United States Gift (and Generation-Skipping Transfer) Tax Return

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Instructions for Form 709

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2006

Department of the Treasury
Internal Revenue Service

Instructions for Form 709
United States Gift (and Generation-Skipping Transfer) Tax Return
For gifts made during calendar year 2006.
Section references are to the Internal
Revenue Code unless otherwise noted.
For Disclosure, Privacy Act, and
Paperwork Reduction Act Notice, see
page 12.
For Gifts
Made
After
– – – – –

and

Before
January 1,
1982

Use
Revision of
Form 709
Dated
November
1981

December
31, 1981

January 1,
1987

January
1987

December
31, 1986

January 1,
1989

December
1988

December
31, 1988

January 1,
1990

December
1989

December
31, 1989

October 9,
1990

October
1990

October 8,
1990

January 1,
1992

November
1991

December
31, 1992

January 1,
1998

December
1996

December
31, 1997

– – – – –

*

* Use the corresponding annual form.

What’s New

• For calendar year 2006, the annual

exclusion for gifts of present interests is
$12,000 per donee. For more details, see
Annual Exclusion, on page 2.
• For gifts made to spouses who are not
U.S. citizens, the annual exclusion has
increased to $120,000. See Nonresident
Aliens on page 3.
• You must file Form 709 at the
Cincinnati Service Center, regardless of
whether you are located in the 50 states,
the District of Columbia, a foreign country,
American Samoa, Guam, the Virgin
Islands, Puerto Rico, or have an APO or
FPO address. See Where To File on
page 4 for the address.
• The generation-skipping transfer (GST)
lifetime exemption has increased to
$2,000,000. See Part 2 — GST Exemption
Reconciliation on page 10.

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General Instructions
Purpose of Form
Use Form 709 to report the following:
• Transfers subject to the federal gift and
certain generation-skipping transfer
(GST) taxes and to figure the tax, if any,
due on those transfers and
• Allocation of the lifetime GST
exemption to property transferred during
the transferor’s lifetime. (For more details,
see the instructions for Part 2 — GST
Exemption Reconciliation on page 10,
and Regulations section 26.2632-1.)
All gift and GST taxes must be
computed and filed on a calendar
CAUTION year basis. List all reportable gifts
made during the calendar year on one
Form 709. This means, you must file a
separate return for each calendar year a
reportable gift is given (for example, a gift
given in 2006 must be reported on a 2006
Form 709). Do not file more than one
Form 709 for any one calendar year.

!

How To Complete Form 709
1. Determine whether you are
required to file Form 709.
2. Determine what gifts you must
report.
3. Decide whether you and your
spouse, if any, will elect to split gifts for
the year.
4. Complete lines 1 through 18 of
Part 1, page 1.
5. List each gift on Part 1, 2, or 3 of
Schedule A, as appropriate.
6. Complete Schedule B, if applicable.
7. If the gift was listed on Part 2 or 3
of Schedule A, complete the necessary
portions of Schedule C.
8. Complete Schedule A, Part 4.
9. Complete Part 2 on page 1.
10. Sign and date the return.
Remember, if you are splitting

TIP gifts, your spouse must sign line
18, in Part 1, page 1.
Cat. No. 16784X

Who Must File
In general. If you are a citizen or resident
of the United States, you must file a gift
tax return (whether or not any tax is
ultimately due) in the following situations.
• If you gave gifts to someone in 2006
totalling more than $12,000, (other than to
your spouse) you probably must file Form
709. But see page 2 for information on
specific gifts that are not taxable and for
gifts to your spouse.
• Certain gifts, called future interests, are
not subject to the $12,000 annual
exclusion and you must file Form 709
even if the gift was under $12,000. See
Annual Exclusion on page 2.
• A husband and wife may not file a joint
gift tax return. Each individual is
responsible for his or her own Form 709.
• You must file a gift tax return to split
gifts with your spouse (regardless of their
amount) as described in Part 1 — General
Information on page 4. Form 709-A,
United States Short Form Gift Tax Return,
is obsolete.
• If a gift is of community property, it is
considered made one-half by each
spouse. For example, a gift of $100,000
of community property is considered a gift
of $50,000 made by each spouse, and
each spouse must file a gift tax return.
• Likewise, each spouse must file a gift
tax return if they have made a gift of
property held by them as joint tenants or
tenants by the entirety.
• Only individuals are required to file gift
tax returns. If a trust, estate, partnership,
or corporation makes a gift, the individual
beneficiaries, partners, or stockholders
are considered donors and may be liable
for the gift and GST taxes.
• The donor is responsible for paying the
gift tax. However, if the donor does not
pay the tax, the person receiving the gift
may have to pay the tax.
• If a donor dies before filing a return, the
donor’s executor must file the return.
Who does not need to file. If you meet
all of the following requirements, you are
not required to file Form 709:
• You made no gifts during the year to
your spouse,
• You did not give more than $12,000 to
any one donee, and
• All the gifts you made were of present
interests.
Gifts to charities. If the only gifts you
made during the year are deductible as
gifts to charities, you do not need to file a

