- 1 What is Form 5173?
- 2 When a Form 5173 is not required
- 3 What a Form 5173 Contains
- 4 Transfer Certificate
- 5 Request for Filing by Financial Institutions
- 6 For Joint Accounts
- 7 Procedure for Obtaining a Federal Transfer Certificate
- 8 If the estate is $60,000 or less
- 9 Affidavit if the amount of your estate is $60,000 or less
- 10 Accurate Completion of Form 706-NA
- 11 Submission of appropriate documentation
- 12 Investigation as to whether any unpaid taxes are due
- 13 Application for a Federal Transfer Certificate
- 14 Necessity of Professional Advice
- 15 Support at Kuribayashi Sogo Law Office
What is Form 5173?
Form 5173 is a document issued by the IRS regarding estate taxes in the United States. It is required for aliens who are not U.S. citizens and do not reside in the U.S. (Japanese nationals are considered aliens) who die after December 31, 1976.
When a Form 5173 is not required
Form 5173 is not required when there is an administrator or executor appointed in the U.S., such as when a probate proceeding is taken in the U.S. Therefore, Form 5173 is not required if the court-appointed administrator of the estate is to remit the inheritance (cash) to Japan based on the court’s decision to permit distribution as a result of a probate proceeding.
What a Form 5173 Contains
Form 5173 after listing the decedent’s name, date and place of death, states, “At the direction of the Commissioner of Internal Revenue and in accordance with the provisions of the Internal Revenue Code and Regulations, I hereby certify that estate taxes on the above described estate have been waived or paid and that the assets described below have been transferred without restriction under federal estate tax laws and regulations and that the assets described below may be transferred without restrictions under the Federal Estate Tax Act and Regulations. It will also be signed by the Executive Director of the IRS and dated on the date of signature.
The title section of Form 5173 states Transfer Certificate. Form 5173 verifies that estate taxes have been paid and that no taxes are owed with respect to the alien’s estate. By requiring Form 5173 for foreign estates, it means that a foreign estate may not be transferred out of the U.S. unless the estate tax is properly paid in the U.S. Thus, Form 5173 is called a Transfer Certificate because the IRS, the tax collection agency of the United States, approves the transfer of the U.S. estate abroad by verifying that the estate tax has been paid in the U.S. and that no taxes are owed.
Request for Filing by Financial Institutions
When transferring (remitting) an estate in the U.S. to a foreign country (Japan), the U.S. financial institution will ask you to submit a Transfer Certificate. Since U.S. brokerage firms are required by law to obtain a Federal Transfer Certificate when transferring money overseas, they will not permit you to transfer money in your brokerage account unless you submit a Federal Transfer Certificate. If a brokerage firm releases an estate in a brokerage account without obtaining a transfer certificate, the brokerage firm will be liable to pay any outstanding taxes on behalf of the taxpayer. On the other hand, if the estate located in the U.S. is a bank deposit, in most cases, the bank will require you to obtain a Probate Procedure from the bank, so you will not be required to submit a Transfer Certificate in many cases. On the contrary, if the estate located in the U.S. is in stocks or mutual funds, no probate procedures will be followed, and a Federal Transfer Certificate will be required. As a result, the submission of a Federal Transfer Certificate is likely to be requested by the brokerage firm.
For Joint Accounts
If a securities account at a brokerage firm is a joint account, upon the death of one of the co-owners, the deceased’s assets in the joint account will automatically be transferred to the remaining co-owners. Joint accounts in the U.S. differ from the Japanese concept of co-ownership. Even in such a case, the estate is still acquired, so an Estate Tax Return (Form 706-NA) must be filed and a United States Estate Tax Return (Transfer Certificate) is required to be obtained when transferring the assets overseas.
Procedure for Obtaining a Federal Transfer Certificate
In order to obtain a Transfer Certificate, you must first file Form 706-NA (United States Estate Tax Return), with the IRS. Form 706-NA is the form used to value the estate of a deceased individual and calculate estate taxes.
