You must have a client who is a nonresident alien who dies. He/she owns US situs assets so you look at section 2014 of the Internal Revenue Code; you correctly determine that since these assets exceed $60,000 in value, the estate is required to file a form 706NA which is the form analogous to a 706 in the hands of a nonresident alien. The form itself is deceptively simple-two pages-what kind of problems can this create? Once you start reading the form, you realize that to complete it properly, you may have to incorporate almost every schedule which appears in a 706.
The deceptive part of the form occurs when you are trying to
determine which of decedent’s US assets (based on section 2014) are taxable by
the United States.
The United States has more than 20 tax treaties or
conventions with foreign countries designed, for the most part, to eliminate
double taxation. It is critically important for you, the preparer, to determine
which, if any, treaties may exist to reduce the tax liability of your client.
The IRS, on its website, has a list of the countries which currently
share estate tax treaties/conventions with the United States. Even this
provides only a partial clue.
Example- You have a client who was a
German who lived in Brazil. Since the decedent was a German citizen, you
make the assumption that treaty benefits will be available to his/her estate.
Not always so. Some of the treaties base their benefits on decedents who are
domiciliaries of but not necessarily citizens of a particular country. Ergo,
you learn that the estate of the German client domiciled in Brazil cannot
utilize the benefit of the German treaty.
Additionally, since some treaties are
predicated on domicile while others are predicated on both domicile and
citizenship, you may find yourself in an anomalous situation where you have
more than one treaty you can elect to apply. In this particular case, use the
treaty which best suits your client.
As a rule, the 20 or so treaties are
generally address estates of decedents who were citizens of Europe, England or
Canada. There are no treaties with South or Central America or Africa.
Remember, however, that some treaties are based on citizenship, not domicile.
Therefore the estate of an English citizen domiciled in Sudan could benefit by
the UK tax convention.
The benefits as well as the applications of the treaties
very widely. This is a result of the fact that these treaties were negotiated
over various periods of years from the 1950s to the year 2000. The treaties
themselves must be read carefully. They are, for the most part, extremely
poorly drafted and difficult to fathom. In the case of confusion, look up the
meaning of what the treaty means in a publication called the technical
explanations of treaties which are a little bit better written but still no works
of Shakespeare. Remember, if you fail to utilize an existing treaty and
it costs your client a significant amount of money, you may become involved
with your insurance carrier. For those of us who are attorneys, remember the
hornbook, Prosser On Torts. As I recall, and it's been a while, the first
topic addressed is “negligence, the basis of liability”. If you fail to find
and utilize an existing treaty, you are negligent and potentially headed for
big trouble.
Some of you feel that the IRS will find incorrect your
failure to utilize an estate tax treaty. Not so. First of all, not all estate tax
returns are selected for examination, so if the return you filed failing to
utilize a treaty is not examined, there is no way that treaty benefits
will inure your to your client's estate. Second, even if the estate is
examined, it is not the job of the auditing attorney to tell you that you
failed to utilize a treaty. Utilization of a treaty is not mandatory.
Therefore, if you file the 706NA utilizing the situs rules of section 2014, the
IRS agent will merely agree with your situs depiction and not discuss the
availability of the treaty.
If you feel that you are able to utilize one of the existing
treaties, you are required to use a form 8833. In this form you explain which
treaty you are using, why you feel it is applicable to your particular
situation, and determine the treaty benefits of utilizing the treaty.
Over my
32 years as a senior attorney with the IRS in the international estate tax
forum, I audited perhaps 1,800 to 2,000 706 NA's. Utilization of the treaty
benefit was not frequent, and I recall situations where some estates could have
benefited to the tune of roughly $1 million in tax savings.
Need Help Preparing Form 706 NA?
Estate Tax Problems Require
Robert S. Blumenfeld -
Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.
an Experienced Estate Tax Attorney
Contact the Tax Lawyers at
Marini & Associates, P.A.
for a FREE Tax Consultation Contact US at
Robert S. Blumenfeld -
Estate Tax Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS. Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.
While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.
No comments:
Post a Comment