When someone who was neither a U.S. citizen nor a U.S. resident passes away owning property in the United States, their estate may face U.S. estate taxes. Form 706-NA is the tax return used to report and calculate these taxes. This guide explains the form in plain English, helping executors and beneficiaries understand their obligations under 2014 tax law.

What Form 706-NA Is For

Form 706-NA (full name: "United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States") serves two main purposes for estates of people who died in 2014 without being U.S. citizens or residents:

Federal Estate Tax on U.S.-Situated Assets

First, it calculates the federal estate tax owed on U.S.-situated assets. Unlike U.S. citizens whose worldwide estates are taxed, nonresident aliens are only taxed on property located in the United States. This includes real estate in the U.S., tangible personal property (like artwork or jewelry kept in America), and stocks of U.S. corporations—even if the stock certificates were held abroad.

Generation-Skipping Transfer (GST) Tax

Second, it computes any generation-skipping transfer (GST) tax. This additional tax applies when assets pass directly to grandchildren or others who are more than one generation younger than the deceased person, essentially "skipping" a generation. Congress designed this tax to prevent wealthy families from avoiding estate taxes by leaving inheritances directly to grandchildren instead of their children.

Filing Responsibility and Jurisdiction

The form is filed by the executor (the person responsible for managing the deceased person's estate) with the IRS in Cincinnati, Ohio. It's important to note that this is a federal tax return—state inheritance taxes are separate matters handled under state law.

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When You’d Use Form 706-NA (Including Late and Amended Returns)

Regular Filing Deadline

Form 706-NA must be filed within nine months of the date of death if the fair market value of the deceased person's U.S.-situated assets exceeds $60,000. This threshold is dramatically lower than the $5.34 million exclusion that applied to U.S. citizens and residents in 2014, making the estate tax burden particularly significant for nonresident aliens.

Filing Extensions

If the executor needs more time, they can request an automatic six-month extension by filing Form 4768 (Application for Extension of Time To File a Return and/or Pay U.S. Estate Taxes). However, this only extends the time to file the paperwork—not the time to pay any taxes owed. Interest accrues on unpaid taxes from the original due date.

Late Returns

If you discover that a return should have been filed but wasn't, you must file it as soon as possible. Late filing triggers penalties unless you can demonstrate "reasonable cause" for the delay. The IRS imposes penalties for both late filing and late payment, which can accumulate quickly. The late filing penalty is typically 5% of the unpaid tax per month, up to a maximum of 25%.

Amended Returns

If errors are discovered after filing, you must file an amended Form 706-NA. To do this, prepare a new Form 706-NA, write "Supplemental Information" across the top of page one, and attach copies of pages 1-4 of the original return. Common reasons for amendments include discovering additional assets, correcting valuation errors, or finding documentation for previously unclaimed deductions. If the amendment results in additional tax owed, interest will be charged from the original due date.

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Key Rules or Details for 2014

Filing Threshold

$60,000 in U.S.-situated assets. If the gross estate's value at death exceeded this amount, Form 706-NA was required. This contrasts sharply with the $5.34 million exclusion for U.S. citizens.

Tax Rates

The estate tax uses a progressive rate structure starting at 18% and climbing to a maximum of 40% for amounts over $1 million. These are the same rates that applied to U.S. citizens, but nonresident aliens received far less in credits to offset the tax.

What Counts as U.S.-Situated Property

Real estate physically located in the U.S., tangible personal property in the U.S., stock in U.S. corporations (regardless of where certificates are held), and certain other assets are considered U.S.-situated. However, some assets are specifically excluded: bank deposits in U.S. branches of foreign banks, certain debt obligations, and life insurance proceeds on a nonresident alien's life are not taxed.

What’s Excluded

Bank accounts in foreign branches of U.S. banks, portfolio interest on certain debt, and proceeds from life insurance policies are generally not subject to U.S. estate tax for nonresident aliens.

Generation-Skipping Transfer Tax

Applies at a flat 40% rate (matching the top estate tax rate) to direct skips—transfers to people two or more generations younger than the decedent, such as grandchildren. Unlike the estate tax exemption, there was essentially no GST exemption for nonresident aliens in 2014.

Estate Tax Treaties

The United States has estate tax treaties with several countries (including Canada, Australia, Germany, France, Italy, Japan, and others) that may provide more favorable treatment, including higher exemptions or credits. Executors should always check whether a treaty applies, as it can significantly reduce or eliminate the tax burden.

Valuation Date

Assets are generally valued as of the date of death, though an alternate valuation date (six months after death) could be elected if it would decrease both the value of the estate and the estate tax liability.

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Step-by-Step (High Level)

Step 1: Determine Filing Requirement

Calculate the total fair market value of all U.S.-situated assets as of the date of death. If the total exceeds $60,000, Form 706-NA must be filed. Don't guess at this—overvaluation can result in overpaying taxes, while undervaluation can trigger penalties.

