How U.S. estate tax applies to nonresident owners

Real estate, tangible property and artwork

For a nonresident noncitizen decedent, real estate and tangible personal property physically located in the United States at death are generally U.S. situated property. Applicable treaties may modify those location rules.

Artwork owned by a nonresident noncitizen is excluded when imported solely for exhibition and loaned for that purpose to a public gallery or museum whose net earnings do not benefit private stockholders or individuals.

At the owner's death, the artwork must also be on exhibition there or en route to or from that exhibition. All these conditions must be met.

Corporate shares and ownership records

For a nonresident noncitizen, stock owned and held at death is treated as U.S. property only if issued by a domestic corporation, subject to the statutory exclusions and applicable treaty provisions.

The physical location of a domestic corporation's stock certificates does not change the shares' U.S. situs. The regulation identifies a special rule for certain withdrawable savings and loan accounts.

For partnership interests, put ownership structure analysis on your adviser meeting agenda. Keep the entity documents alongside the records for the property it holds.

Deductions and foreign estate disclosure

Otherwise allowable estate expense, debt and loss deductions are generally prorated by the U.S. gross estate's share of the worldwide gross estate. The executor must disclose the foreign gross estate's value at death on the required return.

A claim founded on a promise or agreement without adequate and full consideration is deductible only to the extent it would qualify under the charitable deduction provision if treated as a bequest.

The foreign estate disclosure condition also applies to specified charitable deductions. Gather foreign valuations along with U.S. valuations for the preparer's review.

Mortgages: full property value or equity

If the estate is liable for a mortgage, include the property's full value and analyze the debt deduction under the proration and foreign estate disclosure requirements above.

If the estate is not liable, the regulation permits reporting the property's equity value. Do not also deduct that same mortgage.

A mortgage deduction cannot exceed debt contracted in good faith for adequate and full consideration in money or money's worth. Only interest accrued through death is allowable.

Filing, payment and supporting documents

Form 706-NA filing and estate tax payment are generally due nine months after death. Form 4768 is used to request an automatic six month filing extension.

An executor outside the country who already received that extension may request additional filing time using a second Form 4768 with the required written explanation. Check the Form 706-NA box for both requests.

A filing extension does not itself extend payment time. Payment may be extended separately.

Attach a death certificate and English translations of documents in other languages. If the decedent left a legally valid will, attach a certified copy, or a copy with an explanation if certification cannot be obtained.

For closely held or inactive corporate stock, attach balance sheets, particularly the one nearest valuation, and statements of earnings or operating results and dividends for the five preceding years.

Also attach appraisals needed for explanation and all available U.S. gift tax returns filed by the decedent. The instructions may require other documents.

Two related terms

Domicile: For federal estate tax, domicile means living in a place with no definite present intention of leaving. Residence alone is insufficient.

U.S. situs property: Property treated as situated in the United States under the applicable estate tax provisions and any applicable treaty.

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