s gross estate located in the United States exceeds $60,000, including adjusted taxable gifts. This ensures compliance with estate and gift taxes under U.S. tax laws.
How is the generation-skipping transfer tax reported?
The generation-skipping transfer tax applies to transfers from a decedent’s estate to grandchildren or more remote descendants. It must be calculated on Schedule R to determine additional tax liability.
What qualifies as an estate tax exemption for nonresidents?
The unified credit exemption for nonresidents is $13,000. However, certain estate tax treaties and death tax treaties may allow a higher exemption depending on the decedent’s country of residence.
How do I obtain an estate tax closing letter?
Estate tax closing letters are not automatically issued. Executors or registered tax professionals must submit a request to the Internal Revenue Service at least nine months after the filing date.
What happens if debt obligations remain unpaid?
Companies’ debt obligations or personal loans within the estate must be reported. These reduce the gross estate when calculating the taxable estate for estate tax purposes.
Can death tax treaties lower estate tax liabilities?
Yes, applicable death tax treaties or the Canada Income Tax Treaty may reduce United States estate tax liabilities. Executors should review these treaties when computing the estate’s total tax liability.
How do estate and generation-skipping transfer taxes differ?
Estate taxes apply to property transferred at death, while generation-skipping transfer taxes apply to transfers made to later generations. Both are calculated to ensure proper estate taxation under U.S. law.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
