What the Form Is For

Form 706-NA is the official IRS tax return used to calculate and report estate tax and generation-skipping transfer (GST) tax for people who died while they were neither U.S. citizens nor U.S. residents (commonly referred to as "nonresident aliens"). This form specifically addresses the taxation of U.S.-based property owned by foreign nationals at the time of death.

Unlike U.S. citizens and residents who are taxed on their worldwide estates, nonresident aliens are only taxed on property physically located in the United States or certain property tied to U.S. sources. The estate tax is imposed on the transfer of the decedent's taxable estate—meaning the tax applies to the entire estate value, not just individual inheritances received by beneficiaries.

The executor (personal representative, administrator, or anyone in control of the deceased person's U.S. assets) must file Form 706-NA if the total value of U.S.-situated assets exceeds $60,000 at the date of death. This $60,000 threshold is significantly lower than the exemption available to U.S. citizens, making this requirement catch many foreign nationals who own even modest U.S. real estate, stocks, or other assets. IRS

When You’d Use It (Including Late Filing and Amended Returns)

Standard Filing Timeline: The executor must file Form 706-NA within 9 months of the date of death. If the decedent passed away on March 15, 2013, for example, the return would be due by December 15, 2013.

Extension Requests: If you need more time, you can use Form 4768 (Application for Extension of Time To File a Return and/or Pay U.S. Estate Taxes) to request an automatic 6-month extension for filing. This extension gives you time to gather documentation but does not extend the deadline for paying any tax owed—interest will accrue on unpaid taxes from the original due date. IRS

Late Filing: If you file after the 9-month deadline without an approved extension, the IRS may impose penalties for late filing unless you can demonstrate "reasonable cause" for the delay. The law provides penalties for both late filing and late payment. If you receive a penalty notice, you can submit an explanation to request penalty relief based on reasonable cause, but do not attach explanations to your original return—they won't be considered at that stage.

Amended Returns: If you discover errors after filing or need to change reported information, you can file an amended return. To do this, prepare a new Form 706-NA, write "Supplemental Information" across the top of page 1, and attach copies of pages 1, 2, 3, and 4 from the original return you already filed. Common reasons for amendments include discovering additional assets, correcting property valuations, or claiming deductions that were initially overlooked. IRS

Key Rules and Thresholds for 2013

Filing Threshold: You must file Form 706-NA if the decedent's U.S.-situated assets exceeded $60,000 at death. This threshold may be reduced by the gift tax specific exemption (for gifts made between September 9 and December 31, 1976) and adjusted taxable gifts made after December 31, 1976.

Tax Rates: For decedents dying in 2013, the maximum estate tax rate was 40% under the American Taxpayer Relief Act of 2012. The generation-skipping transfer tax rate was also 40%. These rates applied to taxable estates after deductions and credits.

Unified Credit: The unified credit allowed to nonresident alien estates was generally $13,000 (significantly lower than the multi-million dollar exemption available to U.S. citizens). However, citizens of U.S. possessions could claim a higher credit using a specific formula based on the proportion of U.S. assets to worldwide assets. IRS

Treaty Benefits: If the decedent was a citizen or resident of a country with a death tax treaty with the United States (such as Canada, United Kingdom, France, Germany, Japan, and others), special rules and additional credits might apply. For example, Canadian residents with smaller estates may qualify for marital credits or small estate relief. Treaty claims must be clearly documented with attached statements.

What Property Counts as "U.S.-Situated": The location rules are critical:

• Real estate physically located in the U.S.
• Tangible personal property (cars, jewelry, art) physically in the U.S.
• Stock in U.S. corporations (regardless of where certificates are held)
• Debt obligations of U.S. persons, corporations, or governments (with some exceptions)
• Bank deposits are generally excluded if not connected to a U.S. trade or business

Property not considered U.S.-situated includes stock in foreign corporations, foreign bank deposits, and certain portfolio debt obligations issued after July 18, 1984. IRS

Step-by-Step (High Level)

Step 1: Gather Essential Documents

Collect the decedent's death certificate, will (if any), documentation proving executor status (court orders or certified will), appraisals of U.S. property, stock certificates and account statements, prior gift tax returns, and any estate inventories filed in foreign jurisdictions.

