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US Estate Tax, the IRS & Form 706-NA
Form 706-NA: United States Estate (and Generation-Skipping Transfer) Tax Return is a tax form used to calculate tax liabilities for the estates with U.S.-based assets and generation-skipping transfers of non-resident decedents. Form 706-NA, which is distributed by the Internal Revenue Service (IRS), must be filed nine months after the death of the individual by their executor if the estate’s value exceeds the filing threshold of $60,000.
KEY TAKEAWAYS
- Form 706-NA is used to calculate tax liabilities for estates of individuals with U.S.-based assets that are part of their estate who are not citizens.
- U.S.-based assets that would be considered part of an estate include things like real estate, physical personal property, and securities related to U.S. companies.
- Executors of estates that would be required to complete Form 706-NA must file a tax return if the fair market value of the estate was at least $60,000.1
- The form must be filed within nine months of the death of the individual.
- The generation-skipping tax is imposed when the decedent’s estate is transferred rather than upon receipt of the beneficiary.
Who Can File Form 706-NA?
Form 706 NA: United States Estate (and Generation-Skipping Transfer) Tax Return must be used to figure out the generation-skipping transfer tax (GSTT) liability for estates of non-residents of the United States. The generation-skipping tax is levied upon the transfer of the decedent’s estate rather than when it is received by a beneficiary.
A non-resident is someone who does not live in the United States and is not a citizen. The IRS has specific rules for how a person meets the criteria of a resident. Taxpayers are considered residents if they meet the green card test or if they fulfill the substantial presence test in the United States. Individuals who do not satisfy these requirements are considered non-residents.
U.S.-based assets that are considered part of an estate include things like:
- Real estate
- Physical personal property
- Securities of U.S. companies
- Debt obligations within the U.S.
- Bonds4
One important point to note is that any American-based stocks would be subject to U.S. estate taxes even if the certificates were physically stored outside of the country.
IMPORTANT:
Although Form 706-NA: United States Estate (and Generation-Skipping Transfer) Tax Return must be filed within nine months following the person’s death, you may request a six-month deadline extension. This would allow the estate a total of 15 months to submit its tax return paperwork. Failure to file and remit payment on time may result in fines and penalties.
How to File Form 706-NA
Executors of estates that would be required to complete Form 706NA must file a tax return if the fair market value (FMV) of the “U.S.-situated assets, together with the gift tax specific exemption and the amount of adjusted taxable gifts, exceeds the filing threshold of $60,000.”6 In some cases, estates may still be required to file a tax return even if the estate value is less than that, namely if the deceased made large lifetime gifts of U.S. assets that took advantage of the unified credit exemption.
Several countries have death tax treaties with the United States, and executors reporting information on an estate from one of those countries may have to attach a statement stating that the death tax treaty is being applied.1
This form has been revised and updated numerous times since 1962. Form 706-NA is available to taxpayers by requesting Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.2 Citizens of U.S. possessions, such as the U.S. Virgin Islands, are not considered citizens in Form 706-NA.1
Download Form 706-NA
Here is the IRS link, which includes instructions as well as the downloadable Form 706-NA: United States Estate (and Generation-Skipping Transfer) Tax Return.
Frequently Asked Questions on Estate Taxes
1.Am I required to file an estate tax return?
An estate tax return (Form 706) must be filed if the gross estate of the decedent (who is a U.S. citizen or resident), increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death, as shown in the table below.
Filing Threshold for Year of Death
An estate tax return also must be filed if the estate elects to transfer any deceased spousal unused exclusion (DSUE) amount to a surviving spouse, regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the portability election.
An estate tax return may need to be filed for a decedent who was a nonresident and not a U.S. citizen if the decedent had U.S.-situated assets.
2. How do I elect portability of the Deceased Spousal Unused Exclusion (DSUE) amount to benefit the surviving spouse?
In order to elect portability of the decedent’s unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate’s representative must file an estate tax return (Form 706) and the return must be filed timely. The due date of the estate tax return is nine months after the decedent’s date of death, however, the estate’s representative may request an extension of time to file the return for up to six months. An automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.
3. If I missed the due date for filing the estate tax return, can I get an extension of time to elect portability?
If the estate representative did not file an estate tax return within nine months after the decedent’s date of death, or within fifteen months of the decedent’s date of death (if a six-month extension of time for filing the estate tax return had been obtained), the availability of an extension of time to elect portability of the Deceased Spousal Unused Exclusion (DSUE) amount depends on whether the estate has a filing requirement, based on the filing threshold provided under § 6018(a).
