Form 706 Schedule P – Foreign Death Tax Credit Guide

A few years back, an executor set a shoebox on my desk. Inside, there were stamped receipts from two tax offices overseas, a couple of bank slips, and a sticky note that read, “Which exchange rate should I use?” If that feels familiar, you are in the right place.

Schedule P looks technical, but once you understand what it asks for and how to prove it, you can finish it with confidence and sleep better before filing day.

Key Takeaways

• Schedule P calculates the foreign death tax credit so you do not pay U.S. estate tax twice on the same property. It must be filed when you claim the credit on Form 706, and you attach Form 706‑CE as proof.
• Convert each foreign death tax payment using the exchange rate in effect on the date the tax was actually paid, not the date of death. If there are installments, convert each one separately.
• You may compute the credit under the statute or under a treaty, and you can use the result that is most beneficial, with clear labels and a reconciliation if you combine approaches.
• The credit is limited, it cannot exceed the U.S. estate tax attributable to the same property, and you must compute it per country.
• Form 706 is due nine months after the date of death. You can request an automatic six month filing extension with Form 4768 by the original due date. Interest on unpaid tax still runs.

This guide is general information, not legal or tax advice. Always check the current IRS instructions and any applicable treaty article before you file.

What Schedule P Does, And When It Applies

Schedule P is the bridge between foreign death taxes and the U.S. estate tax. If the same property is taxed by a foreign jurisdiction and that property is also in the U.S. gross estate, Schedule P lets you claim a credit to reduce double taxation. The schedule identifies each country, the taxed property or transfers, and the amounts paid, then applies a limitation so the credit never exceeds the U.S. tax on that property. You attach Form 706‑CE to prove assessment and payment, and you keep translations and exchange rate evidence in your file.

The schedule applies only to taxes that were actually paid to a foreign country or political subdivision and that relate to property included in the U.S. gross estate. If more than one country is involved, prepare a separate computation for each and attach a separate Schedule P package per country.

When To File, Why Timing Matters

• File Form 706 within nine months after the date of death. If you need more time to file, submit Form 4768 by the original due date to obtain an automatic six month extension. An extension to file does not extend the time to pay.
• Portability requires a timely return, which means within nine months or by the extended filing deadline if you obtained the extension.
• The foreign death tax credit has a limitation period. The IRS instructions state the credit is limited to taxes actually paid and claimed within the later of four years after the estate tax return is filed, before any extension of time to pay expires, or sixty days after a final Tax Court decision in a timely deficiency case. Do not wait on certifications.

Citizens, Resident Aliens, And Reciprocity

If the decedent was a U.S. citizen, use the statute or the treaty, whichever yields the better result. If the decedent was a resident alien, confirm whether reciprocity is required under the statute and whether a treaty overrides that condition. Document citizenship or residency carefully, and if reciprocity applies, keep that proof with your Schedule P workpapers.

For planning context, estates of decedents dying in 2025 have a basic exclusion amount of 13,990,000. Whether you must file Form 706 and how much tax is at stake starts with that threshold and the gross estate plus adjusted taxable gifts.

Statutory Credit Versus Treaty‑Based Credit

You get two possible tracks. Under the statute, you credit foreign death taxes imposed by each country on property that is also taxed in the U.S. Under a treaty, sourcing rules, coverage, or caps can change what counts. The IRS allows you to use the computation that is most beneficial to the estate, and in some cases to combine a treaty computation with a statutory computation for political subdivisions that the treaty does not cover, as long as you label and support both results.

Quick Comparison Table

Focus	What to check	What to attach	Typical pitfalls
Statutory credit	Same property taxed abroad and in the U.S., per country limit	Form 706‑CE, assessment, receipts, translations, payment‑date conversions	Claiming beyond U.S. tax on same property
Treaty‑based credit	Treaty situs rules, specified taxes, caps, possible split of “outside both” property	Treaty citation and statement, 706‑CE, reconciliation if figures differ	Missing labels for treaty math
Both routes	USD reporting, separate computation per country, limitation period	Proof of assessment and payment, exchange rate source	Late or incomplete certifications

For reference, the instructions list countries with estate or inheritance tax conventions, and they explain how treaty situs rules and caps affect the Schedule P computation. Always cite the specific article and paragraph you rely on and include a short statement in the file.

Your Evidence File, What To Attach And How To Organize It

Strong documentation is what turns a Schedule P calculation into an allowed credit. The IRS expects primary proof that a foreign death tax was assessed and paid and that your U.S. numbers match those foreign records.

Required Core Items

• Form 706‑CE, certified by the foreign tax authority when possible. If certification is refused, file Form 706‑CE with the IRS and add a statement explaining the refusal, plus copies of the foreign return and proof of payment.
• Official foreign documents, for example the foreign estate or inheritance tax return, assessment notice, receipts, bank statements, or canceled checks. Keep these tied to the decedent and the property.
• English translations of any non‑English record.
• Exchange rate evidence for each payment date, such as a Federal Reserve or Treasury daily rate printout saved to PDF.

