Instructions for Form 706-NA (11/2007)

IRS Resources

Specific Instructions

Table of Contents

Attachments

If the decedent died testate, attach a certified copy of the will to Form 706-NA. If you are unable to obtain a certified copy, attach a copy of the will and explain why it could not be certified.

You must also attach a copy of the decedent's death certificate.

For closely held or inactive corporate stock, attach the balance sheets, particularly the one nearest the valuation date, and statements of the net earnings or operating results and dividends paid for each of the 5 preceding years. Attach any other documents, such as appraisal lists, needed for explanation. Also attach copies of all available U.S. gift tax returns the decedent filed. Other documents may be required as explained in these instructions.

Attach an English translation to all documents in other languages.

How To Complete Form 706-NA

First, enter the decedent's name and the other information called for in Part I. For item 2, enter the decedent's social security number (SSN) or individual taxpayer identification number (ITIN), whichever is applicable. Then answer all of the questions in Part III.

The estate tax is imposed on the decedent's gross estate in the United States, reduced by allowable deductions. Compute 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 the Tax Computation schedule (Part II).

Part III. General Information

Question 6a. If you answer “Yes,” please attach a statement listing:

The citizenship of the decedent's parents,
Whether the decedent became a U.S. citizen through a naturalization proceeding in the United States, and
When the decedent lost U.S. citizenship or residency.

Question 6b. If you answer “Yes,” but maintain that avoiding U.S. taxes was not a principal purpose for the decedent's loss of citizenship or residency, attach documents to sustain your position. See Definitions on
page 1.

Question 9. A general power of appointment is any power of appointment exercisable in favor of the decedent, the decedent's estate, the decedent's creditors, or the creditors of the decedent's estate, and includes the right of a beneficiary to appropriate or consume the principal of a trust. For a complete definition, see section 2041.

Schedule A

Before you complete Schedule A, you must determine what assets are included in the decedent's entire gross estate, wherever located. However, list on Schedule A only those assets included in the entire gross estate that are located in the United States. Enter the total value of assets located outside the United States on line 2 of
Schedule B.

Entire gross estate. The entire gross estate is figured the same way for a nonresident alien decedent as for a U.S. citizen or resident. It consists of all property the decedent beneficially owned, wherever located, and includes the following property interests.

Generally, the full value of property the decedent owned at the time of death as a joint tenant with right of survivorship (but if the surviving spouse is a U.S. citizen, then only half the value of property held by the decedent and surviving spouse either as joint tenants with right of survivorship or as tenants by the entirety). For exceptions, see the instructions on the reverse side of Schedule E, Form 706;
Property the decedent and a surviving spouse owned as community property to the extent of the decedent's interest in the property under applicable state, possession, or foreign law;
A surviving spouse's dower or curtesy interest and all substitute interests created by statute;
Proceeds of insurance on the decedent's life, generally including proceeds receivable by beneficiaries other than the estate;
Several kinds of transfers the decedent made before death;
Property in which the decedent either held a general power of appointment at the time of death, or used or released this power in certain ways before
death; and
Certain annuities to surviving beneficiaries.

For additional information concerning joint tenancies, tenancies by the entirety, annuities, life insurance, transfers during life, and powers of appointment, see the Instructions for Form 706.

Enter on Schedule A all of the assets that meet both the following tests.

They are included in the entire gross estate and
They are located in the United States. (See Determining where assets are located below.)

Determining where assets are located. Unless a treaty provides otherwise (see Death Tax Treaties on page 2), use the following rules to determine whether assets are located in the United States.

Real estate and tangible personal property. Real estate and tangible personal property are located in the United States, if they are physically located there.

Note.

An exception is made for works of art, which are owned by a nonresident alien (NA) and are located within the United States, if on the date of death (of the NA-owner), the works of art are:

Imported solely for public exhibition,
On loan to a non-profit public gallery or museum, and
On exhibition or en route to or from exhibition.

Stock. Generally, no matter where stock certificates are physically located, stock of corporations organized in or under U.S. law is properly located in the United States, and all other corporate stock is property located outside the United States.

