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Federal estate tax returns filed for nonresident aliens, 2009-2011.

The estate tax, which is one part of the Federal transfer tax system, is a tax on the right to transfer property at death. It applies to tangible and intangible assets of U.S. citizens, resident aliens, and nonresident aliens. A nonresident alien is a noncitizen of the United States who is not a lawful permanent resident and has not spent a substantial amount of time in the United States. (1) Estates of nonresident aliens who held more than $60,000 in assets in the United States at their time of death are required to file Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States. Forms 706-NA are used to report U.S.-held assets and to compute estate tax liability. Returns filed in 2009, 2010, and 2011 were predominantly for estates of decedents who died between 2007 and 2010.

Background

The estates of nonresident aliens can be composed of many different types of property and assets. To be considered as part of the decedent's U.S. gross estate, tangible personal property and real property must be physically located in the United States. Different criteria apply to financial assets, such as stocks or debt obligations. Stock issued by U.S. corporations is included in the decedent's U.S. gross estate, as are debt obligations issued by a U.S. citizen, resident, business, trust, or Government organization. The executor may value the decedent's estate at the date of death or at a date up to 6 months after the date of death, if doing so reduces both the estate's value as well as the estate tax liability.

The United States maintains estate and gift tax treaties with 16 countries to minimize double taxation, which occurs when assets are taxed in both the U.S. and the decedent's home country. (2) Estates of decedents domiciled in treaty countries have options available to reduce their U.S. taxable estate and estate tax liability, which are unavailable to other estates. These options include greater unified credit amounts, different deductions, and changes to what constituted their U.S. gross estate. Because the tax law applicable to decedents domiciled in, or who are a citizens of, treaty countries varies so greatly from the tax law applicable to the general population of nonresident alien decedents, the data from Forms 706-NA identified as treaty returns are presented separately from the data from regular (nontreaty) returns.

Form 706-NA Filing Population

The number of Forms 706-NA filed declined significantly in the 3-year period from 2009 to 2011, from 824 returns filed in 2009, to only 438 filed in 2011 (Figure A). This may have been the result of economic conditions during this time. Nontaxable returns made up an increasingly larger majority of all returns filed between 2009 and 2011, from 54.2 percent of the total returns in 2009 to 67.4 percent of the total in 2011. However, this overall percentage masks the different characteristics of treaty and nontreaty returns. Treaty returns, which comprised about three-quarters of all returns filed during this time, were mostly nontaxable. In 2009, some 67.6 percent of treaty returns were nontaxable; this percentage increased to 81.2 percent of treaty returns in 2011. In comparison, nontreaty returns were overwhelmingly taxable; more than 80 percent of nontreaty returns filed in were taxable.

When considered in terms of the sex of the decedent, the majority of returns were filed for male decedents (Figure B). The percentage of returns filed for the estates of male decedents remained essentially the same throughout the 3-year period. Returns were slightly more likely to be filed for female decedents residing in treaty countries than in nontreaty countries.

total Gross estate, taxable estate, and net estate tax by Country of Domicile

Nontreaty returns filed in 2009 reported $125.6 million in U.S. total gross estate, which is the total value of assets held in the United States, either at the time of death or at an alternative valuation date within 6 months thereafter (Figure C). The alternative valuation method is allowed in cases where the value of assets declined within 6 months of a decedent's death. This amount decreased a total of 63.1 percent over the next 2 years, to $46.4 million in 2011. Some of the decrease is attributable to the decreasing number of returns filed between 2009 and 2011, which declined by 51.7 percent over the 3-year period. However, the mean amounts also decreased. The average total gross estate declined a total of 23.5 percent for the same period.

The total taxable estate, which is the value of the estate after expenses, charitable and marital deductions, and credits for State death taxes, also decreased between 2009 and 2011. From the total of $89.3 million in taxable estate reported in 2009, the total decreased to $46.2 million in 2010 and to only $31.6 million in 2011. Unlike the mean amount of U.S. total gross estate, however, the average total taxable estate for all returns decreased between 2009 and 2010, but then increased for returns filed in 2011.

The net estate tax, which is the amount of tax liability based on the total taxable estate, after credits for foreign death taxes, taxes on prior transfers, and Federal gift taxes previously paid were subtracted from gross estate tax, also decreased between 2009 and 2011. From the total net estate tax of $29.5 million reported in 2009, this amount decreased to $8.4 million in 2011, an overall decrease of 71.3 percent. The average net estate tax per taxable return decreased from $168,086 in 2009 to $102,446 in 2010, before increasing slightly to $106,692 in 2011. In comparison, the median values for net estate tax were significantly less than the average values, but decreased in each subsequent year during this time for taxable returns.