Step 2: Gather Documentation

Collect death certificates, appraisals for real estate and valuable property, stock valuations as of the date of death, bank statements, documentation of debts and expenses, and any estate tax treaty information. For life insurance, obtain Form 712 (Life Insurance Statement) from insurance companies. If the deceased made taxable gifts after 1976, locate all prior gift tax returns (Form 709).

Step 3: Determine Executor Status

The executor must provide documentation proving their authority, such as a certified copy of the will, letters testamentary from a probate court, or other court documentation. A simple statement by the executor is insufficient.

Step 4: Complete Part 1 (Decedent & Executor Information)

Enter decedent information including name, date of death, country of citizenship and domicile, and U.S. Social Security Number (if any). Include executor information and contact details.

Step 5: Complete Asset Schedules

Fill out the appropriate schedules for each type of property:

• Schedule A: Real estate
• Schedule B: Stocks and bonds
• Schedule C: Mortgages, notes, and cash
• Schedule D: Life insurance (rarely applicable for nonresident aliens)
• Schedule E: Jointly owned property
• Schedule F: Other miscellaneous property
• Schedule G: Lifetime transfers (gifts made during life)

Step 6: Complete Deduction Schedules

Claim allowable deductions including funeral expenses, debts owed at death, attorney and executor fees, and state death taxes paid. Note that deductions are more limited for nonresident aliens than for U.S. citizens—for example, the unlimited marital deduction doesn't apply unless the spouse is a U.S. citizen and specific trust arrangements are made.

Step 7: Calculate Tax

Complete Part 2 (Tax Computation) using the unified rate schedule. Subtract allowable credits, including the very limited unified credit available to nonresident aliens and any foreign death tax credit.

Step 8: Calculate GST Tax

If any transfers qualify as direct skips, complete Schedule R to calculate generation-skipping transfer tax.

Step 9: Sign and File

The executor must sign the return under penalties of perjury. If a paid preparer assisted, they must also sign. Attach all required schedules and supporting documentation. Mail to: Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.

Step 10: Pay Tax Due

Payment can be made by check to "United States Treasury" or electronically through the Electronic Federal Tax Payment System (EFTPS). Include the decedent's name, Social Security Number, and "Form 706-NA" on the payment.

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Common Mistakes and How to Avoid Them

Mistake #1: Not Filing When Required

Some executors mistakenly believe that if the deceased person didn't live in the U.S., no U.S. taxes apply. However, owning even modest U.S. assets triggers filing requirements. How to Avoid: Create a comprehensive asset list early in the estate administration process. When in doubt, consult with a tax professional familiar with international estate taxation.

Mistake #2: Incorrect Asset Valuation

Using outdated appraisals, guessing at values, or using purchase prices instead of fair market value at death leads to problems. The IRS may challenge valuations that appear too low, triggering a 20% penalty for substantial understatements (reporting values at 65% or less of actual value), or even a 40% penalty for gross understatements (40% or less of actual value). How to Avoid: Obtain professional appraisals for real estate, businesses, and valuable personal property. Use actual trading prices for publicly traded stocks. Document all valuations thoroughly.

Mistake #3: Missing Assets

Executors sometimes overlook U.S. corporation stock held through foreign brokers, jointly owned property, or assets in the deceased's name but controlled by others. How to Avoid: Review several years of financial records and tax returns. Contact all financial institutions where the deceased might have had accounts. Don't assume that assets held abroad are exempt—U.S. corporate stock is taxable regardless of where the certificates are located.

Mistake #4: Claiming Ineligible Deductions

Nonresident aliens cannot claim the unlimited marital deduction (unless assets pass to a Qualified Domestic Trust), and their charitable deduction is limited. Some expenses aren't deductible if they weren't actually paid or reasonably expected to be paid. How to Avoid: Study the specific deduction rules for nonresident aliens in the Form 706-NA instructions. When claiming deductions, keep receipts and documentation of actual payment.

Mistake #5: Ignoring Estate Tax Treaties

Many countries have treaties with the United States that can dramatically reduce or eliminate estate tax. Executors who don't research treaty benefits may pay substantially more tax than necessary. How to Avoid: Determine the decedent's country of citizenship and residence, then check if that country has an estate tax treaty with the U.S. The IRS provides a list in the Form 706-NA instructions, and the Treasury Department maintains full treaty texts online.

Mistake #6: Incomplete Returns

Leaving fields blank, failing to attach required schedules, or submitting returns without proper signatures causes processing delays and may result in the IRS treating the return as not filed. How to Avoid: Use the checklist on the last page of the instructions. Enter "0" or "None" in fields where nothing is applicable rather than leaving them blank. Double-check that all required signatures are present before mailing.

Mistake #7: Missing the Filing Deadline

The nine-month deadline comes quickly, especially when dealing with international estate administration involving multiple jurisdictions, different legal systems, and language barriers. How to Avoid: File Form 4768 for an automatic extension early in the process if you foresee any difficulties meeting the deadline. Remember that extensions don't extend the time to pay—estimate and pay the tax to avoid interest charges.

