Generation-Skipping Transfer Tax Return for Distributions

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Instructions for Form 706-GS(D)

11:24 - 14-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Instructions for
Form 706-GS(D)

Department of the Treasury
Internal Revenue Service

(Rev. February 2006)
Generation-Skipping Transfer Tax Return for Distributions
Section references are to the Internal Revenue Code unless otherwise noted.

What’s New

• You can request an automatic
6-month extension of time to file Form
706-GS(D) by filing Form 7004,
Application for Automatic 6-Month
Extension of Time To File Certain
Business Income Tax, Information,
and Other Returns (Rev. December
2005). Form 7004 replaces the use of
Form 2758, Application for Extension
of Time To File Certain Excise,
Income, Information, and Other
Returns. For additional information,
see Form 7004.
• The 5% credit for certain state
generation-skipping transfer (GST)
taxes no longer applies to GST
transfers made after December 31,
2004. See section 2604 for more
information.

General Instructions
Purpose of Form
Form 706-GS(D) is used by a skip
person distributee to calculate and
report the tax due on distributions
from a trust that are subject to the
generation-skipping transfer (GST)
tax.

Who Must File
In general, anyone who receives a
taxable distribution from a trust must
file Form 706-GS(D). Trustees are
required to report taxable distributions
to skip person distributees on Form
706-GS(D-1), Notification of
Distribution From a GenerationSkipping Trust.
Even if you receive a Form
706-GS(D-1), however, you do not
need to file Form 706-GS(D) if the
inclusion ratio found in Part II, line 3,
column d, of Form 706-GS(D-1) is
zero for all distributions reported to
you. If you are required to file Form
706-GS(D), you do not have to

include any distributions that have an
inclusion ratio of zero.

When To File
The generation-skipping transfer tax
on distributions is figured and
reported on a calendar year basis,
regardless of your income tax
accounting period. You must file
Form 706-GS(D) on or after January
1 but not later than April 15 of the
year following the calendar year when
the distributions were made.
If you are not able to file the return
by the due date, you may request an
automatic 6-month extension of time
to file by filing Form 7004. The
extension is automatic, so you do not
have to sign the form or provide a
reason for your request. You must file
Form 7004 on or before the regular
due date of Form 706-GS(D). See
Form 7004 for more information.

Where To File
File Form 706-GS(D) at the Internal
Revenue Service Center specified on
your copy of Form 706-GS(D-1).

Penalties and Interest
Section 6651 provides penalties for
both late filing and late payment
unless there is reasonable cause for
the delay. The law also provides
penalties for willful attempts to evade
payment of tax.

listed on Form 706-GS(D) is 50% or
less of the actual value of the
property.
Interest will be charged on taxes
not paid by their due date, even if an
extension of time to file is granted.
Interest is also charged on any
additions to tax imposed by section
6651 from the due date of the return
(including any extensions) until the
addition to tax is paid.

Signature
Either the distributee or an authorized
representative must sign Form
706-GS(D).
If you fill in your own return, leave
the Paid Preparer’s space blank. If
someone prepares your return and
does not charge you, that person
should not sign the return. Generally,
anyone who is paid to prepare your
return must sign it and fill in the other
blanks in the Paid Preparer’s Use
Only area of the return.

Specific Instructions
Part I
Line 1a
If the skip person distributee is a
trust, enter the name of the trust here.

Line 1b

The late filing penalty will not be
imposed if the taxpayer can show that
the failure to file a timely return is due
to reasonable cause. Taxpayers filing
late (after the due date, including
extensions) should attach an
explanation to the return to show
reasonable cause.

For skip person distributees who are
individuals, enter the distributee’s
social security number (SSN) here
and leave line 1c blank. If the skip
person distributee is a trust, see the
instructions for line 1c. Do not enter a
number on both line 1b and line 1c.

Section 6662 provides a penalty
for underpayment of GST taxes of
$5,000 or more that is attributable to
valuation understatements. A
valuation understatement occurs
when the reported value of property

Line 1c

Cat. No. 10828G

If the skip person distributee is a
trust, enter the trust’s employer
identification number (EIN) and leave
line 1b blank. Do not enter a number
on both line 1b and line 1c.

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Instructions for Form 706-GS(D)

11:24 - 14-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 2a
If the skip person distributee is a
trust, enter the trustee’s name here. If
the skip person distributee is a minor
or is under some disability that
precludes the individual from filing the
return, enter the name of the person
who is legally responsible for
conducting the affairs of the
distributee, such as a parent or
guardian. Also, include the title or
relationship to the distributee.

Line 2b
Enter the address at which you wish
to receive correspondence from the
IRS regarding this return. If there is
an entry on line 2a, the address
entered here will normally be that of
the person listed on line 2a, rather
than the individual or trust listed on
line 1a.

Part II
Report all the taxable distributions
with inclusion ratios greater than zero
that you received during the year.
The trustee will report these
distributions to you on Form
706-GS(D-1). Attach to this return a
copy of each Form 706-GS(D-1) you
received during the year. You should
also keep a copy for your records.
If you need more space than is
provided in Part II, attach an
additional sheet of the same size and
use the same format that is used in
Part II. Make sure that the total
tentative transfers from the
continuation sheet are included on
line 3 of Part II.

Column b
In column b, use the same item
number that was used for the
corresponding distribution on Form
706-GS(D-1). If you receive
distributions from more than one
trust, you may need to repeat item
numbers.

Column c
There may be instances when the
trustee has either not completed
columns e (value) and f (tentative
transfer) of Form 706-GS(D-1) or
when you disagree with the amounts
the trustee entered. If this occurs,
attach a statement to this return
showing what you think are the
correct amounts and how you
figured them.