Decedents with nontreaty Forms 706-NA were most frequently domiciled in Brazil, China, Israel, Mexico, Puerto Rico, Taiwan, or Venezuela at the time of death. Returns filed for the estates of decedents domiciled in these seven countries accounted for 56.3 percent and 62.2 percent of all nontreaty returns filed in 2009 and 2010, respectively, yet only 45.4 percent of all nontreaty returns filed in 2011 (Figure D). These returns accounted for 65.2 percent of the total U.S. total gross estate reported on all nontreaty returns in 2009, yet decreased such that they amounted to only 43.9 percent in 2011. The percentage of both the total taxable estate and net estate tax reported on these returns followed a similar pattern. In 2009, approximately 67.8 percent of all taxable estate was attributable to these returns; this percentage decreased to only 44.0 percent of the total in 2011. In 2009, these returns accounted for 71.1 percent of the total net estate tax reported, declining to only 39.9 percent of the total net estate tax reported in 2011. Of the most frequently represented countries listed above, in 2009, the majority of U.S. total gross estate, taxable estate, and net estate tax was reported on returns for decedents domiciled in Mexico, followed by Brazil and China (Figure E).

The total amount of U.S. total gross estate reported on treaty status returns filed in 2009 was $247.9 million (Figure F). This amount decreased a total of 56.7 percent over 3 years. As with nontreaty returns, the declining number of treaty returns filed likely contributed to this decrease as, overall, treaty return filings fell by 45.3 percent between 2009 and 2011. However, the average amount of total gross estate reported on each return also decreased over the same time. In 2009, the average total gross estate for all returns was $397,961; in 2011, the average was $314,818. The average total gross estate was greater on taxable returns than nontaxable returns for all years.

The total taxable estate amount reported on treaty returns was $180.4 million in 2009, but declined 51.4 percent to $87.6 million in 2011. However, while the average taxable estate amount decreased from 2009 to 2010, it then increased in 2011.

The total amount of net estate tax reported on treaty status returns decreased 71.0 percent from 2009 to 2011. While the average amount of net estate tax reported on all returns decreased during this period, the average amount of net estate tax reported on taxable treaty status returns decreased from 2009 to 2010, before increasing in 2011. As with nontreaty returns, the median value followed the same trend, decreasing in 2010 before increasing again in 2011, but was significantly less than the corresponding mean.

The countries of domicile most frequently represented among treaty status returns filed during 2009, 2010, and 2011, were Canada, France, Germany, Japan, and the United Kingdom. Returns filed for decedents domiciled in these five countries accounted for between 83.6 and 87.5 percent of all treaty status returns filed annually for the 3-year period (Figure G). The amount of U.S. total gross estate reported on these returns accounted for approximately 79.8 percent of the total for all treaty returns in 2009. This percentage increased slightly in 2010 before decreasing to only 72.3 percent of the total in 2011. The percentage of taxable estate and net estate tax attributable to these returns followed the same pattern as for U.S. total gross estate, increasing slightly between 2009 and 2010, only to decrease in 2011. Of the countries mentioned above, returns for Canadian decedents reported the greatest amount of U.S. total gross estate and taxable estate, followed by those from the United Kingdom, Germany, and Japan (Figure H). Returns filed by the estates of decedents domiciled in Japan tended to report the greatest amount of net estate tax.

U.S.-Based Assets

The amount of U.S. assets reported on Forms 706-NA can differ from the amount of U.S. total gross estate due to various reporting inconsistencies. While Form 706-NA requires the decedent's U.S. total gross estate and U.S.-based assets to be reported, in some instances the decedent's assets are not subject to taxation. It is not uncommon to have a detailed breakout of the decedent's assets on supporting schedules and documentation, but then report $0 in U.S. total gross estate on the form itself. While this situation occurs on both nontreaty and treaty returns, often a result of the way title to the assets is held, the situation is more pronounced on treaty returns due to treaty provisions. The amount of U.S.-based assets is an accurate representation of the value of the assets held (valued either at death or at an alternative date), regardless of the taxability of the assets.