Tip, if the foreign authority uses staged payments, build a one page “payment map” with columns for date, local currency, rate source, USD amount, and the line on Schedule P. Reviewers love it, and examiners can follow it in minutes.

Simple Documentation Table You Can Copy

Item	What it proves	Where it goes
Form 706‑CE	Certification of paid foreign death tax	Attached to Form 706 with Schedule P
Foreign assessment notice	Tax type, amount, dates	Workpapers, include certified copy if possible
Payment receipts or bank records	Actual cash outflow by date	Workpapers, tie to 706‑CE and Schedule P totals
English translations	Readable evidence for processing or exam	Attach or keep ready to furnish
Exchange rate printouts	Correct payment‑date conversion	Workpapers, cite the source and timestamp

Currency Conversion, Use The Payment‑Date Rate

Schedule P lives and dies by correct conversion. Convert each foreign death tax payment at the exchange rate in effect on the date the tax was paid. If the estate paid in installments, convert each one separately and total the USD amounts for the country. Keep the rate source in your file. The IRS instructions and internal manual say the same thing, so this is one area you can lock down with confidence.

If a treaty measures the credit by tax “charged” instead of “paid,” follow the treaty text and attach a brief explanation with your Schedule P package. The key is to show why your conversion date matches the governing rule.

Quick Conversion Workflow

• List each foreign payment with its payment date and local currency amount.
• Pull the rate for that date from a reputable source and save a PDF.
• Convert each payment to USD and foot the column.
• Tie the totals to Schedule P and to Form 706‑CE.

Step‑By‑Step, How To Complete Schedule P

• Step 1, confirm status and method. Verify whether the decedent was a citizen or resident, check for a treaty, and determine if reciprocity matters for a resident alien. Decide whether the statutory or treaty path produces the better result, then keep that logic consistent.
• Step 2, identify the property. List property or transfers taxed abroad that are also in the U.S. gross estate. If multiple countries are involved, you will prepare separate computations for each.
• Step 3, assemble proof. Attach Form 706‑CE with assessment and payment evidence, translations, and exchange rates. If a foreign office will not certify, follow the alternative filing steps and include your explanation.
• Step 4, convert currency. Convert each payment using the payment‑date rate and document your source.
• Step 5, compute the credit. Apply the limitation so the credit does not exceed the U.S. tax attributable to the same property. If a treaty applies, compute under the treaty rules, label the figures, and reconcile any combination of treaty and statutory results.
• Step 6, carry to the return. Transfer the allowed credit to the Form 706 tax computation and include any required statements. Use Schedule W or additional sheets if you need more lines.

Treaty‑Specific Computations, Keep Them Clean

When a treaty applies, it can change where property is considered situated, which taxes qualify, and whether caps apply. The instructions allow you to compute under the treaty and, where permitted, to combine a treaty computation with a statutory computation for non covered political subdivisions. Label the treaty line, cite the article and paragraph, and include a short statement explaining any re‑sourcing or split allocations.

What To Include In A Treaty Statement

• Treaty country, article, and paragraph relied upon.
• How the treaty sources the property.
• Any caps or exclusions that limit the credit.
• A reconciliation if statutory and treaty figures differ.

Also consider the disclosure rules for treaty based return positions. If your position is disclosable under regulations, attach the required statement to your return.

Common Errors That Trigger Delays Or Denials

• Missing or incomplete Form 706‑CE or weak proof that the foreign tax was actually assessed and paid.
• Using the wrong exchange rate, for example a date of death or average annual rate, instead of the payment‑date rate.
• Failing to prepare separate computations per country.
• Claiming more than the U.S. tax attributable to the same property.
• Submitting untranslated documents, which slows processing or examination work.
• Not labeling treaty computations or omitting the article you used, which invites questions and delays.

Deadlines, Extensions, And The Limitation Period

• File Form 706 within nine months of death. If needed, request an automatic six month filing extension with Form 4768 by the original due date. Remember, an extension to file is not an extension to pay, and interest accrues on unpaid tax from the original due date.
• The credit for foreign death taxes must be claimed within the instruction’s limitation period. Track the later of the three dates listed in the instructions, then set calendar reminders to update your credit once foreign payments clear.

Filing Calendar You Can Reuse

• Day 0, record date of death and open probate.
• Day 1 to 120, confirm which countries are involved, request assessments or certifications, and map property to each country.
• Day 180, decide whether to file Form 4768.
• Day 270, original due date, file Form 706 or file Form 4768.
• Before the extended due date, finish foreign payments and attach 706‑CE.

A Clean Workpaper Set For Schedule P

Your goal is a file that any reviewer, or an IRS examiner, can follow in ten minutes. That is not wishful thinking. It is an organizing choice.