Stock in a Regulated Investment Company (RIC). For a NA-decedent who died after 2004, a portion of stock in a regulated investment company (RIC) is treated as property located outside the United States in the proportion of the RIC's qualifying assets in relation to the total assets owned by the RIC at the end of the quarter immediately preceding the decedent's death.

Qualifying assets are assets that, if owned directly by the decedent, would have been:

Bank deposits and amounts described in section 871(i)(3),
Portfolio debt obligations,
Certain original issue discount obligations,
Debt obligations of a U.S. corporation that are treated as giving rise to foreign source income, and
Other property not within the
United States.

See section 2105(d) for details.

Insurance proceeds. Proceeds of insurance policies on the decedent's life are property located outside the United States.

Debt obligations within U.S. Debt obligations are generally property located in the United States if they are debts of a U.S. citizen or resident, a domestic partnership or corporation, a domestic estate or trust, the United States, a state or state's political subdivision, or the District of Columbia.

Debt obligations outside U.S. The following debt obligations are generally treated as located outside the United States.

Debt obligations (whether registered or unregistered) issued after July 18, 1984, if the interest on them would be eligible for tax exemption under section 871(h)(1) had such interest been received by the decedent at the time of his death. However, if the debt earns contingent interest, some or all of it may be considered property in the United States (section 2105(b)).
A debt obligation of a domestic corporation, if the interest from it (had it been received at the time of death) would have been treated as income from outside the United States because the corporation derived less than 20% of its gross income from sources in the United States during its 3 tax years before the decedent's death (section 861(a)(1)(A)).
Certain short-term original issue discount debt obligations. See section 2105(b)(4) for details.

Deposits. The following deposits are treated as located outside the United States, if they are not effectively connected with conducting a trade or business within the United States:

A deposit with a U.S. bank or a U.S. banking branch of a foreign corporation,
A deposit or withdrawable account with a savings and loan association chartered and supervised under federal or state law,
An amount held by a U.S. insurance company under an agreement to pay interest, and
A deposit in a foreign branch of a U.S. bank.

If an asset is included in the total gross estate because the decedent owned it at the time of death, apply the above location rules as of the date of the decedent's death. However, if an asset is included in the decedent's total gross estate under one of the transfer provisions (sections 2035, 2036, 2037, and 2038), it is treated as located in the United States if it fulfills these rules either at the time of the transfer or at the time of death.

For example, if an item of tangible personal property was physically located in the United States on the date of a section 2038 transfer but had been moved outside the United States at the time of the decedent's death, the item would be considered still located in the United States and should be listed on Schedule A.

Describe the property on Schedule A in enough detail to enable the IRS to identify it. To determine the fair market value of stocks and bonds, use the rules in the instructions for Schedule B of Form 706.

Stocks. In descriptions of stock, include:

The corporation's name;
The number of shares;
Whether common or preferred (if preferred, what issue);
The par value (when needed for identification);
Nine-digit CUSIP number; and
The quotation at which reported.

Give the main exchange for listed stock. For unlisted stock, give the post office address of the main business office of the corporation, the state in which incorporated, and the incorporation date.

Bonds. In bond descriptions, include:

The quantity and denomination,
Obligor's name,
Maturity date,
Interest rate,
Each date when interest is payable,
Nine-digit CUSIP number, and
Series number (if more than one issue).

Give the exchange where the bond is listed. If it is unlisted, give the corporation's main business office.

If you are required to file Schedule E, G, or H from Form 706, you need not enter the assets reported on those schedules on Schedule A of this Form 706-NA. Instead, attach the schedules to Form 706-NA, in column (b) enter “Total from Schedule _ _ _ _ _, Form 706,” and enter the total values from the attached schedules in either column (d) or (e).

If the decedent was a U.S. expatriate, the decedent is treated as owning a prorated share of the U.S. property held by a foreign corporation in which he or she directly owned at least 10% of the voting stock and, with related interests, controlled over 50% of it (section 2107(b)).