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Instructions for Form 709

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return as long as you transferred your
entire interest in the property to qualifying
charities. If you transferred only a partial
interest, or transferred part of your
interest to someone other than a charity,
you must still file a return and report all of
your gifts to charities.
If you are required to file a return to
report noncharitable gifts and you made
gifts to charities, you must include all of
your gifts to charities on the return.

Transfers Subject to the
Gift Tax
Generally, the federal gift tax applies to
any transfer by gift of real or personal
property, whether tangible or intangible,
that you made directly or indirectly, in
trust, or by any other means to a donee.
The gift tax applies not only to the
gratuitous transfer of any kind of property,
but also to sales or exchanges, not made
in the ordinary course of business, where
money or money’s worth is exchanged
but the value of the money (or property)
or money’s worth received is less than the
value of what is sold or exchanged. The
gift tax is in addition to any other tax, such
as federal income tax, paid or due on the
transfer.
The exercise or release of a general
power of appointment may be a gift by the
individual possessing the power. General
powers of appointment are those in which
the holders of the power can appoint the
property subject to the power to
themselves, their creditors, their estates,
or the creditors of their estates. To qualify
as a power of appointment, it must be
created by someone other than the holder
of the power.
The gift tax may also apply to the
forgiveness of a debt, to interest-free or
below market interest rate loans, to the
assignment of the benefits of an
insurance policy, to certain property
settlements in divorce cases, and to the
giving up of some amount of annuity in
exchange for the creation of a survivor
annuity.
Bonds that are exempt from federal
income taxes are not exempt from federal
gift taxes.
Code sections 2701 and 2702 provide
rules for determining whether certain
transfers to a family member of interests
in corporations, partnerships, and trusts
are gifts. The rules of section 2704
determine whether the lapse of any voting
or liquidation right is a gift.
Gifts to your spouse. You must file a
gift tax return if you made any gift to your
spouse of a terminable interest that does
not meet the exception described in Life
estate with power of appointment on page
9 or if your spouse is not a U.S. citizen
and the total gifts you made to your
spouse during the year exceed $120,000.
You must also file a gift tax return to
make the Qualified Terminable Interest
Property (QTIP) election described under
Line 12. Election Out of QTIP Treatment
of Annuities on page 10.

Except as described above, you do not
have to file a gift tax return to report gifts
to your spouse regardless of the amount
of these gifts and regardless of whether
the gifts are present or future interests.

Transfers Not Subject to the
Gift Tax
Three types of transfers are not subject to
the gift tax. These are:
• Transfers to political organizations,
• Payments that qualify for the
educational exclusion, and
• Payments that qualify for the medical
exclusion.
These transfers are not “gifts” as that
term is used on Form 709 and its
instructions. You need not file a Form 709
to report these transfers and should not
list them on Schedule A of Form 709 if
you do file Form 709.
Political organizations. The gift tax
does not apply to a transfer to a political
organization (defined in section 527(e)(1))
for the use of the organization.
Educational exclusion. The gift tax
does not apply to an amount you paid on
behalf of an individual to a qualifying
domestic or foreign educational
organization as tuition for the education or
training of the individual. A qualifying
educational organization is one that
normally maintains a regular faculty and
curriculum and normally has a regularly
enrolled body of pupils or students in
attendance at the place where its
educational activities are regularly carried
on. See section 170(b)(1)(A)(ii) and its
regulations.
The payment must be made directly to
the qualifying educational organization
and it must be for tuition. No educational
exclusion is allowed for amounts paid for
books, supplies, room and board, or other
similar expenses that do not constitute
direct tuition costs. To the extent that the
payment to the educational institution was
for something other than tuition, it is a gift
to the individual for whose benefit it was
made, and may be offset by the annual
exclusion if it is otherwise available.
Contributions to a qualified tuition
program (QTP) on behalf of a designated
beneficiary do not qualify for the
educational exclusion. See Line B —
Qualified Tuition Programs (529 Plans or
Programs) beginning on page 5.
Medical exclusion. The gift tax does not
apply to an amount you paid on behalf of
an individual to a person or institution that
provided medical care for the individual.
The payment must be to the care
provider. The medical care must meet the
requirements of section 213(d) (definition
of medical care for income tax deduction
purposes). Medical care includes
expenses incurred for the diagnosis, cure,
mitigation, treatment, or prevention of
disease, or for the purpose of affecting
any structure or function of the body, or
for transportation primarily for and
essential to medical care. Medical care
also includes amounts paid for medical
insurance on behalf of any individual.

