All That You Wanted to Know About Form 706NA. PART 1

On November 21, 2025 we posted Issues Concerning Filing a Form 706NA? where we discussed that deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. We also discussed that Many foreigners owning property or assets in the United States are in violation of 706-NA filing requirements because of a number of misunderstandings. The basic rule is pretty clear-if a foreign decedent has assets in the United States with a gross value in excess of $60,000, the estate is supposed to file a tax return with the Internal Revenue Service. 

Now we are supplementing this posting with a discussion regarding Form 706 NA in a 3 part series, which we have titled All That You Wanted to Know About Form 706NA. PART 1: 

In the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. 

The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.

Form 706NA is deceptively simple- two pages- how difficult could it be to prepare? For 32 years as a senior attorney at the IRS, our Estate Tax Attorney Robert S. Blumenfeld audited these tax returns, and he can tell you that they are more fraught with more potential mystery than the Sphinx. 

Let's look at line 1 where it requests  the decedent's name. Many foreign decedents come from countries where people have hyphenated names, especially the spouses. So is the correct name Maria Smith or Maria Smith- Gonzalez? It is often best to go back to the country where the decedent lived and use the name which drops the post hyphenated portion. Most of the tax returns that he has seen or prepared, are based it on this concept.

The next box asked for the decedent’s tax identification number. Virtually all American citizens born in the United States are assigned SS#’s at birth so there is no problem. In the case of a nonresident alien (N/A), there is no tax identification number so we enter “N/A-nonresident alien” inbox two. 

This creates the second problem. If the estate has to pay any transfer tax, when the return is filed, there is no module (TIN or SS#) into which the IRS can place the payments. Ergo, the IRS has a fund called “unpostables” where money paid to the IRS lacks an identification number with which to associate it. Therefore, if you file a Form 706NA which shows tax, be certain to keep a copy of the front of the check and photostat the endorsement after the check is negotiated. This is the least difficult way to associate the payment with the tax return. Absent keeping these two identification benchmarks, it could take many months for the IRS to agree that the payment in the unpostable module should be associated with a particular estate.

Decedent’s domicile and citizenship are very critical. The United States currently has circa 20 estate/gift tax treaties with foreign countries, many of which are in Europe. 

A non-resident alien from a non-treaty country receives an estate tax exemption (unified credit) of $13,000 which basically means that the first $60,000 is not taxed. The unified credit for treaty based countries can reach a figure of $5.5 million free of tax. In addition to this, in each instance where one represents a nonresident alien decedent, it is critical to find out whether this is a country which has such a treaty with the United States. 

Next, it is critical to determine the citizenship and domicile of the decedent. When one peruses the individual treaties, one will note that some treaties are based on domicile, others on citizenship.  A German citizen domiciled in say Mexico would not be able to utilize the German treaty because that particular treaty is predicated on domicile. A Mexican citizen however, domiciled in Germany, could enjoy the full benefit of the US/German treaty. Ergo, a German living in Mexico would have a $60,000 exemption from tax while a Mexican domiciled in Germany would have a $5.5 million exemption.

Have a US Estate Tax Problem?

Estate Tax Problems Require

an Experienced Estate Tax Attorney 

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243).

No Civil Fraud Penalty? Inside the IRS’s New Voluntary Disclosure Proposal

The IRS has just opened a 90‑day window—through March 22, 2026—for public comments on a proposal to overhaul its Criminal Voluntary Disclosure Practice, including a more “streamlined” penalty framework and tighter timelines for compliance. For taxpayers with potential criminal exposure and the advisors who represent them, this proposal is both an opportunity and a warning.

What The IRS Is Proposing

The proposal would reshape how the Voluntary Disclosure Practice (VDP) works from preclearance through closing agreement, with an emphasis on speed, full payment, and standardized penalties.

Key elements include:

·         A defined “Disclosure Period”

o    The disclosure period would generally cover the most recent six years of delinquent or amended income tax returns and related international information returns and FBARs.

o    Taxpayers must still identify all years of noncompliance on Form 14457, even though the IRS will typically focus on this six‑year window for filing and penalty purposes.

·         A three‑month completion deadline

o    Once CI grants conditional approval, taxpayers would have only three months to file all delinquent or amended returns, all required international information returns, and all FBARs.

o    Within that same three‑month period, they must also execute all required agreements (closing agreement, statute extensions, penalty and FBAR agreements) and pay all tax, penalties, and interest in full.

·         Mandatory electronic Form 14457

o    All applicants must use the electronic Form 14457, Voluntary Disclosure Practice Preclearance Request and Application.

o    The form must identify every year of noncompliance and include a full and accurate description of the taxpayer’s willful conduct, including income streams, entities, and foreign accounts or assets.

