What Form 706-NA Is For
Form 706-NA is used by estates of individuals who were not citizens or residents of the United States at the time of death but owned U.S.-situated assets. It reports and calculates both estate tax and generation-skipping transfer tax for the purpose of determining estate tax liabilities. The Internal Revenue Service requires this estate tax return to determine any estate tax liabilities related to tangible personal property, real property, or other U.S. assets included in the decedent's gross estate. Executors must file this tax form if the gross estate located in the United States exceeds the filing threshold of $60,000.
When You’d Use Form 706-NA
The form must be filed when a decedent's estate includes U.S. property, such as tangible property, stocks of U.S. corporations, or real estate located in the United States. For estate and gift taxes, the filing requirement applies if the gross estate value exceeds $60,000. Executors have nine months from the decedent’s date of death to file the estate tax return with the Internal Revenue Service, Attn: Estate and Gift Tax. Late or amended filings may be submitted with reasonable cause, but interest and penalties may apply to unpaid tax liabilities under U.S. tax laws.
Key Rules or Details for 2014
- Filing Threshold: Estates with a gross estate located in the United States exceeding $60,000 must file Form 706-NA with the Internal Revenue Service.
- Tax Rates: The estate tax is progressive, ranging from 18 to 40 percent, depending on the taxable estate and adjusted taxable gifts.
- Taxable Estate and Deductions: The decedent's taxable estate includes the fair market value of property minus allowable deductions for administration expenses, debts, and charitable deduction claims.
- Applicable Treaty: Estate tax treaties and death tax treaties may modify or reduce the United States estate tax liability for residents of treaty countries.
- Valuation: The property must be valued at its fair market value as of the date of death. Alternatively, the alternate valuation date may be elected if it reduces the estate value and tax liability.
- Qualified Domestic Trust: The unlimited marital deduction applies only if the surviving spouse is a U.S. citizen or if assets are held in a qualified domestic trust.
- Exclusions: Certain assets, including companies’ debt obligations, life insurance proceeds, and bank deposits from foreign corporations, may be excluded from the decedent’s taxable estate.
- Generation-Skipping Transfer Tax: This separate transfer tax applies to property passing to grandchildren or other heirs more than one generation below the decedent.
- Estate Tax Exemption: The unified credit exemption is significantly lower for nonresident aliens than for U.S. citizens, limiting relief from estate taxation.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine Filing Requirement
Executors must calculate the fair market value of all U.S.-situated assets in the decedent’s estate. If the total exceeds the $60,000 filing threshold, an estate tax return must be filed.
Step 2: Gather Documentation
Collect the death certificate, appraisals of tangible personal property, and financial statements. Include any lifetime gifts or adjusted taxable gifts and documentation related to estate tax treaties or the applicable treaty country.
Step 3: Confirm Executor Authority
Submit official documents verifying executor status, such as letters testamentary or other court-issued authorizations. Authorized representatives making requests must retain records for tax purposes.
Step 4: Complete and Review Schedules
Include all schedules related to real estate located in the United States, debt obligations, and tangible property. Compute estate value, adjusted taxable gifts, and calculate tax liabilities accurately.
Step 5: File and Pay Tax
Mail the completed tax return paperwork to the Internal Revenue Service, Attn: Estate and Gift Tax, or use private delivery services approved by the IRS. Payment for estate taxes and generation-skipping transfer tax must be made by the deadline.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Not Filing When Required: Executors sometimes assume the estate is exempt because the decedent was not a citizen. Review all U.S.-situated assets and file when the filing threshold is met.
- Incorrect Valuations: Using outdated appraisals or estimates can result in penalties. Obtain professional appraisals to ensure accurate fair market values for estate tax purposes.
- Overlooking Estate Tax Treaties: Failure to apply an applicable treaty can result in increased tax liabilities. Always review the death tax treaties or the Canada income tax treaty for possible exemptions.
- Claiming Ineligible Deductions: Some deductions are limited for nonresidents. Confirm that administration expenses, charitable deductions, and marital deduction claims comply with U.S. tax laws.
- Incomplete Returns: Missing information delays processing. Use the IRS checklist to verify that all forms and schedules are attached before mailing.
- Ignoring Generation-Skipping Transfer Tax: Executors sometimes overlook this tax when property passes to grandchildren. Calculate tax liabilities using the fair market value of such property to avoid penalties.
- Late Filing or Payment: Failure to file or pay taxes promptly results in interest and penalties. File Form 4768 to request an extension if more time is needed, but pay the estimated tax immediately.
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 estate tax return for accuracy and completeness. Processing typically takes several months. If discrepancies arise, the IRS may request clarification or documentation from registered tax professionals. Once reviewed, the executor may request an estate tax closing letter or multiple estate tax closing letters confirming that the estate tax liabilities have been resolved. Refunds for overpayment are issued according to IRS timelines, while audits or additional assessments may extend the review period.
FAQs
Who must file Form 706-NA (2014) for estate taxes?
Executors of estates belonging to individuals who were not citizens but owned property in the United States must file if the gross estate exceeds $60,000.
How do estate tax treaties affect United States estate taxation?
Estate tax treaties and death tax treaties may reduce estate tax liabilities by offering credits or exemptions for certain assets, depending on the decedent’s residency country.
What is the estate tax exemption for Form 706-NA (2014)?
The unified credit exemption for nonresident aliens is much lower than for U.S. citizens. It provides limited relief when computing estate and gift taxes.
Can the generation-skipping transfer tax apply to a nonresident alien’s estate?
Yes, the generation-skipping transfer tax applies when the decedent’s estate transfers property to individuals two or more generations below, such as grandchildren.
How do estate tax returns handle debt obligations or foreign corporations?
Debt obligations of U.S. corporations and companies’ debt obligations from foreign corporations are treated according to specific estate tax rules and applicable treaty provisions.
When can I request an estate tax closing letter from the IRS?
Executors or authorized representatives making requests may obtain an estate tax closing letter several months after filing, once all estate tax liabilities have been resolved.
What happens if preparers of estate tax returns file late?
Late filings result in penalties and interest. Executors should calculate estate values promptly and utilize private delivery services or e-filing to ensure timely submission.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Estate and Gift Tax Reporting.
