Below are some of the more common questions and answers about Estate Tax issues for decedents who were nonresidents not citizens of the United States at death. You may also find additional information in the Instructions for Form 706-NA. If the answers to your questions cannot be found in these resources, we strongly recommend discussing your situation with a tax practitioner.
Form 706 (PDF) must be filed by the executor of the estate of a U.S. citizen or resident whose gross estate plus adjusted taxable gifts is valued at more than the filing threshold for the year in which the decedent died. Form 706 must also be filed by an executor in order to elect to transfer the decedent’s Deceased Spousal Unused Exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent’s gross estate. For information about the filing threshold or electing DSUE, see Instructions for Form 706.
Form 706-NA (PDF) is filed by the executor of the estate of a decedent who was neither domiciled in nor a citizen of the U.S. (nonresident not a citizen) and who, at death, owned certain assets situated in the United States.
A nonresident not a citizen decedent can generally transfer up to $60,000 of U.S.-situated assets at death without being subject to U.S. estate tax. (Note: There is a credit amount of $13,000, which “excludes” the tax due on the first $60,000 in assets.)
If the value of 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, a Form 706-NA must be filed for the decedent’s estate. The filing threshold of $60,000 is not indexed for inflation.
To properly complete Form 706-NA, in addition to the Instructions to Form 706-NA (PDF), the executor will also need to review Form 706 and its instructions.
The executor of an estate of a nonresident decedent who was not a citizen of the United States at the time of death cannot make a portability election.
The property includible in the U.S.-situated gross estate for a nonresident not a citizen includes only assets “situated” in the United States, such as:
- U.S. real estate,
- All tangible property located in the United States,
- Certain intangible property, such as U.S. marketable securities,
- Debt obligations of a U.S. person [or the United States (including a State or any political subdivision)],
- A U.S. trade or business, and bank accounts used in connection with a U.S. trade or business,
- Assets that at the time of transfer or at the date of death were U.S.-situated, and those assets become includible in the gross estate under Internal Revenue Code sections 2035 – 2038.
For purposes of determining the U.S. situated “Gross Estate”, the total fair market value of all asses situated in the United States must be included. The value of each asset is based on its fair market value at the time of the decedent’s death, which may not be equal to the price paid for it or what its value was when acquired. While the U.S.-situated Gross Estate will likely include non-probate as well as probate property, some property is treated as situated outside of the United States and is thus excludible, such as securities that generate portfolio interest, bank accounts not used in connection with a U.S. trade or business, and certain life insurance proceeds.
The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate. Estate Tax Regulation §20.2031-1(b).
How the 1/2 interest in the property was acquired, and how it is held and treated under state law will determine what is includible in the Gross Estate. Other considerations may be relevant in the context of nonresidents not citizens of the United States. Many factors influence this answer, so you would need to talk with a tax or legal professional to make that determination.
For information on deductions, what documentation is required, and what portion is allowable, see the Instructions for Schedule B of Form 706-NA. Deductible expenses generally include:
- Funeral expenses;
- Administration expenses of the estate;
- Claims against the estate;
- Unpaid mortgages and 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.
In addition to the above deductions, charitable contributions and the value of certain property passing to a surviving spouse who is a U.S. citizen may be deductible. For information on the marital deduction where the surviving spouse is not a U.S. citizen as of the decedent’s date of death, see the Instructions for Schedule B of Form 706-NA.
See Form 706-NA (PDF) and its Instructions (PDF) and Publication 559, Survivors, Executors, and Administrators (PDF) . Among other items listed, include with the return:
- A copy of the death certificate
- A copy of the decedent's will and any relevant trusts
- A copy of each appraisal
- A copy of any document(s) relevant to litigation involving the estate
- A copy of U.S. gift tax returns filed by the decedent, if any
- Documentation of any unusual items shown on the return (for example, partially included assets, losses, or near date of death transfers).
If any item submitted with the return is not in English, also include an English translation of the document.
Review the following:
- Form 8971 (PDF) and Instructions for Form 8971 (PDF), Information Regarding Beneficiaries Acquiring Property from a Decedent
- Form 8833, Treaty-Based Return Position Disclosure under Section 6114 or 7701(b) (PDF)
- Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (PDF)
The estate's representative may request an extension of time to file for up to six months from the due date of the return. However, the correct amount of tax is still due by the due date and interest will be added to any amounts that are not paid by the due date.
