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Form 706-NA ND: What You Should Know

This form is used to compute the value of deceased individuals' U.S.-based assets. This is not an issue of foreign or domestic income taxation. The value of the assets is only determined to be taxable upon transfer after the end of the decedent's taxable estate. The value of the property transferred before the end of the estate (in an estate agreement or through a court order) will not be taxable by the IRS. The following diagram explains how the value of assets of a U.S. resident may be transferred prior to and during the period of a U.S. death (in a form 706-NA) and then converted to an “estate agreement-style” property value post-death.  A U.S. resident's assets that were held in a U.S. registered account prior to the decedent's death will not be transferred to a U.S. estate if the “pro rata allocation provision” is not met in accordance with IRS provisions. The provisions in U.S. Code are as follows: 1) An “asset” must be subject to the assets or income tests of the taxpayer.  2) The “asset” must be of U.S. source. 3) The “asset” must be of “substantial U.S. government benefit.” 4) The “asset” must be “intrinsically connected” to either a U.S. source property or a U.S. income-producing investment. When determining whether an asset is of U.S. origin, the IRS requires that the “asset” be of substantial U.S. origin. Intrinsic connections, defined as an intangible asset used by a person in the active conduct of investment, are limited to property owned by the person or an affiliate (within the meaning of IRC Section 1031(a)(3)) or controlled by the person or affiliated (within the meaning of IRC Section 1031(a)(2)) person. Substantial foreign benefit is defined as assets obtained by the person and used in the active conduct of investment, or assets that have substantially a U.S. source character. In determining whether a specified asset is of substantial U.S. origin, the IRS requires that the property meet those two criteria. It also requires that the “asset” satisfy one of the two tests described below. Value of U.S.

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