Step 2: Complete Part I – Decedent and Executor Information

Enter the decedent's name, U.S. taxpayer ID number (SSN or ITIN if available), date and place of death, citizenship, domicile, and birth information. List all executors with their addresses both in and outside the United States.

Step 3: Answer Part III – General Information Questions

Answer all questions about whether the decedent died with a will, owned various types of U.S. property, was engaged in U.S. business, held safe deposit boxes, created trusts, made prior transfers, held powers of appointment, filed gift tax returns, or was involved in generation-skipping transfers. These questions determine which additional schedules you must complete.

Step 4: Complete Schedule A – Gross Estate in United States

List every asset located in the United States with detailed descriptions. For stocks, include the corporation name, number of shares, CUSIP number (a nine-digit security identifier), par value, and quotation. For bonds, include denomination, obligor, maturity date, interest rate, and CUSIP. For real estate, provide complete legal descriptions and appraisals. Decide whether to elect alternate valuation (property valued 6 months after death instead of date of death)—this election can only be made if it reduces both the gross estate value and the net tax due.

Step 5: Complete Schedule B – Taxable Estate

Calculate allowable deductions including funeral expenses, administration expenses, debts, mortgages, and casualty losses. You may also deduct charitable contributions (if to domestic entities or for U.S. use) and marital deductions (if the surviving spouse is a U.S. citizen or property passes to a qualified domestic trust). State death taxes paid on U.S. property are deductible using a specific formula. IRS

Step 6: Compute Tax in Part II

Using the unified rate schedule from Form 706 instructions, calculate the tentative tax on the taxable estate plus prior taxable gifts, then subtract the tentative tax on just the gifts. Apply the unified credit ($13,000 or the allowable amount), then subtract other credits such as foreign death tax credits, credits for tax on prior transfers, or treaty-based credits.

Step 7: Attach Required Schedules and Documentation

Attach certified copies of the will and death certificate, schedules from Form 706 if claiming certain deductions or credits (Schedule E for jointly owned property, Schedule G for lifetime transfers, Schedule H for powers of appointment, Schedule M for marital deduction, Schedule O for charitable deduction, Schedule Q for prior transfer credit, Schedule R for GST tax), English translations of all foreign documents, foreign estate tax returns or inventories to document assets outside the U.S., and any treaty-based position statements.

Step 8: Sign, Date, and File

All executors are responsible for the return, though only one needs to sign. Mail the completed return to the designated IRS address (Kansas City, MO 64999 as of 2013). Make checks payable to "United States Treasury." IRS

Common Mistakes and How to Avoid Them

Mistake #1: Failing to File When Required

Many executors mistakenly believe no filing is necessary because the estate is small or because the decedent wasn't a U.S. resident. Remember: the threshold is only $60,000 of U.S. assets, not worldwide assets. Solution: Always inventory all U.S.-situated property and file if it exceeds $60,000, even if no tax is ultimately owed.

Mistake #2: Incorrectly Determining Asset Location

Executors often misunderstand which assets are considered "in the United States." For example, stock in a U.S. corporation is always U.S.-situated regardless of where certificates are physically stored. Solution: Carefully review the location rules in the instructions and consider consulting a professional for complex assets like debt obligations or regulated investment company stock.

Mistake #3: Missing Documentation Requirements

Failing to attach required documents like certified wills, death certificates, or foreign estate inventories will delay processing and may result in rejection. Solution: Create a checklist of all required attachments before filing, including English translations of any foreign-language documents.

Mistake #4: Improper Asset Valuation

Undervaluing or overvaluing assets can trigger penalties. The IRS requires fair market value as of the date of death (or alternate valuation date). Solution: Obtain professional appraisals for real estate, closely held business interests, and unique assets. For publicly traded securities, use the mean between the highest and lowest quoted selling prices on the valuation date.

Mistake #5: Not Claiming Treaty Benefits

Many decedents from treaty countries are entitled to additional credits or exemptions that significantly reduce or eliminate tax. Solution: Research whether a tax treaty applies to the decedent's country of citizenship or residence. Attach a clear statement claiming treaty benefits and include the specific treaty article reference. IRS

Mistake #6: Forgetting to Report Prior Gifts

Taxable gifts of U.S.-situated property made after December 31, 1976 must be reported on the return even though they're not part of the gross estate. Solution: Obtain copies of all prior gift tax returns (Form 709) filed by the decedent and include lifetime taxable gifts in the tax computation.