The amount of U.S.-based assets reported on nontreaty returns was $127.9 million in 2009, compared to $75.1 million in 2010, and $47.6 million in 2011. These amounts are slightly more than the amount of U.S. total gross estate for each corresponding year. Real estate assets and stock accounted for the majority of the value of the assets every year (Figure I). However, in 2009 and 2011 real estate made up the highest share of assets (57.2 percent and 44.9 percent, respectively), while in 2010 stock contributed the greatest asset amount (39.3 percent). Cash assets accounted for approximately 12.2 percent of the total in 2010, compared to less than 10.0 percent in 2011.

The amount of U.S.-based assets reported on treaty status returns was $353.2 million in 2009, some $191.5 million in 2010, and $123.2 million in 2011. These amounts represented 42.5 percent, 22.8 percent, and 14.8 percent differences, respectively, from the amount of U.S. total gross estate for the corresponding years. As with nontreaty returns, real estate and stock accounted for the majority of the total asset value, and the percentage of the total asset value attributable to each type of asset increased between 2009 and 2011 (Figure J). Similarly, the percentage of the total asset value held in bonds increased significantly over the 3-year period. In comparison, "other assets," defined as those assets not specifically included in any of the other categories (such as art, farm asset or farm land, hedge or private equity funds, and non-corporate business assets), made up 28.8 percent of the total asset value in 2009, but declined to only 8.1 percent of the total in 2011.

Summary

Forms 706-NA are filed by the estates of nonresident alien decedents to report assets held in the U.S. at the time of death and to calculate tax liability. There were 824 Forms 706-NA filed in 2009, although this number dropped sharply in subsequent years. The majority of returns filed were from decedents domiciled in treaty countries, and most returns were nontaxable (although nontreaty returns were overwhelmingly taxable). Most decedents were male, regardless of treaty or tax status. The total amount of U.S. total gross estate, taxable estate, and net estate tax declined over the 3-year period. Some of the cause of the decline is attributable to the decreasing number of returns filed; however, the corresponding mean values also decreased. For all returns, the majority of assets held were real estate and stock.

Data Sources and Limitations

Since 1995, SOI has conducted an annual study of Federal estate tax returns filed for nonresident aliens (Forms 706-NA). Demographic, financial, and asset information were extracted from the population of non-rejected Forms 706-NA filed during 2009, 2010, and 2011. Returns could be rejected for having gross U.S. assets below the filing threshold; having too many reporting errors to edit; being incomplete, amended, or tentative; or having been previously edited for SOI. The amounts shown are pre-audit population figures.

Explanation of Selected Terms

All other assets--Includes items that cannot be assigned to one of the other asset categories, such as precious metals and household or personal items like furniture, clothing, jewelry, and automobiles.

Bonds--Includes Federal, State, and local Government bonds, as well as mutual funds comprising primarily these types of bonds.

Cash assets--Includes cash, cash management accounts, other banking- or checking-type accounts held in brokerage accounts, as well as mortgages and notes.

Gross estate tax--The gross estate tax is calculated by applying the graduated tax rates to the decedent's adjusted taxable estate, reduced by the amount of Federal gift taxes previously paid. It is a tentative tax amount, before any credits are taken into account to reduce the amount.

Mixed mutual funds--This category comprises funds containing assets not identified. Therefore, this category may include stock, bonds, and other types of assets all held in mutual funds.

Net estate tax--The estate's tax liability after credits for State death taxes, foreign death taxes, tax on prior transfers, and Federal gift taxes previously paid were subtracted from gross estate tax. In addition to these credits, a "unified credit," graduated according to the year of death and a "credit" for gift taxes paid on post-1976 gifts, is allowed (see also "unified credit").

Real estate--Real estate includes the value of all real estate, real estate partnerships, mutual funds composed primarily of real estate assets, as well as real estate investment trusts (REITs).

Real property--Real property is defined as land, property directly attached to land (such as buildings), or natural resources such as oil, gas, or timber. Both rental and residential property are considered real property.

State death tax deduction--Decedents who died in 2005 or later are allowed a deduction for estate, legacy, or succession taxes actually paid to any State or the District of Columbia as a result of the decedent's death.

Stock--Stock includes corporate stock, stock in closely held corporations, mutual funds composed mostly of stock, as well as futures, options, puts, and calls.

Tax status--Returns can be either taxable or nontaxable, as determined by the balance (or refund) due. Taxable returns were those with estate tax liability after credits; nontaxable returns were those with no estate tax liability after credits.

Taxable estate--Taxable estate is the base to which the graduated Federal estate tax rates are applied in computing the estate tax before credits. Taxable estate is equal to the value of the U.S. total gross estate less deductions for the following: funeral and administrative expenses (prorated by the amount of the estate located within the U.S.); debts, mortgages, and other claims against the estate (also prorated by the amount of the estate located within the U.S.); charitable deductions; and marital deductions.