-2-

The medical exclusion does not apply
to amounts paid for medical care that are
reimbursed by the donee’s insurance. If
payment for a medical expense is
reimbursed by the donee’s insurance
company, your payment for that expense,
to the extent of the reimbursed amount, is
not eligible for the medical exclusion and
you have made a gift to the donee.
To the extent that the payment was for
something other than medical care, it is a
gift to the individual on whose behalf the
payment was made and may be offset by
the annual exclusion if it is otherwise
available.
The medical and educational
exclusions are allowed without regard to
the relationship between you and the
donee. For examples illustrating these
exclusions, see Regulations section
25.2503-6.
Qualified disclaimers. A donee’s refusal
to accept a gift is called a disclaimer. If a
person makes a qualified disclaimer with
respect to any interest in property, the
property will be treated as if it had never
been transferred to that person.
Accordingly, the disclaimant is not
regarded as making a gift to the person
who receives the property because of the
qualified disclaimer.
Requirements. To be a qualified
disclaimer, a refusal to accept an interest
in property must meet the following
conditions.
1. The refusal must be in writing.
2. The refusal must be received by
the donor, the legal representative of the
donor, the holder of the legal title to the
property to which the interest relates, or
the person in possession of the property
within 9 months after the later of:
a. the day on which the transfer
creating the interest is made or
b. the day on which the disclaimant
reaches age 21.
3. The disclaimant must not have
accepted the interest or any of its
benefits.
4. As a result of the refusal, the
interest must pass without any direction
from the disclaimant to either:
a. the spouse of the decedent or
b. a person other than the
disclaimant, and
5. The refusal must be irrevocable
and unqualified.
The 9-month period for making the
disclaimer generally is determined
separately for each taxable transfer. For
gifts, the period begins on the date the
transfer is a completed transfer for gift tax
purposes.

Annual Exclusion
The first $12,000 of gifts of present
interests to each donee during the
calendar year is subtracted from total gifts
in figuring the amount of taxable gifts. For
a gift in trust, each beneficiary of the trust
is treated as a separate donee for
purposes of the annual exclusion.

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Instructions for Form 709

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All of the gifts made during the
calendar year to a donee are fully
excluded under the annual exclusion if
they are all gifts of present interests and
they total $12,000 or less.
Note. For gifts made to spouses who are
not U.S. citizens, the annual exclusion
has been increased to $120,000,
provided the additional (above the
$12,000 annual exclusion) $108,000 gift
would otherwise qualify for the gift tax
marital deduction (as described in the line
4 instructions on page 9).
A gift of a future interest cannot be
excluded under the annual exclusion.
A gift is considered a present interest if
the donee has all immediate rights to the
use, possession, and enjoyment of the
property or income from the property.
A gift is considered a future interest if
the donee’s rights to the use, possession,
and enjoyment of the property or income
from the property will not begin until some
future date. Future interests include
reversions, remainders, and other similar
interests or estates.
A contribution to a QTP on behalf of a
designated beneficiary is considered a gift
of a present interest.
A gift to a minor is considered a
present interest if all of the following
conditions are met:
1. Both the property and its income
may be expended by, or for the benefit of,
the minor before the minor reaches
age 21;
2. All remaining property and its
income must pass to the minor on the
minor’s 21st birthday; and
3. If the minor dies before the age of
21, the property and its income will be
payable either to the minor’s estate or to
whomever the minor may appoint under a
general power of appointment.
The gift of a present interest to more
than one donee as joint tenants qualifies
for the annual exclusion for each donee.