Property valuation date. Generally, property must be valued as of the date of death. Columns (c) and (d) do not apply in this case, and you may use the space to expand descriptions from column (b).

However, you may elect to use the alternate valuation date. To make this election, check the “Yes” box at the beginning of Schedule A. If you do so, the election applies to all property, and you will need to complete each column in Schedule A. Under this election, any property distributed, sold, exchanged, or otherwise disposed of within 6 months after the decedent's death is valued as of the date of the disposition. Any property not disposed of during that period is valued as of the date 6 months after the decedent's death.

You may not elect alternate valuation unless the election will decrease both the value of the gross estate and the net estate tax due after application of all allowable credits.

Qualified Conservation Easement Exclusion

Under section 2031(c), you may elect to exclude a portion of the value of land that is subject to a qualified conservation easement. You make the election by attaching Schedule U of Form 706 with all the required information. To elect the exclusion, you must include on Schedule A:

The decedent's interest in the land that is subject to the exclusion and
Exclude the applicable value of the land (amount from line 20, Schedule U) that is subject to the easement on Schedule A.

You must make the election on a timely filed Form 706-NA, including extensions. For more information, see the Instructions for Form 706.

Canadian Small Estate Relief

If you are claiming a small estate exemption (worldwide estate of a Canadian resident decedent not more than $1.2 million) from tax on U.S. securities or certain other U.S. situs property, under the 1995 Protocol to the Canadian income tax treaty, do not list the exempt assets on Schedule A.

Instead, list those assets and their values in a statement attached to the return specifying that you are relying on the treaty. To determine initially whether the small estate exemption applies, however, you must include the exempt assets in the value of the entire gross estate, wherever located, on lines 2 and 3 of Schedule B.

Schedule B. Taxable Estate

For the line 5 deduction to be allowed, you must complete lines 1 through 4 and document the amounts you include on lines 2
and 4.

To document the line 2 amount, attach a certified copy of the foreign death tax return; or if none was filed, a certified copy of the estate inventory and the schedule of debts and charges that were filed with the foreign probate court or as part of the estate's administration proceedings. Supplement these documents with attachments if they do not set forth the entire gross estate outside the United States. If more proof is needed, you will be notified.

To document the line 4 amount, attach an itemized schedule. For each expense or claim, specify the nature and amount and give the creditor's name. Describe other deductions fully and identify any particular property to which they relate.

Line 2. The amount on line 2 is the total value of the assets included in the entire gross estate that were located outside the United States. If you claim deductions on line 5 of Schedule B, you must also document the amount you enter on line 2. See the first paragraph under Schedule B above.

If you elected the alternate valuation date for property listed on Schedule A, use it also for the assets reported on line 2. Otherwise, value the amounts as of the date of death.

Line 4. You may deduct the following items whether or not they were incurred or paid in the United States:

Funeral expenses;
Administration expenses;
Claims against the estate;
Unpaid mortgages and other liens; and
Uncompensated losses that were incurred during settlement of the estate and that arose from theft or from casualties, such as fires, storms, or shipwrecks.

You may deduct only that part of a debt or mortgage that was contracted in good faith and for full value in money or money's worth. You may deduct mortgages only if you included the full value of the mortgaged property in the total gross estate on line 3. Do not deduct tax on income received after death or property taxes accrued after death. See Line 7 below for details on deducting death taxes.

On line 4, show the total of these deductible items. In general, the total is limited to the amount on line 3.

Line 6. Use line 6 to enter the following deductions.

Charitable deduction. Unless a treaty allows otherwise, you may take a charitable deduction only if the transfer was to a domestic entity or for use in the United States as described in the Instructions for Form 706.

Attach Schedule O of Form 706. If you claim the deduction under a treaty, specify the applicable treaty and attach a computation of the deduction.

Marital deduction. Unless a treaty allows otherwise, you may only take a marital deduction if the surviving spouse is a U.S. citizen or if the property passes to a qualified domestic trust (QDOT) described in section 2056A and an election is made on Schedule M of Form 706.