If the decedent’s estate tax return is selected for audit, you do not have to be present during an IRS examination unless an IRS representative needs to ask specific questions. Although you may represent yourself during an examination, most executors prefer that a professional handle this phase of administration. They may delegate authority for this by signing a designation on the Form 706 (PDF) itself, or executing Form 2848, Power of Attorney (PDF).
Generally, if a United States real property interest is sold by the estate of a nonresident not a citizen, the estate must report any gain or loss on the sale. The buyer of the U.S. real property interest is required to withhold 15% of the amount realized on the sale. There are some exceptions to this requirement. The buyer reports the amount withheld on Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests, which must be filed by the 20th day after the transfer. To receive credit for this withholding, the estate must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, and attach Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. See Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Publication 519, U.S. Tax Guide for Aliens, for more information.
The sale of such property is usually considered the sale of a capital asset and may be subject to capital gains (or loss) treatment. However, IRC §1014 provides that the basis of property acquired from a decedent is its fair market value at the date of death, so there is usually little or no gain to account for if the sale occurs soon after the date of death. (Remember, the rules are different for determining the basis of property received as a lifetime gift). Refer to the FAQs on Gift Taxes for Nonresidents not Citizens of the United States.
Complete the entries for Lines 1 through 3 in Schedule B on the second page of the return. Attach Form 8833 to the return indicating that the return position is treaty-based. See Regulations section 301.6114-1 for details. Show your computation of the pro-rata unified credit in the statement, and enter that figure in the Tax Computation on Line 7 on the front page of the return. 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. If there was no foreign return, attach a copy of an inventory that sets forth the decedent’s assets and their values at the date of death, and explains how the figure shown on Line 3 of Schedule B was computed.
In Schedule A of the return, list the estate’s U.S. assets, but show no values for those that are exempt from U.S. estate tax pursuant to a treaty. Attach Form 8833 to the return indicating that the return position is treaty-based. See Regulations section 301.6114-1 for details. Entries for the gross estate in the United States, the taxable estate, and the tax amounts, should be "0" if all of the decedent’s 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.
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.
However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.
For information on the marital deduction for a surviving spouse, see Instructions for Form 706-NA, Schedule B.
Revenue Ruling 2013-17, along with Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available on IRS.gov. See also Publication 555, Community Property (PDF).
For estate tax returns filed on or after June 1, 2015
Estate tax closing letters will only be issued upon request by the taxpayer or taxpayer’s representative. There are two options for making a request for an estate tax closing letter:
Both types of request require a person authorized to receive information from the IRS to make the request. The following information must be provided with the request:
- Decedent’s name, Social Security Number and Date of Death.
- Requestor’s name, address, and substantiation the requestor is an authorized individual such as an Executor, Trustee, or Power of Attorney.
- A copy of the will if by fax.
- If the requestor is an Executor, provide a copy of the Letters Testamentary issued by the Court if submitting information by fax; or if calling, the Executor must be on the telephone.
- If the requestor is a Trustee, provide a Certificate of Trust or similar official documentation by fax, or the Trustee must be on the telephone.
- If the requestor holds an IRS Power of Attorney (POA), provide the Centralized Authorization File (CAF) number by fax, or the POA must be on the telephone. A Paralegal working with a POA is not an authorized individual.
Only one method should be used per estate. Please wait at least six months after filing the return to make the closing letter request to allow time for processing. For examined returns, please allow up to 30 days after the examination is complete for processing.
The closing letter will be prepared and issued to the executor at the address of record. For any additional questions about estate tax closing letter requests or the status of an estate tax return, call 866-699-4083. Only authorized individuals will be provided information related to a taxpayer.
Yes. Notice 2017-12 (PDF) 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 or their representatives making valid requests via mail or facsimile using Form 4506-T, Request for Transcript of Tax Return. Please refer to Transcripts in Lieu of Estate Tax Closing Letters for specific instructions on how to request an estate tax account transcript using TDS or by using Form 4506-T.