Total gross estate, U.S. estate tax purposes--The value of all assets held within the U.S. Assets may be valued at the date of death, or at an alternative date up to 6 months thereafter (the alternative value).

Treaty countries--The United States maintains reciprocal taxation treaties with the some countries in order to reduce or eliminate the effects of double taxation. For Filing Years 2009 through 2011, there were treaties in effect with the following countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the United Kingdom. The decedent must have been either domiciled in, or been a citizen of, one of these countries to qualify for the tax protections under the treaty.

(1) These conditions are known as the "Green Card test" and the "substantial presence test," as described in IRS Publication 519, U.S. Tax Guide for Aliens.

(2) For Filing Years 2009, 2010, and 2011, the United States had reciprocal taxation treaties in effect with Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the United Kingdom.

Melissa J. Belvedere is an economist with the Special Studies Special Projects Section. This data release was prepared under the direction of Melissa R. Ludlum, Chief.

Figure A
Number of Form 706-NA Returns, by Filing Year,
Treaty Status, and Tax Status

                        2009                   2010

                        Number    Percentage   Number    Percentage
Treaty status,              of           of        of           of
tax status [1]          returns       total    returns       total

                           (1)          (2)       (3)          (4)

All returns                824        100.0       625        100.0
  Nontaxable               447         54.2       365         58.4
  Taxable                  377         45.8       260         41.6
All treaty returns         623        100.0       477        100.0
  Nontaxable               421         67.6       338         70.9
  Taxable                  202         32.4       139         29.1
All nontreaty returns      201        100.0       148        100.0
  Nontaxable                26         12.9        27         18.2
  Taxable                  175         87.1       121         81.8

                        2011

                        Number    Percentage
Treaty status,              of           of
tax status [1]          returns       total

                           (5)          (6)

All returns                438        100.0
  Nontaxable               295         67.4
  Taxable                  143         32.6
All treaty returns         341        100.0
  Nontaxable               277         81.2
  Taxable                   64         18.8
All nontreaty returns       97        100.0
  Nontaxable                18         18.6
  Taxable                   79         81.4

[1] Tax status is determined by the balance (or refund) due
as reported on the return. Taxable returns were those with
estate tax liability after credits; nontaxable returns were
those with no estate tax liability after credits.

NOTES: Detail may not add to totals due to rounding. Data
have been altered to prevent disclosure of individual
taxpayer information.

Figure B
Number of Form 706-NA Returns, by Filing Year,
Treaty Status, and Sex of Decedent

                          2009                   2010

                        Number    Percentage   Number    Percentage
Treaty status,              of           of        of           of
sex of decedent         returns       total    returns       total

                           (1)          (2)       (3)          (4)

All returns                824        100.0       625        100.0
  Female                   283         34.3       225         36.0
  Male                     541         65.7       400         64.0
All treaty returns         623        100.0       477        100.0
  Female                   220         35.3       177         37.1
  Male                     403         64.7       300         62.9
All nontreaty returns      201        100.0       148        100.0
  Female                    63         31.3        48         32.4
  Male                     138         68.7       100         67.6

                          2011

                        Number    Percentage
Treaty status,              of           of
sex of decedent         returns       total

                           (5)          (6)

All returns                438        100.0
  Female                   161         36.8
  Male                     277         63.2
All treaty returns         341        100.0
  Female                   128         37.5
  Male                     213         62.5
All nontreaty returns       97        100.0
  Female                    33         34.0
  Male                      64         66.0

NOTES: Detail may not add to totals due to rounding. Data have
been altered to prevent disclosure of individual taxpayer
information.

Figure C
Form 706--NA Nontreaty Returns Filed in 2009, 2010, and 2011:
Number of Returns, U.S. Total Gross Estate, and Net Estate
Tax, by Measures of Central Tendency

                    2009

Measures of         Number    U.S. total     Taxable        Net
central               of         gross        estate       estate
tendency, tax       returns     estate                      tax
status                            [1]

                       (1)           (2)          (3)          (4)

Total                  201   125,572,730   89,325,255   29,415,102
Mean values:
  All returns          N/A       624,740      444,404      146,344
  Taxable returns      N/A       579,641      506,098      168,086
  Nontaxable
    returns            N/A       928,290       29,157            0
Median values:
  All returns          N/A       235,197      157,104       27,400
  Taxable returns      N/A       235,197      202,000       42,440
  Nontaxable
    returns            N/A       237,017       24,819            0