File Structure That Works

• Cover memo, country list, chosen method, and a one paragraph why.
• Property crosswalk, which items in the U.S. gross estate are also taxed abroad, with schedule and line references.
• Country packets, one per jurisdiction, each with 706‑CE, assessment, payment proof, translations, and your conversion worksheet.
• Schedule P computations, one per country, with limitation math and a combined summary.
• Tie‑outs, to the tax computation in Part II and to Part V totals on Form 706.

Conversion Worksheet Template

Payment date	Local currency	Rate source and timestamp	USD computed	Schedule P reference
2025‑04‑12	EUR 150,000	Fed H.10 printout saved 2025‑04‑14	162,450	Country A, line X
2025‑05‑03	EUR 25,000	Fed H.10 printout saved 2025‑05‑05	27,050	Country A, line X

Save the rate PDFs in the same folder so you can point to the exact source in seconds. The IRS internal manual notes that examiners may verify or recalculate your credit, so give them everything they need up front.

Statutory Versus Treaty, A Deeper Look

Here are the differences that tend to move the number:

• Situs rules. A treaty may re‑source intangible property or shares, which can expand or shrink the creditable base. Label any re‑sourcing and include the treaty excerpt.
• Caps and exclusions. Some treaties cap the credit or define which taxes qualify. Build those limits into your computation and avoid surprises late in review.
• National versus local taxes. Under the statute, you may credit national and local death taxes. Under a treaty, local levies may or may not count. If the treaty does not cover subdivisions, the instructions allow a combined approach with clear labeling.

Review Protection, How To Cut Partner Time

Three habits protect review time. Keep a consistent file layout, use the correct exchange rate for each payment, and show the limitation math next to the country totals. Add a final tie‑out to the Form 706 tax computation so nobody has to hunt for numbers. These mirror how IRS examiners approach Schedule P, which lowers the chance of questions later.

Where Accountably Fits, Only If You Need It

If your firm handles multiple cross border estates at once or you face seasonal spikes, Accountably can embed trained offshore professionals into your existing workflow, inside your systems, with structured workpapers and layered review. For complex schedules like P, that means predictable turnaround, fewer review loops, and clean documentation that stands up in exam. If your in house team has it covered, keep going. If you want extra hands with structure built in, we can help without adding chaos.

Mini Case Walkthrough

• A U.S. citizen held securities in Country A. Country A assessed a death tax on the portfolio, and the same securities are in the U.S. gross estate.
• The executor paid in two installments in April and May 2025.
• You convert each payment using its payment‑date exchange rate, foot the USD totals, and apply the Schedule P limitation.
• You attach Form 706‑CE, assessment notices, receipts, and translations, then carry the allowable credit to the tax computation on Form 706. If Country A has a treaty that re‑sources the shares, you add a treaty statement and label the treaty computation accordingly.

The payoff is simple, the allowed credit reduces the U.S. estate tax due, and your file reads clearly to anyone who touches it next.

FAQs, Short Answers You Can Trust

What is Schedule P on Form 706?

Schedule P is where you compute the foreign death tax credit. It prevents double taxation on the same property, subject to strict documentation, per country computations, and a limit based on the U.S. tax attributable to that property. Attach Form 706‑CE.

Which exchange rate should I use?

Use the rate in effect on the date each foreign tax payment was made. Convert each installment separately and total the USD amounts on Schedule P. Keep your rate source in the workpapers.

Can I claim the credit before the foreign tax is paid?

You can estimate on the return, but the credit is not finally allowed until the foreign tax is actually paid and Form 706‑CE is filed. Watch the limitation period outlined in the instructions.

What is the filing threshold for 2025?

For decedents dying in 2025, the basic exclusion amount is 13,990,000. Filing decisions and tax exposure flow from the return’s tax computation against that baseline.

Final Checklist Before You File

• Decedent’s status verified, citizen or resident alien, with reciprocity evidence if needed.
• Method selected, statutory or treaty, and clearly labeled. Treaty article and paragraph cited if used.
• Form 706‑CE attached for each country, with assessments, receipts, and translations. If a foreign office refused to certify, include the required statement and proofs.
• All conversions use the payment‑date exchange rate, with source PDFs saved to the file.
• Separate computations per country, limit applied so the credit does not exceed the U.S. tax on the same property.
• Tie‑outs complete, Schedule P totals match the Form 706 tax computation and Part V totals.
• Filing dates on the calendar, nine month due date observed, or Form 4768 filed on time. Interest accounted for if tax is unpaid.

What‑How‑Wow, The Short Version

• What, Schedule P calculates and documents the foreign death tax credit so you avoid double taxation on the same property.
• How, attach Form 706‑CE, convert each payment using the payment‑date rate, compute per country, apply the limitation, label any treaty math, and carry the credit to the Form 706 tax computation.
• Wow, with tight documentation and correct timing, estates often reduce U.S. tax significantly, and your file reads clearly in review and in exam.

Closing Thought

You do not have to wrestle with Schedule P. Confirm status, pick your computation path, attach Form 706‑CE, convert each payment with the correct date’s rate, and keep your workpapers crisp. Meet the filing date, finish your tie‑outs, and breathe. You have this.