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What Happens After You File

Immediate Processing

After mailing Form 706-NA, the IRS typically takes 4-6 months (or longer) to process the return. During initial processing, the IRS checks for mathematical errors, missing schedules, and obvious discrepancies. If minor errors are found, the IRS may correct them and send a notice explaining the changes.

Payment Processing

If you paid by check, it should be cashed within a few weeks. Electronic payments through EFTPS are processed quickly. Keep proof of payment—you'll need it if questions arise later.

IRS Examination

The IRS may select the return for examination (audit). Estate tax returns involving significant assets or unusual circumstances are more likely to be examined. During an examination, the IRS may request additional documentation, appraisals, or explanations for positions taken on the return. This process can take many months or even years.

Estate Tax Closing Letter

Previously, the IRS routinely issued estate tax closing letters confirming that the examination was complete and no further tax was due. However, since 2015, the IRS has changed its policy. Closing letters are no longer automatically issued but can be requested for a fee (currently around $56). The IRS recommends waiting at least nine months after filing before requesting a closing letter to allow time for processing.

Statute of Limitations

Generally, the IRS has three years from the filing date to assess additional estate tax. However, this period extends to six years if the return substantially understates the gross estate (by more than 25%). If no return is filed when one was required, there's no statute of limitations—the IRS can assess tax at any time.

Release of IRS Lien

Federal estate tax creates an automatic lien on all estate property. To transfer property free of this lien, executors may need to obtain transfer certificates or other documentation from the IRS showing that the tax has been paid or that the property isn't needed to secure payment.

Refunds

If the estate overpaid, the IRS will issue a refund with interest. However, refund claims are subject to the same examination procedures as the original return. If you discover you overpaid after receiving an assessment, you must file a refund claim within the statute of limitations (generally two years from payment date or three years from return due date, whichever is later).

State Death Taxes

Filing Form 706-NA doesn't satisfy state estate or inheritance tax obligations. Many states impose their own death taxes, which must be reported and paid separately under state law. However, state death taxes paid can generally be claimed as a deduction on Form 706-NA, reducing federal estate tax.

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FAQs

Q1: What if the deceased person owned U.S. property jointly with someone else?

A: For nonresident aliens, jointly owned property with right of survivorship is generally included in the deceased person's estate to the extent of their fractional ownership interest. If the joint owner was the decedent's spouse, special rules may apply depending on whether the spouse is a U.S. citizen and the nature of the property. Report jointly owned property on Schedule E with detailed explanations of the ownership arrangement.

Q2: Do I need a U.S. tax identification number for the deceased person or the estate?

A: If the deceased person had a U.S. Social Security Number, use it on the return. If not, and none can be obtained, explain on the return why no SSN is available. The estate itself may need an Employer Identification Number (EIN), which can be obtained by filing Form SS-4 with the IRS, especially if the estate will be open for an extended period or will have income-generating assets.

Q3: Can I deduct attorney fees and executor commissions?

A: Yes, but only to the extent they're allowable under state law and actually paid (or reasonably certain to be paid). These are reported on Schedule J (Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims). Keep detailed time records and obtain court approval if required by state law. Reasonable fees are deductible; excessive fees may be challenged.

Q4: What if an estate tax treaty reduces or eliminates the tax—do I still file Form 706-NA?

A: Yes. You must still file the return and claim the treaty benefits on the return itself. Attach a statement describing which treaty provisions apply and how they affect the estate's tax liability. Simply not filing because a treaty applies is not acceptable—the IRS needs a return to process the estate and release any lien on the property.

Q5: Can the marital deduction reduce or eliminate the estate tax?

A: For nonresident aliens, the unlimited marital deduction is generally not available. However, if assets pass to a Qualified Domestic Trust (QDOT) for the benefit of a surviving spouse who isn't a U.S. citizen, a marital deduction may be claimed. The QDOT has strict requirements, including having a U.S. trustee and meeting security requirements. This is a complex area requiring professional guidance.

Q6: How does the generation-skipping transfer tax work?

A: The GST tax applies at a flat 40% rate to "direct skips"—transfers to individuals two or more generations below the decedent (typically grandchildren) or to trusts for such individuals. Unlike the estate tax, nonresident aliens received essentially no GST exemption in 2014, so any direct skip triggered this additional tax. To minimize GST tax, some families structure inheritances to pass first to children, then to grandchildren, though this approach may increase overall transfer taxes across multiple generations.

Q7: What happens if I discover additional assets after filing the return?

A: File a supplemental Form 706-NA as soon as possible. Write "Supplemental Information" on page 1 and attach a copy of the original return's pages 1-4. If the additional assets increase the tax owed, pay the additional tax immediately to minimize interest charges. The IRS won't penalize honest mistakes corrected promptly, but deliberate concealment of assets can result in fraud penalties of 75% of the additional tax, plus potential criminal prosecution.

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Important Note: This guide provides general information about Form 706-NA as it applied in 2014. Tax laws change frequently, and individual circumstances vary widely. Always consult with a qualified tax professional or attorney who specializes in international estate taxation before making decisions about estate tax matters. The IRS website at IRS.gov provides the most current forms, instructions, and guidance.