If the estate is $60,000 or less
Form 706-NA must be filed if the estate in the United States is $60,000 or more, or if a U.S. citizen residing abroad dies (regardless of the amount of the estate). Conversely, Form 706-NA is not required if the estate is less than $60,000 and the deceased was not a U.S. citizen residing abroad. In the case of the death of a Japanese citizen who is not a U.S. citizen and whose estate is less than $60,000, the Form 706-NA is not required to be filed.
Affidavit if the amount of your estate is $60,000 or less
If a person who is not a citizen of the United States dies and the amount of the estate is $60,000 or less, the filing of Form 706-NA is not required, but even in this case, a Transfer Certificate may be required. In this case, the heirs can obtain a Transfer Certificate by submitting to the IRS a copy of the will and its translation, the estate tax return in Japan and its translation, the death certificate and its translation, and an Affidavit for Non-Resident Alien Estates to be prepared at a notary public’s office. The Affidavit for Non-Resident Alien Estates includes the decedent’s place and date of birth, the fact that the decedent was not a U.S. citizen (or the date of citizenship if the decedent acquired U.S. citizenship), all property held by the decedent in the U.S. on the date of death and the value of that property, and the date of death, the decedent’s nationality and address on the date of death, and an explanation as to whether the U.S. deposits were used for business in the U.S.
Accurate Completion of Form 706-NA
Accurately complete Form 706-NA and provide the IRS with the required information. This includes information regarding the deceased individual’s estate, valuation of assets, gifts, debts, deductions, and distribution of the estate. Incorrect or missing information may delay obtaining a Transfer Certificate.
Submission of appropriate documentation
When preparing Form 706-NA, appropriate documents and evidence must be attached. These documents include documents related to the valuation of the property, the basis for the valuation, wills, trust agreements, and copies of estate tax returns in Japan. It is important that these documents be submitted to the IRS to support accurate valuation information. Form 706-NA must be filed within nine months of the decedent’s death. Form 4768 may be filed to extend the filing deadline by six months. Failure to meet the deadline may result in penalties. However, since Japanese taxpayers are covered by the Japan-U.S. tax treaty and do not have to pay estate tax in most cases, it is unlikely that a penalty will be imposed on a Japanese taxpayer for late filing of Form 706-NA.
Investigation as to whether any unpaid taxes are due
The IRS will review the documents submitted on Form 706-NA, ask questions and conduct research as necessary. After verifying that the information submitted is accurate and that no taxes are owed in the U.S., the IRS will issue a closing letter to the attorney (tax attorney) representing you. The title of the closing letter is Estate Tax Closing Documents, and if the Net Estate Tax figure in the closing letter from the IRS is zero, it means that no taxes are owed. Conversely, if there is a number in the Net Estate Tax column, either you owe tax or the IRS may have made a mistake, and you should check the cause. In most cases, Japanese nationals will not be required to pay estate tax due to the application of the Japan-U.S. Tax Treaty. Since IRS examiners are sometimes unaware of the fact that Japanese nationals are entitled to the same deductions as Americans, it is necessary to explain that if the decedent is Japanese, the Japan-U.S. Tax Treaty applies and the same deductions are available as those of Americans.
Application for a Federal Transfer Certificate
Once the closing letter is issued by the IRS, you will apply for a Transfer Certificate on Form 5173. It usually takes six to nine months to obtain a Transfer Certificate after the Form 706-NA is filed with the IRS.
Necessity of Professional Advice
The IRS has published guidelines for the process of obtaining a Transfer Certificate, and anyone can review them on the Internet. However, the actual process of obtaining a transfer certificate is a complicated process that requires many documents to be submitted. It is important to obtain professional tax advice to ensure that the process is accurate and proper.
Support at Kuribayashi Sogo Law Office
Kuribayashi Sogo Law Office assists Japanese nationals in filing estate tax returns in the United States. Kuribayashi Sogo Law Office also assists Japanese individuals in obtaining a Transfer Certificate, which is required when transferring assets in the U.S. to Japan.