To figure the tentative transfer (col.
c of this form), multiply the applicable
inclusion ratio from Part II, col. d, of
Form 706-GS(D-1) by the value of the
distribution. Use the following
guidelines to determine the value of
the distribution. See the instructions
for Form 706, United States Estate
(and Generation-Skipping Transfer)
Tax Return, for more information. You
can get Form 706, and other IRS
forms and publications, by calling
1-800-TAX-FORM (1-800-829-3676)
or by accessing the IRS website at
www.irs.gov.
You must determine the value of
the property distributed as of the date
of the distribution. The date of
distribution is listed in Part II, column
c, of Form 706-GS(D-1).
The value of a distribution is its fair
market value on the date of
distribution. Fair market value is the
price at which the property would
change hands between a willing
buyer and a willing seller, when
neither is forced to buy or to sell, and
both have reasonable knowledge of
all the relevant facts. Fair market
value may not be determined by a
forced sale price, nor by the sale
price of the item in a market other
than that in which the item is most
commonly sold to the public. The
location of the item must be taken
into account whenever appropriate.
Reduce the value of any property
being reported in Part II by the
amount of any consideration provided
by the distributee.
Stock of close corporations or
inactive stock must be valued on the
basis of net worth, earnings, earning
and dividend capacity, and other
relevant factors. For such stock,
attach balance sheets, particularly the
one nearest the date of the
distribution, and statements of net
earnings or operating results and
dividends paid for each of the 5
preceding years.
Reduce the reported value of real
estate by the amount of any
outstanding lien against the property
on the date of distribution. Attach
copies of any such liens. Explain how
the reported values were determined
and attach copies of any appraisals.
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Part III
Line 4
You may deduct from the amount of
the distribution you received any
adjusted allowable expenses incurred
in connection with the preparation of
this Form 706-GS(D) or any other
expenses incurred in connection with
the determination, collection, or
refund of the GST tax reported or
which should have been reported on
this return.
Adjusted allowable expenses are
equal to the total allowable expenses
multiplied by the inclusion ratio. If you
have more than one inclusion ratio in
Part II, column d, of Form
706-GS(D-1), prorate the total
expense among the inclusion ratios
based on the relative value of each
distribution made at the various
inclusion ratios.
You may deduct an expense even
though it has not been paid at the
time the return is filed as long as the
amount of the expense is clearly
ascertainable at that time. If an
additional allowable expense is
incurred after the return is filed, file
Form 843, Claim for Refund and
Request for Abatement, to claim
a refund.
Example. The following example
illustrates the rules above.
You listed three distributions in
Part II of Form 706-GS(D). The value
of the first distribution is $10,000 and
has an inclusion ratio of .25. The
value of the second distribution is
$20,000 and has an inclusion ratio of
.33. The value of the third distribution
is $30,000 and has an inclusion ratio
of .50. You received the completed
return from the preparer along with
the bill for the preparer’s fee on April
14 and filed the return on April 15.
You paid the preparer’s $200 fee on
April 20. The adjusted allowable
expense you should report on line 4
of Part III is $80, calculated
as follows.
$10,000
⫻ 200 = 33.33 ⫻ .25 = 8 (rounded)
$60,000
$20,000
⫻ 200 = 66.67 ⫻ .33 = 22 (rounded)
$60,000
$30,000
⫻ 200 = 100 ⫻ .50 = 50
$60,000
Adjusted allowable expense

= 80

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Instructions for Form 706-GS(D)

11:24 - 14-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 6
Enter, using the table below, the
maximum federal estate tax rate in
effect at the time the
generation-skipping distribution
occurred.

Table of Maximum Tax Rates
The
If the generation-skipping maximum
transfer occurred . . . . . . tax rate is
After December 31, 2002
but before January 1, 2004

49%

After December 31, 2003
but before January 1, 2005

48%

After December 31, 2004
but before January 1, 2006

47%

After December 31, 2005
but before January 1, 2007

46%

After December 31, 2006
but before January 1, 2010

45%

Line 9
Make your check payable to the
“United States Treasury.” Please
write your SSN (or EIN), the year,
and “Form 706-GS(D)” on the check
to assist us in posting it to the proper
account. Enclose, but do not attach,
the payment with Form 706-GS(D).

Privacy Act and Paperwork
Reduction Act Notice. We ask for
the information on this form to carry
out the Internal Revenue laws of the
United States. We need it to figure
and collect the right amount of tax.
Subtitle B, Estate and Gift Taxes, of
the Internal Revenue Code imposes a
tax on certain distributions from a
trust to a skip person. This form is
used to determine the amount of the
taxes that you owe. Section 6011
requires you to provide your taxpayer
identification number (SSN, ITIN, or
EIN). Routine uses of this information
include giving it to the Department of
Justice for civil and criminal litigation,
and to cities, states, and the District
of Columbia for use in administering
their tax laws. We may also disclose
this information to other countries
under a tax treaty, to federal and
state agencies to enforce federal
nontax criminal laws, or to federal law
enforcement and intelligence
agencies to combat terrorism. If you
fail to provide this information in a
timely manner, you may be subject to
penalties and interest.
You are not required to provide the
information requested on a form that
is subject to the Paperwork Reduction
Act unless the form displays a valid
OMB control number. Books or
records relating to a form or its

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instructions must be retained as long
as their contents may become
material in the administration of any
Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section
6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
average estimated time is:
Recordkeeping . . . . . . . .

6 min.

Learning about the law or
the form . . . . . . . . . . . . . .

13 min.

Preparing the form . . . . .

24 min.

Copying, assembling,
and sending the form to
the IRS . . . . . . . . . . . . . . .

20 min.

If you have comments concerning
the accuracy of these estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the
Internal Revenue Service, Tax
Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6406,
Washington, DC 20224. Do not send
the form to this address. Instead, see
Where To File on page 1.