Attach Schedule M of Form 706, and a statement showing your computation of the marital deduction.

See section 2518 for the rules governing disclaimers of interests
in property.

Line 7. You may take a deduction on line 7 for death taxes (estate, inheritance, legacy, or succession taxes) you paid to any state or the District of Columbia on property listed in Schedule A. To calculate the deduction for state death taxes, use the formula below. Enter the result on line 7.

Total value of assets in the gross estate subject to state death taxes	x	Total state death taxes paid
Gross estate located in the U.S. (line 1 of Schedule B)

Generally, you must claim this deduction within 4 years of filing the return. However, see section 2058(b) for exceptions and periods of limitations.

For the deduction to be allowed, you must file a certificate signed by the appropriate official of the taxing state. The certificate should show:

The total tax charged,
Any discount allowed,
Any penalties and interest imposed,
The tax actually paid, and
Each payment date.

If possible, attach the certificate to this return; otherwise, please file it as soon as possible.

If you later recover any of the state tax for which you claim this deduction, you must notify the IRS at the following address within 30 days of receiving any refund of state taxes.

Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999

Part II. Tax Computation

Line 4 and Line 5. To determine the tentative tax on the amount on line 2 (to be entered on line 4) and the tentative tax on the amount on line 3 (to be entered on line 5), use Table A in the version of the Instructions for Form 706 that corresponds to the decedent's date of death.

Line 7. Enter the unified credit. The unified credit is allowed for the smaller of the line 6 amount or the maximum unified credit. In general, the maximum unified credit is $13,000.

For a citizen of a U.S. possession (section 2209), the maximum unified credit is the greater of:

$13,000 or
The product of $46,800 times a fraction.

The numerator of the fraction is the part of the gross estate located in the United States (line 1 of Schedule B), and the denominator is the entire gross estate wherever located (line 3 of Schedule B).

If the unified credit is affected by a treaty, see section 2102(b)(3)(A). (At the time this form went to print, treaties with Australia, Canada, Finland, Germany, Greece, Italy, Japan, Norway, and Switzerland contained provisions to which section 2102(b)(3)(A) applies.)

Any amount previously allowed as a unified credit against the gift tax will reduce, dollar for dollar, the unified credit allowed the estate (section 2102(b)(3)(B)).

Line 9. Use line 9 to enter the following credits.

Credit for federal gift taxes. See sections 2102 and 2012. Attach computation of credit.

Canadian marital credit. In addition to the unified credit, a nonrefundable marital credit may be allowed if all applicable elections are made. The credit amount is generally limited to the lesser of:

The unified credit allowed to the estate (before reduction for any gift tax unified credit) or
The amount of estate tax that would otherwise be imposed by the United States on the transfer of qualifying property to the surviving spouse.

See the Canadian income tax treaty protocol for details on computing the credit. Also, attach a computation of the credit and on the dotted line to the left of the line 9 entry, write “Canadian marital credit.”

Line 13. If you answered “Yes” to Question 11 of Part III, you must complete and attach Schedules R and/or R-1 from Form 706.

For the purposes of Form 706-NA, the GST tax is imposed only on transfers of interests in property that are part of the gross estate in the United States. Therefore, when completing Schedules R and/or R-1, you should enter only transfers of interests in property that you listed on Schedule A of Form 706-NA. Otherwise, complete Schedules R and/or R-1 according to their instructions and enter the total GST tax from Schedule R on line 13.

For details, see Regulations section 26.2663-2.

Line 15. Attach an explanatory statement if earlier payments were made to the Internal Revenue Service.

Line 16. Pay the balance due within 9 months after the decedent's death unless an extension of time to pay was granted. Make the check or money order payable to the “United States Treasury” for the face value in U.S. dollars.

Signature

Form 706-NA must be signed. Each executor must verify and sign it. If another person prepares Form 706-NA for the executor, the preparer must also sign. The executor may use Form 2848, Power of Attorney and Declaration of Representative, to authorize another person to act for him or her before the Internal Revenue Service.

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