The New Penalty Framework

The proposed penalty structure is intended to be clear, predictable, and consistent across all disclosures:

• For delinquent returns, failure-to-file penalties apply for each year in the Disclosure Period; failure-to-pay penalties do not apply.
• For amended returns, a 20-percent accuracy-related penalty applies for each year in the Disclosure Period. 
• This replaces the current 75% civil fraud penalty for one year, currently required by the Voluntary Disclosure Procedure.
• For delinquent or amended FBARs, penalties apply per year and are subject to annual inflation adjustments.
• For delinquent or amended international information returns (e.g., Forms 5471, 8938), the IRS contemplates penalties of up to 10,000 dollars per return, per year during the disclosure period.
• These penalties will be integrated into the overall VDP settlement, rather than left entirely to separate exam discretion.

Criminal Exposure And Enforcement Risk

The fundamental trade‑off of the VDP remains: come in early, tell the full truth, and pay in full to avoid a criminal recommendation.

·         Protection from criminal referral (with caveats)

o    Taxpayers who make a timely, truthful, and complete voluntary disclosure and fully comply with the proposed terms “will not be recommended for criminal prosecution” by CI.

o    However, the IRS reminds taxpayers that voluntary disclosure does not automatically guarantee immunity; CI retains discretion in egregious cases.

·         Consequences of failing to follow through

o    CI may rescind conditional approval if the taxpayer fails to meet filing, payment, or agreement‑execution requirements within the deadlines.

o    Noncompliant taxpayers may then face full civil examination and potential criminal investigation, with exposure to all applicable penalties outside the VDP framework.

What This Means For Your Clients

For taxpayers with serious compliance issues—especially those with willful offshore, digital asset, or long‑running domestic underreporting—the proposed changes raise the stakes for early, strategic engagement.

·         Need for readiness before preclearance

o    Because the proposal compresses the timeline to just three months post‑conditional approval, taxpayers will need much of the factual and documentary heavy lifting done before Form 14457 ever goes in.

o    Advisors should evaluate records, reconstruct income, and scope the full set of returns and FBARs in advance to avoid defaulting inside the program.

·         Renewed emphasis on modeling risk vs. reward

o    A more formulaic penalty structure should make it easier to model the cost of entering VDP versus the risk of detection and full‑bore enforcement.

o    For some taxpayers, especially those with large undisclosed foreign balances or digital asset activity, the program may still be expensive—but the alternative could be far worse.

Tax professionals who have seen the evolution of voluntary disclosure—from offshore initiatives to today’s CI practice—now have a rare chance to shape the next iteration. 

Thoughtful, experience‑based comments between now and March 22, 2026, may help determine whether the “new and improved” VDP truly encourages compliance or simply raises the barriers to coming in from the cold.

 Do You Have Undeclared Offshore Income?

 

Want to Know Which VDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 

or Toll Free at 888-8TaxAid (888) 882-9243

Sources:

1.       https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal                

2.      https://kpmg.com/us/en/taxnewsflash/news/2025/12/irs-requests-comments-voluntary-disclosure-practice.html   

3.      https://www.wicpa.org/news/articles/2890:irs-seeks-input-on-voluntary-disclosure-practice-proposal

4.      https://www.cpapracticeadvisor.com/2025/12/22/irs-seeks-comments-on-proposed-changes-to-voluntary-disclosure-practice/175374/            

5.       https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice       

6.      https://www.greenbacktaxservices.com/blog/irs-voluntary-disclosure-public-comments/  

7.       https://www.vitallaw.com/news/irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-updates-ir-2025-124/ftd01d73d9778aea2410bb5757e04c9f0f195

8.      https://www.irs.gov/newsroom

9.      https://www.caplindrysdale.com/news-carolyn-schenck-comments-on-potential-changes-to-the-irs-voluntary-disclosure-program-in-tax-notes

10.   https://www.linkedin.com/posts/irs-criminal-investigation_irs-activity-7408982169802432512-9Ga-

11.    https://www.forbes.com/sites/irswatch/2025/12/15/welcome-news-from-the-irs-the-voluntary-disclosure-program-is-changing/

12.   https://www.facebook.com/cpapracticeadvisor/posts/the-irs-on-monday-opened-a-90-day-public-comment-period-which-ends-march-22-for-/1451665973632504/

13.   https://www.meadowscollier.com/changes-to-irs-voluntary-disclosure-program-are-coming

14.   https://www.linkedin.com/posts/guy-ficco-5a0a80143_yesterday-we-announced-proposed-updates-activity-7409226459979948033-Sjo4

15.    https://www.irs.gov/newsroom/news-releases-for-current-month

16.   https://www.jdsupra.com/legalnews/irs-is-considering-updates-to-the-7229390/