If the filing threshold has been met, or in other words, if, independent of the portability election, the estate is required to file an estate tax return based on the total value of the gross estate and the amount of any adjusted taxable gifts, no extension of time to elect portability is available and Revenue Procedure 2022-32 does not apply.
However, if, the sum of the value of the decedent’s gross estate and the total amount of the decedent’s adjusted taxable gifts is less than the filing threshold, Revenue Procedure 2022-32 provides a simplified method for certain taxpayers to obtain an extension of time to make a “portability” election under § 2010(c)(5)(A) of the Internal Revenue Code. The simplified method under the revenue procedure to obtain an extension of time to make the portability election requires the filing of a complete and properly prepared estate tax return on or before the fifth annual anniversary of the decedent’s date of death and requires a notation on the estate tax return that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” No user fee is required to use the simplified method under this revenue procedure. Estates that do not qualify for this relief, and do not have a filing requirement based on the filing threshold, may request an extension of time to make the portability election under § 2010(c)(5)(A) by requesting a letter ruling under the provisions of § 301.9100-3. The requirements for requesting a letter ruling are described in Revenue Procedure 2022-1 (or any successor revenue procedure).
4. How does the basic exclusion amount apply in 2026 if I make large gifts before 2026?
Individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels
5. When can I expect an Estate Tax Closing Letter?
Final regulations establishing a new user fee of $67 for persons requesting the issuance of IRS Letter 627, Estate Tax Closing Letter (ETCL), became effective October 28, 2021 (User Fee for Estate Tax Closing Letter (TD 9957).
6. Is there an alternative to the Estate Tax Closing Letter?
Yes. Notice 2017-12 explains that an account transcript issued by the Internal Revenue Service (IRS) can be used in lieu of Letter 627, Estate Tax Closing Letter. The Transcript Delivery Service (TDS), which provides authorized practitioners the ability to view and print instant account transcripts for estate tax returns, is now available on IRS.gov. In addition, hardcopy account transcripts are available to authorized taxpayers making valid requests via mail or facsimile using Form 4506-T, Request for Transcript of Tax Return.
7.How do I make an electronic payment?
There are two separate systems for making an electronic payment of estate or gift tax:
- The Electronic Federal Tax Payment System (EFTPS)
- Same-Day Wire Payment
Electronic Federal Tax Payment System (EFTPS)
Instructions on how to use the Electronic Federal Tax System (EFTPS) are found in Publication 4990 (do not use Publication 4990 for the same-day wire payment method).
What you need to know about EFTPS:
- To use EFTPS you must enroll and then wait for a Personal Identification Number (PIN) to arrive in the mail. Please consider that due to COVID-19-related office closures, delays in issuing PINs may occur.
- There is no fee to use EFTPS.
- Note that when using EFTPS you will not use the table of codes listed below.
- If you have need assistance with using EFTPS contact EFTPS Tax Payment Customer Service at 800-555-4477 (Businesses) or 800-316-6541 (Individuals).
Same-Day Wire Payment
What you need to know about making a same day wire payment:
- You do not need to enroll to make a same-day wire payment, and no PIN is needed.
- Your financial institution may charge a fee for this service.
- The cutoff time to make a same-day wire payment is 5 p.m. Eastern Time. Your bank may have an earlier cutoff time.
- Download and complete page 1 of the Same-Day Taxpayer Worksheet, and provide pages 1 and 2 to your financial institution.
- When completing the Same-Day Taxpayer Worksheet, you will need a two-digit year, a two-digit month, and a five-digit tax type code, depending on the type of payment you are making (use the table of codes listed below).
8.What is included in the Estate?
The Gross Estate of the decedent consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Keep in mind that the Gross Estate will likely include non-probate as well as probate property.
9. I own a 1/2 interest in a farm (or building or business) with my brother (sister, friend, other). What is included?
Depending on how your 1/2 interest is held and treated under state law, and how it was acquired, you would probably only include 1/2 of its value in your gross estate. However, many other factors influence this answer, so you would need to visit with a tax or legal professional to make that determination.
10. What is excluded from the Estate?
Generally, the Gross Estate does not include property owned solely by the decedent’s spouse or other individuals. Lifetime gifts that are complete (no powers or other control over the gifts are retained) are not included in the Gross Estate (but taxable gifts are used in the computation of the estate tax). Life estates given to the decedent by others in which the decedent has no further control or power at the date of death are not included.