                    2010

Measures of         Number    U.S. total    Taxable        Net
central               of        gross        estate       estate
tendency, tax       returns     estate                     tax
status                           [1]

                       (5)          (6)          (7)          (8)

Total                  148   73,785,104   46,183,083   12,395,908
Mean values:
  All returns          N/A      498,548      312,048       83,756
  Taxable returns      N/A      400,459      353,634      102,446
  Nontaxable
    returns            N/A      938,133      125,680            0
Median values:
  All returns          N/A      233,744      167,726       29,629
  Taxable returns      N/A      217,500      196,605       40,713
  Nontaxable
    returns            N/A      281,099       59,691            0

                    2011

Measures of         Number    U.S. total    Taxable        Net
central               of        gross        estate      estate
tendency, tax       returns     estate                     tax
status                           [1]

                       (9)         (10)         (11)        (12)

Total                   97   46,383,671   31,646,465   8,428,630
Mean values:
  All returns          N/A      478,182      326,252      86,893
  Taxable returns      N/A      386,218      363,774     106,692
  Nontaxable
    returns            N/A      881,804      161,575           0
Median values:
  All returns          N/A      209,348      181,650      25,800
  Taxable returns      N/A      199,260      190,659      37,880
  Nontaxable
    returns            N/A      267,341       95,407           0

N/A--Not applicable.

[1] Gross estate is shown at the value used to determine
estate tax liability. The value can be calculated either at
the date of death or within 6 months thereafter (i.e.,
alternative valuation method). Total U.S. gross estate may
not equal the sum of the detail, due to reporting
discrepancies arising from different tax law
interpretations.

NOTES: Detail may not add to totals due to rounding. Data
have been altered to prevent disclosure of individual
taxpayer information.

Figure F
Form 706--NA Treaty Returns Filed in 2009, 2010, and 2011:
Number of Returns, U.S. Total Gross Estate, and Net
Estate Tax, by Measures of Central Tendency

                                          2009

Measures            Number     U.S. total       Taxable          Net
of central              of          gross        estate       estate
tendency,           returns    estate [1]                        tax
tax status

                       (1)            (2)           (3)          (4)

Total                  623    247,929,750    180,351,306   23,654,243
Mean values:
  All returns          N/A        397,961       289,488       37,968
  Taxable returns      N/A        563,610       505,135      117,100
  Nontaxable
     returns           N/A        318,481       186,019            0
Median values:
  All returns          N/A        175,500       135,000            0
  Taxable returns      N/A        279,472       246,301       31,961
  Nontaxable
    returns            N/A        153,350        95,000            0

                                         2010

Measures            Number          U.S.       Taxable          Net
of central              of         total        estate       estate
tendency,           returns        gross                        tax
tax status                        estate
                                     [1]

                       (5)           (6)           (7)          (8)

Total                  477    155,987,614   114,350,263   12,330,467
Mean values:
  All returns          N/A       327,018       239,728       25,850
  Taxable returns      N/A       399,909       367,552       88,708
  Nontaxable
     returns           N/A       297,042       187,161            0
Median values:
  All returns          N/A       149,900       114,159            0
  Taxable returns      N/A       171,750       168,000       24,963
  Nontaxable
    returns            N/A       140,737        95,562            0

                                         2011

Measures            Number          U.S.      Taxable         Net
of central              of         total       estate      estate
tendency,           returns        gross                      tax
tax status                        estate
                                     [1]

                       (9)          (10)         (11)        (12)

Total                  341    107,352,887   87,634,620   6,852,468
Mean values:
  All returns          N/A       314,818      256,993      20,095
  Taxable returns      N/A       499,574      467,700     107,070
  Nontaxable
     returns           N/A       272,130      208,310           0
Median values:
  All returns          N/A       148,932      132,034           0
  Taxable returns      N/A       175,010      164,090      29,435
  Nontaxable
    returns            N/A       143,352      122,796           0

N/A-Not applicable.

[1] Gross estate is shown at the value used to determine
estate tax liability. The value can be calculated either at
the date of death or within 6 months thereafter (i.e.,
alternative valuation method). Total U.S. gross estate may
not equal the sum of the detail, due to reporting
discrepancies arising from different tax law
interpretations.

NOTES: Detail may not add to totals due to rounding. Data
have been altered to prevent disclosure of individual
taxpayer information.
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Author:Belvedere, Melissa J.
Publication:Statistics of Income. SOI Bulletin
Date:Mar 22, 2013
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