17.    https://www.accountingtoday.com/news/irs-seeks-input-on-voluntary-disclosure-practice-changes

18.   https://www.cpapracticeadvisor.com/2025/12/23/washington-tax-preparer-gets-18-month-sentence-for-fraudulent-returns/175442/

19.   https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal                        

20.  https://kpmg.com/us/en/taxnewsflash/news/2025/12/irs-requests-comments-voluntary-disclosure-practice.html   

21.   https://www.wicpa.org/news/articles/2890:irs-seeks-input-on-voluntary-disclosure-practice-proposal 

22.   https://www.cpapracticeadvisor.com/2025/12/22/irs-seeks-comments-on-proposed-changes-to-voluntary-disclosure-practice/175374/                      

23.   https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice       

24.  http://federaltaxprocedure.blogspot.com/2025/12/irs-seeks-comments-on-proposed.html   

25.   https://allenbarron.com/irs-is-considering-updates-to-the-voluntary-disclosure-practice/  

26.  https://news.bloomberglaw.com/daily-tax-report/irs-voluntary-disclosure-update-may-fail-to-lure-rich-tax-cheats   

27.   https://www.greenbacktaxservices.com/blog/irs-voluntary-disclosure-public-comments/      

28.  https://news.bloombergtax.com/tax-insights-and-commentary/the-irs-has-a-chance-to-fix-its-voluntary-disclosure-program  

29.  https://www.nyccriminalattorneys.com/voluntary-disclosure-options-for-erc-fraud-now-that-vdp-is-closed/ 

30.  https://www.linkedin.com/posts/charles-rettig_irs-criminal-investigation-voluntary-disclosure-activity-7408938006776049665-Yy5N

31.   https://www.facebook.com/newsandweatherforsouthernlohio/posts/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal/1736460404298251/

32.   https://www.irs.gov/newsroom

33.   https://www.accountingtoday.com/news/irs-seeks-input-on-voluntary-disclosure-practice-changes

   34. https://www.vitallaw.com/news/irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-updates-ir-2025-124/ftd01d73d9778aea2410bb5757e04c9f0f195

$90 Million Payroll Tax Scheme: How a California Staffing Owner Turned Trust Funds into a Criminal Case

The federal indictment of Lorena Padilla from Villa Park, California, and her co-defendants reveals a sophisticated, decade-long scheme that goes well beyond routine employment tax delinquency. Prosecutors charge willful failure to pay over $90 million in trust fund employment taxes, wire fraud conspiracy, and money laundering conspiracy across multiple staffing companies in Los Angeles and Riverside counties. These entities allegedly withheld taxes from temporary workers' wages but deliberately failed to remit them to the IRS or California authorities while misleading clients about payroll compliance.

Undocumented Labor as Concealment Strategy

A hallmark of the alleged fraud involves Next Level Staffing's heavy recruitment of undocumented workers, whom defendants purportedly viewed as less likely to report discrepancies or file tax complaints. This tactic not only hid unreported payroll but also bolstered the government's willfulness argument under 26 U.S.C. § 7202, elevating the case from civil negligence to criminal intent. The scheme persisted for over ten years, generating massive tax losses while clients believed their Forms 941 and workers' compensation obligations were handled.

Fraud and Laundering Charges Add Layers

Wire fraud counts stem from false representations to business clients who outsourced full payroll services, expecting proper tax withholding and filing. Money laundering allegations tie diverted trust fund taxes to luxury purchases like high-end homes, vehicles, rental properties, and international travel, routed through layered accounts and entities to obscure the source. This multi-count structure reflects DOJ's aggressive stance on payroll tax diversion schemes, where business revenue directly funds personal extravagance instead of government remittances.

Family and Associates in the Crosshairs

Padilla's daughters, brother, and other managers face charges, underscoring shared responsibility in the operation. For tax professionals, this pattern signals high civil exposure under the Trust Fund Recovery Penalty (26 U.S.C. § 6672), where any "responsible person" with payroll control authority risks personal liability regardless of criminal outcomes. The indictment demonstrates how staffing industry models with high turnover and vulnerable labor pools draw intense IRS Criminal Investigation scrutiny.

Lessons for High-Turnover Businesses

This case warns owners in staffing, temp agencies, and similar sectors: trust fund shortfalls quickly escalate to federal charges when paired with concealment, client deception, or lavish spending. 

Proactive steps include immediate remediation of delinquencies, clear documentation of correction efforts, and avoidance of undocumented labor reliance—which prosecutors now flag as evasion intent. 

Businesses facing IRS employment tax notices should engage experienced defense counsel early to navigate collection, TFRP assessments, and potential criminal referral risks.