11. What deductions are available to reduce the Estate Tax?
Marital Deduction: One of the primary deductions for married decedents is the Marital Deduction. All property that is included in the gross estate and passes to the surviving spouse is eligible for the marital deduction. The property must pass “outright.” In some cases, certain life estates also qualify for the marital deduction.
- Charitable Deduction: If the decedent leaves property to a qualifying charity, it is deductible from the gross estate.
- Mortgages and Debt.
- Administration expenses of the estate.
- Losses during estate administration.
12. International: In a Form 706-NA, how do I claim an exemption from U.S. estate tax pursuant to a treaty?
In Schedule A of the return, list the estates U.S. assets, but show no values for those that are exempt from U.S. estate tax pursuant to a treaty. Attach a statement to the return that refers to the particular treaty applicable to the estate, and write that the estate is claiming its benefits. Entries for the gross estate in the U.S., the taxable estate, and the tax amounts, should be “0” if all of the decedents U.S. assets are exempt from U.S. estate tax pursuant to the applicable treaty. Attach to the Form 706-NA a copy of the return filed with the treaty partner. If no estate or inheritance tax return has been filed with the treaty partner, explain in your statement why no foreign return was due.
Most information for this page came from the Internal Revenue Code: Chapter 11–Estate Tax (generally Internal Revenue Code §2001 and following, related regulations and other sources.)
Purpose of Form
Form 706-NA is used to compute estate and generation-skipping transfer (GST) tax liability for nonresident not a citizen (NRNC) decedents. The estate tax is imposed on the transfer of the decedent’s taxable estate rather than on the receipt of any part of it.
For information about transfer certificates for U.S. assets, write to the following address.
Internal Revenue Service
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915
Note:
In order to complete this return, you must obtain Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and its instructions. You must attach schedules from Form 706 if you intend to claim a marital deduction, a charitable deduction, a qualified conservation easement exclusion, or a credit for tax on prior transfers, or if you answer “Yes” to question 5, 7, 8, 9a, 9b, or 11 in Part III. General Information. You will need the Instructions for Form 706 to explain how to value stocks and bonds. Make sure that you use the version of Form 706 that corresponds to the date of the decedent’s death.
Who Must File
The executor must file Form 706-NA if the date of death value of the decedent’s U.S.-situated assets, together with the gift tax-specific exemption and the amount of adjusted taxable gifts, exceeds the filing threshold of $60,000. The gift tax-specific exemption refers to the amount allowed for gifts made by the decedent between September 9, 1976, and December 31, 1976, inclusive. The amount of adjusted taxable gifts refers to the amount of adjusted taxable gifts made by the decedent after December 31, 1976.
When To File
File Form 706-NA within 9 months after the date of death unless an extension of time to file was granted.
If you are unable to file Form 706-NA by the due date, use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic 6-month extension of time to file. If you have already received a 6-month extension and are an executor who is out of the country, you may apply for an additional extension of time to file by filing a second Form 4768 and completing the form and attaching a written statement of explanation as instructed. For both extensions, check the “Form 706-NA” box in Part II of Form 4768.
Private delivery services (PDSs)
You can use certain PDSs designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments.
Where To File
File Form 706-NA at the following address.
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999
If using a PDS, use this address.
Internal Revenue Submission Processing Center
333 W. Pershing
Kansas City, MO 64108
Penalties
Section 6651 provides for penalties for both late filing of returns and late payment of tax unless there is reasonable cause for the delay. There are also penalties for willful attempts to evade or defeat payment of tax.
The law also provides for penalties for valuation understatements that cause an underpayment of tax. See sections 6662(g) and (h) for more details.
Reasonable-cause determinations
If you receive a notice about penalties after you file Form 706-NA, send an explanation, and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 706-NA. Explanations attached to the return at the time of filing will not be considered.
Return preparer
Estate tax return preparers who prepare any return or claim for refund that reflects an understatement of tax liability due to an unreasonable position are subject to a penalty equal to the greater of $1,000 or 50% of the income earned (or to be earned) for the preparation of each such return. Estate tax return preparers who prepare any return or claim for refund that reflects an understatement of tax liability due to willful or reckless conduct are subject to a penalty of $5,000 or 75% of the income earned (or income to be earned), whichever is greater, for the preparation of each such return. See section 6694(a) and 6694(b), the related regulations, and Announcement 2009-15, 2009-11 I.R.B. 687.
