Form 706-NA: Generation-Skipping Transfer

Form 706-NA, officially titled the United States Estate (and Generation-Skipping Transfer) Tax Return, is a specific tax form used by the Internal Revenue Service (IRS) for a unique situation. It applies to the estates of nonresident aliens (individuals who weren't U.S. citizens at the time of death) who owned property within the United States.

What's the Purpose of Form 706-NA?

The form serves two main purposes:

A. Calculate Estate Tax: It helps determine and report the estate tax owed on the taxable estate of the deceased nonresident alien.

B. Report Generation-Skipping Transfers (GST): It allows reporting and calculating any potential GST tax liability on assets transferred to beneficiaries who are generations below the decedent (e.g., grandchildren instead of children).

What is a Generation-Skipping Transfer (GST)?

A generation-skipping transfer occurs when an individual leaves assets to beneficiaries who are generations below them. This can happen by skipping a child's generation and leaving assets directly to grandchildren, nieces, or nephews. The GST tax is designed to prevent individuals from avoiding estate taxes by skipping a generation.

Who Needs to File Form 706-NA?

You are required to file Form 706-NA if you are the executor of the estate of a nonresident alien who meets one or both of these conditions:

  • The total value of the decedent's U.S.-based assets exceeds the current estate tax filing threshold (which is $13.61 million for 2024).
  • There has been a generation-skipping transfer of assets to beneficiaries who are at least two generations younger than the deceased.

What Information is Needed to Complete Form 706-NA?

Gathering the necessary information can be complex. Here's a general breakdown:

  • Decedent's Information: Name, date of death, residency status, and U.S. tax identification number (if applicable).
  • Estate Assets: Details on all the decedent's assets located in the United States, including real estate, financial accounts, and business interests.
  • Debts and Deductions: Any outstanding debts and allowable deductions associated with the estate.
  • Beneficiary Information: Names, relationships to the decedent, and citizenship status of all beneficiaries.
  • Generation-Skipping Transfers: Details on any assets transferred to beneficiaries who are at least two generations younger than the decedent.

When is Form 706-NA Due?

The deadline for filing Form 706-NA is typically nine months from the date of the decedent's death. However, an extension can be requested with proper justification.

Are There Penalties for Not Filing Form 706-NA?

Failure to file Form 706-NA when required can result in significant penalties, including late filing fees and interest charges on any unpaid taxes. Additionally, the IRS may impose higher penalties if the delay is deemed intentional.