Mistake #7: Missing the Generation-Skipping Transfer Tax

If assets pass to grandchildren or other "skip persons," additional GST tax may apply at a 40% rate. Solution: Answer Question 11 in Part III honestly and complete Schedule R if generation-skipping transfers occurred.

What Happens After You File

Initial Processing

Once the IRS receives Form 706-NA, it will be processed at the designated submission center. Processing typically takes several months as the IRS reviews valuations, verifies calculations, and checks for completeness.

Transfer Certificates

If the estate needs to transfer or distribute U.S. assets (especially real estate or securities), beneficiaries or financial institutions may require a transfer certificate from the IRS. To obtain this, write to: Internal Revenue Service, Cincinnati, OH 45999, Stop 824G. Transfer certificates confirm that estate taxes have been paid or don't apply, allowing property transfers to proceed. IRS

Estate Tax Closing Letter

After the IRS completes its review and accepts the return, it will issue an estate tax closing letter confirming that the return has been accepted and estate tax has been satisfied. Wait at least 9 months after filing before requesting this letter to allow time for processing.

Examinations and Audits

The IRS may select the return for examination, particularly if large asset values, complex transactions, or treaty positions are involved. If selected, you'll receive a notice requesting additional documentation. Respond promptly with complete records to avoid penalties.

Refunds

If you overpaid taxes, the IRS will process a refund, though this may take many months. Interest may be paid on overpayments.

Penalties for Underpayment

If the IRS determines that assets were undervalued or deductions were overstated, causing an underpayment, penalties under sections 6662(g) and (h) may apply for valuation understatements. Substantial understatements can result in penalties of 20% to 40% of the additional tax owed. IRS

FAQs

Q1: Does the $60,000 threshold apply to worldwide assets or just U.S. assets?

Only U.S.-situated assets count toward the $60,000 filing threshold. However, you must still report and document the decedent's entire worldwide estate on Schedule B because deductions are prorated based on the ratio of U.S. assets to total assets.

Q2: What if the decedent had both a foreign bank account and a U.S. bank account?

Generally, deposits in U.S. banks by nonresident aliens are not considered U.S.-situated property if they're not effectively connected with a U.S. trade or business. This means most bank deposits won't trigger filing requirements or tax liability. However, other assets like U.S. stocks or real estate will. IRS

Q3: Can the estate claim a marital deduction if the surviving spouse is also a nonresident alien?

No, unless the property passes to a Qualified Domestic Trust (QDOT) as described in section 2056A. If the surviving spouse is a U.S. citizen, the marital deduction is available without establishing a QDOT. IRS

Q4: What happens if we discover additional U.S. assets after filing the return?

File an amended return as soon as possible. Prepare a new Form 706-NA, mark it "Supplemental Information," and attach copies of the original return's first four pages. Include the newly discovered assets on Schedule A and recalculate the tax. Pay any additional tax due with the amended return to minimize interest charges.

Q5: Are life insurance proceeds included in the estate?

Yes, if the policy insured the decedent's life and was considered U.S.-situated property. Insurance proceeds are treated as located in the United States under certain circumstances and must be reported on Schedule A.

Q6: What documentation do I need to prove I'm the executor?

You must provide documentation proving executor status, such as a certified copy of the will (if the decedent died testate), court orders designating you as executor or administrator, or letters testamentary from the probate court. A simple statement by the executor is not sufficient. IRS

Q7: Can the estate claim foreign death tax credits for taxes paid to the decedent's home country?

Possibly, especially if a tax treaty exists between that country and the United States. You must attach documentation including a certified copy of the foreign death tax return and claim the credit on line 9 of Part II. Without a treaty, foreign death tax credits may be limited or unavailable. IRS

For More Information: Visit IRS.gov/form706na for the latest forms, instructions, and updates. For specific legal or tax advice regarding your situation, consult a qualified estate tax professional or attorney experienced in international estate matters.

This guide is based on the August 2013 revision of Form 706-NA and its instructions. Tax laws change regularly; always verify current requirements with the IRS.