Death Tax Treaties
Death tax treaties are in effect with the following countries.
Australia | Ireland |
Austria | Italy |
Canada* | Japan |
Denmark | Netherlands |
Finland | South Africa |
France | Switzerland |
Germany | United Kingdom |
Greece |
|
*Article XXIX B of the United States–Canada Income Tax Treaty |
If you are reporting any items on this return based on the provisions of a death tax treaty or protocol, attach a statement to this return indicating that the return position is treaty based. See Regulations section 301.6114-1 for details.
How To Complete Form 706-NA
Complete Form 706-NA in this order.
- Part I.
- Part III.
- Schedule A and B.
- Part II.
The estate tax is imposed on the decedent’s gross estate in the United States, reduced by allowable deductions. Figure the gross estate in the United States on Schedule A. Reduce the Schedule A total by the allowable deductions to derive the taxable estate on Schedule B, and figure the tax due using Part II. Tax Computation.
Frequently Asked Questions on the Estate Tax Closing Letter
1. If you requested an Estate Tax Closing Letter (ETCL) before October 28, 2021:
If you requested an ETCL before October 28, 2021, and have not received an ETCL, you must make a new request and pay the user fee through Pay.gov.
2. How do I request an Estate Tax Closing Letter on or after October 28, 2021?
Review all questions in this FAQ, then go to Pay.gov. Search for “estate tax” or “closing letter”; select Estate Tax Closing Letter User Fee from the results. The guidance below applies to requests for an ETCL submitted on or after October 28, 2021.
3. Is there help at Pay.gov?
Yes, at Pay.gov, click Online Help on the top line menu. Pay.gov Online Help provides information and assistance on the use of the Pay.gov platform but does not provide any additional information on requesting estate tax closing letters (ETCLs).
4. Do I have to get the account transcript for the estate tax return before I use Pay.gov?
You are not required to obtain the account transcript in order to use Pay.gov to request an ETCL; however, it is beneficial to determine if the closing letter is available for issuance. A transaction code 421 (TC 421) on the account transcript signifies that the return was accepted as filed or, if the return was examined, that the examination has concluded. If you have verified transaction code TC 421 on the account transcript of the related Form 706 (estate tax return) or Form 706-NA (estate tax return for a nonresident not a citizen of the United States), you may make the request for an ETCL on Pay.gov at any time. Otherwise, do not make your request until at least 9 months after filing the estate’s Form 706 (or Form 706-NA). If your return is under examination, make your request at least 30 days after the completion of the examination.
For information on obtaining the estate’s account transcript, go to Transcripts in Lieu of Estate Tax Closing Letters.
5. How much is the fee for an ETCL?
$67.00.
6. What payment methods are accepted at Pay.gov?
The ETCL user fee may be paid using:
- Bank account (ACH)
- Amazon account
- PayPal account
- Debit or credit card
7. Which debit or credit cards are accepted?
Visa, Mastercard, American Express, Discover, JCB Card, UnionPay, and Diner’s Club.
8. Do I have to create an account at Pay.gov account to get an ETCL?
No, creating an account is not required.
9. At the acknowledgement screen (on the Complete Agency Form screen), what if I don’t check the box?
If you do not check the box provided on Pay.gov to affirm that you understand the statements in the acknowledgment, your request for an ETCL will not be processed.
10. Who will get the ETCL? How many copies of the ETCL will I receive? Can I receive more than one official copy?
An ETCL will be sent only to:
- The executor listed on Form 706, lines 6a and b, (or Form 706-NA, lines 9a and b), which, unless updated, is the IRS’s address of record for the estate. To update the estate’s address of record, see “What is the estate’s address of record” below. Co-executors do not receive a copy of the ETCL. However, see “I am a co-executor of the estate,” below.
- The representative named on page 2 of the Form 706 (or Form 706-NA) authorized to receive a copy of communications.
- The executor’s representative(s) named on a Form 2848, Power of Attorney and Declaration of Representative, and/or designees named on a Form 8821, Tax Information Authorization, with regard to the Form 706 (or Form 706-NA).
A maximum of two representatives and/or designees, in addition to the executor, will receive an ETCL. Each recipient will receive only one original ETCL.
11. I am a co-executor of the estate, but I am not the executor listed on line 6a of Form 706 (or line 9a of Form 706-NA). Can I get a copy of the ETCL from the IRS or through Pay.gov?