 Have Payroll Tax Problems?

 

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

for a FREE Tax HELP Contact Us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888-8TaxAid (888-882-9243) 

Sources: 

1.       https://patellawoffices.com/blog/planning-for-tax-minimization/the-90-million-red-flag-concealment-trust-funds-and-the-peril-of-undocumented-labor-in-the-padilla-indictment/    

2.      https://www.whittier360newsnetwork.com/post/whittier-woman-arrested-in-90-million-tax-fraud-scheme-raises-questions-about-recent-anti-ice-act   

3.      https://www.irs.gov/compliance/criminal-investigation/orange-county-staffing-company-owner-arrested-on-federal-indictment-charging-her-with-masterminding-90-million-tax-fraud     

4.      https://www.justice.gov/usao-cdca/pr/orange-county-staffing-company-owner-arrested-federal-indictment-charging-her

5.       https://www.businessblunders.com/p/getting-the-lead-out-at-lowes

6.      https://www.nyccriminalattorneys.com/payroll-tax-fraud-and-form-941/

7.       https://latefbar.com

8.      https://www.reddit.com/r/LosAngeles/comments/1p3ybu6/orange_county_staffing_company_owner_arrested_on/

9.      https://shows.acast.com/the-irvine-daily-news-now/episodes/691fb3c75f27d8c1bfa1fa0f

10.   https://patellawoffices.com/blog/2025/11/21/

11.    https://kpmg.com/us/en/taxnewsflash/news/2025/12/final-proposed-regulations-income-foreign-governments-international-organizations.html    

12.   https://www.federalregister.gov/documents/2025/12/15/2025-22775/income-of-foreign-governments-and-of-international-organizations  

13.   https://www.pwc.com/us/en/services/tax/library/treasury-releases-final-and-proposed-regs-on-section-892.html

14.   https://news.bloombergtax.com/daily-tax-report-international/irs-issues-proposed-final-regs-on-foreign-government-income

15.    https://www.weil.com/~/media/files/pdfs/Weil_Private_Equity_Alert_Dec_2011_.pdf

16.   https://scholar.smu.edu/cgi/viewcontent.cgi?article=3090&context=smulr

17.    https://www.morganlewis.com/pubs/2023/01/irs-issues-proposed-regulations-applicable-to-qualified-foreign-pension-funds-and-sovereign-wealth-funds

18.   https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2023/irc-section-892.pdf

19.   https://www.jdsupra.com/legalnews/proposed-regulations-would-impact-8467688/

20.  https://nysba.org/wp-content/uploads/2025/03/1257-Letter.pdf

21.   https://www.law360.com/articles/2421473/treasury-issues-final-rules-for-taxing-foreign-gov-t-income

22.   https://www.proskauertaxtalks.com/2023/01/new-proposed-regulations-would-impact-the-determination-of-domestically-controlled-reit-and-structures-for-sovereign-wealth-funds-us-real-estate-investments/

23.   https://www.irs.gov/individuals/international-taxpayers/foreign-governments-and-certain-other-foreign-organizations

24.  https://www.law.cornell.edu/cfr/text/26/1.892-2T

25.   https://www.akingump.com/a/web/5292/20-01-17-Akin-Fenn.pdf

26.  https://www.federalregister.gov/documents/2025/12/15/2025-22776/income-of-foreign-governments-and-of-international-organizations

27.   https://taxnews.ey.com/news/2025-2491-breaking-tax-news-treasury-and-irs-issue-final-and-proposed-regulations-under-irc-section-892-on-taxation-of-foreign-government-income

28.  https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2011/11/the-irs-releases-proposed-regulations-regarding-taxation-of-investments-by-foreign-governments.pdf

29.  https://www.law.cornell.edu/cfr/text/26/1.892-5T

30.  https://www.skadden.com/insights/publications/2023/01/new-proposed-regulations

31.   https://davidlat.substack.com/p/scotusblog-founder-tom-goldstein-indicted-for-tax-evasion-mortgage-fraud

32.   https://www.nytimes.com/topic/subject/tax-evasion

33.   https://muc.co.id/en/article/irs-documents-leaked-tax-avoidance-of-the-worlds-richest-people-uncovered

34.   https://www.acfe.com/acfe-insights-blog/blog-detail?s=high-profile-fraud-cases-first-half-2025

35.   https://kkc.com/blog/irs-2024-dirty-dozen-highlights-major-tax-scams-including-abusive-tax-schemes/

36.   https://www.mcafee.com/blogs/internet-security/the-top-tax-scams-of-2024/

37.   https://www.taxcontroversy.com/blog

38. https://www.eidebailly.com/insights/blogs/2024/4/roundup20240411