Generally, no. You will NOT receive a copy of the ETCL unless filings are made that change the estate’s representatives or designees, as follows:
- Update the address of record prior to requesting an ETCL and paying the user fee. A duly authorized co-executor may submit Form 56, Notice Concerning Fiduciary Relationship, with respect to the estate, and subsequently submit Form 8822, Change of Address, on behalf of the estate. For the ETCL to be sent to the updated address of record, allow 4 to 6 weeks to process a change of address before requesting the ETCL. A request through Pay.gov would then issue the ETCL to the updated address of record.
You may ask for a copy of the ETCL from the Form 706, line 6a executor (or Form 706-NA, line 9a executor) or any other representative or designee that received an ETCL from the IRS.
12. What is the estate’s address of record?
The address of record is the estate’s official address as listed in IRS records. When an estate tax return is filed, the executor’s address as listed on Form 706, line 6b (or Form 706-NA, line 9b), becomes the estate’s address of record. All taxpayers, including estates, should notify the IRS of any change of address.
13. How do I change the estate’s address of record?
To update the estate’s address of record, use Form 8822, Change of Address (For Individual, Gift, Estate, or Generation-Skipping Transfer Tax Returns). For the ETCL to be sent to the updated address of record, allow 4 to 6 weeks to process a change of address before requesting the ETCL. The person who submits the Form 8822 for the estate must be the executor listed on Form 706, line 6a (or Form 706-NA, line 9a), or a person with authority to submit the form on behalf of the estate. Those persons may include a fiduciary of the estate who has submitted Form 56, Notice Concerning Fiduciary Relationship, or a representative of the estate listed on Form 2848.
14. If I file a supplemental or amended estate tax return and want an updated ETCL, do I have to pay another user fee?
You must make a separate request and pay an additional user fee if you want to obtain an ETCL where a supplemental or amended return was filed.
15. At the ACH screen, it will not let me select a date to make the payment. What do I do?
ACH payment dates are automatically scheduled for the next business day and are not changeable.
16. When I use Amazon or PayPal to pay for the ETCL, it sends me to another website. Are those sites legitimate?
Yes, Pay.gov interfaces with Amazon and PayPal.
17. Once I have paid the user fee, how long will it take to receive the ETCL?
Once the TC 421 (which signifies that the return was accepted as filed, or, if the return was examined, the examination has concluded) is on the transcript and payment is verified, the ETCL will be issued. If you make the request and pay the user fee before the TC 421 is present on the transcript, it will be held and monitored every 30 days until the TC 421 posts, at which time the ETCL will be issued.
Please do not make multiple requests in Pay.gov for an ETCL for the same estate tax return (Form 706 or Form 706-NA only). If you have received a confirmation email from Pay.gov denoting a successful transaction, the request is received by IRS by the following business day. Please review the FAQ, What if I want to request a refund of the estate tax closing letter user fee? for information about multiple requests.
Account transcripts, which reflect transactions including the acceptance of Form 706 and the completion of an examination, may be an acceptable substitute for the estate tax closing letter. Account transcripts are available online to registered tax professionals using the Transcript Delivery System (TDS) or to authorized representatives making requests using Form 4506-T.
18. What if I want to request a refund of the estate tax closing letter user fee?
Note: The information below applies only to a refund request of the estate tax closing letter user fee and not to request a refund of any payments related to estate taxes paid.
Refunds of the estate tax closing letter user fee will be issued only in limited cases after taking into account all the facts and circumstances, including the amount of the Service’s time and resources spent on the request (i.e., on processing and researching the request and/or issuing the ETCL).
Refunds will ordinarily NOT be issued:
- On the basis that a request for the ETCL is made before the TC 421 is present on the account transcript. No refund will be issued. The ETCL will be issued after the TC 421 posts.
- On the basis that more than one request for an ETCL is made for the same estate tax return. If separate processing and research of each request is underway, no refund will be issued. ETCLs associated with each user fee will be issued.
- On the basis that the request for an ETCL is made for a supplemental or amended Form 706 (or Form 706-NA). No refund will be issued, regardless of whether an ETCL was requested and issued in reference to a previously filed Form 706 (or Form 706-NA) for the same estate. Instead, an additional ETCL will be issued.
You may request a refund of the estate tax closing letter user fee and the IRS will determine whether a refund might be available. To request a refund of the user fee send an email to sbse.eef.closing.letter.user.fee@irs.gov and provide detailed information and/or documentation. Your email must provide the pay.gov Tracking ID number from your payment confirmation.
This is all a very complex and time-consuming process. Do get professional advice