Nonresident Aliens
Nonresident aliens are subject to gift and
GST taxes for gifts of tangible property
situated in the United States. Under
certain circumstances, they are also
subject to gift and GST taxes for gifts of
intangible property. See section 2501(a).
If you are a nonresident alien who
made a gift subject to gift tax, you must
file a gift tax return if:
• You gave any gifts of future interests,
• Your gifts of present interests to any
donee other than your spouse total more
than $12,000, or
• Your outright gifts to your spouse who
is not a U.S. citizen total more than
$120,000.

Transfers Subject to the
GST Tax
You must report on Form 709 the GST
tax imposed on inter vivos direct skips. An
inter vivos direct skip is a transfer made
during the donor’s lifetime that is:

• Subject to the gift tax,
• Of an interest in property, and
• Made to a skip person. (See Gifts

Subject to Both Gift and GST Taxes on
page 6.)
A transfer is subject to the gift tax if it
is required to be reported on Schedule A
of Form 709 under the rules contained in
the gift tax portions of these instructions,
including the split gift rules. Therefore,
transfers made to political organizations,
transfers that qualify for the medical or
educational exclusions, transfers that are
fully excluded under the annual exclusion,
and most transfers made to your spouse
are not subject to the GST tax.
Transfers subject to the GST tax are
described in further detail in the
instructions beginning on page 6.
Certain transfers, particularly
transfers to a trust, that are not
CAUTION subject to gift tax and are
therefore not subject to the GST tax on
Form 709 may be subject to the GST tax
at a later date. This is true even if the
transfer is less than the $12,000 annual
exclusion. In this instance, you may want
to apply a GST exemption amount to the
transfer on this return or on a Notice of
Allocation. For more information, see Part
3 — Indirect Skips on page 9 and Part 2 —
GST Exemption Reconciliation on page
10.

!

Transfers Subject to an Estate
Tax Inclusion Period (ETIP)
Certain transfers that are direct skips
receive special treatment. If the
transferred property would have been
includible in the donor’s estate if the
donor had died immediately after the
transfer (for a reason other than the donor
having died within 3 years of making the
gift), the direct skip will be treated as
having been made at the end of the ETIP
rather than at the time of the actual
transfer.
For example, if A transferred her
house to her granddaughter, B, but
retained the right to live in the house until
her death (a retained life estate), the
value of the house would be includible in
A’s estate if she died while still holding
the life estate. In this case, the transfer to
B is a completed gift (it is a transfer of a
future interest) and must be reported on
Part 1 of Schedule A. The GST portion of
the transfer would not be reported until A
died or otherwise gave up her life estate
in the house.
Report the gift portion of such a
transfer on Schedule A, Part 1, at the time
of the actual transfer. Report the GST
portion on Schedule A, Part 2, but only at
the close of the ETIP. Use Form 709 only
to report those transfers where the ETIP
closed due to something other than the
donor’s death. (If the ETIP closed as the
result of the donor’s death, report the
transfer on Form 706, United States
Estate (and Generation-Skipping
Transfer) Tax Return.)

-3-

If you are filing this Form 709 solely to
report the GST portion of transfers
subject to an ETIP, complete the form as
you normally would with the following
exceptions:
1. Write “ETIP” at the top of page 1;
2. Complete only lines 1 through 6, 8,
and 9 of Part 1 — General Information;
3. Complete Schedule A, Part 2, as
explained in the instructions for that
schedule on page 8;
4. Complete Schedule C. Complete
Column B of Schedule C, Part 1, as
explained in the instructions for that
schedule on page 10;
5. Complete only lines 10 and 11 of
Schedule A, Part 4; and
6. Complete Part 2 — Tax
Computation.

Section 2701 Elections
The special valuation rules of section
2701 contain three elections that you
must make with Form 709.
1. A transferor may elect to treat a
qualified payment right he or she holds
(and all other rights of the same class) as
other than a qualified payment right.
2. A person may elect to treat a
distribution right held by that person in a
controlled entity as a qualified payment
right.
3. An interest holder may elect to treat
as a taxable event the payment of a
qualified payment that occurs more than 4
years after its due date.
The elections described in (1) and (2)
above must be made on the Form 709
that is filed by the transferor to report the
transfer that is being valued under section
2701. The elections are made by
attaching a statement to Form 709. For
information on what must be in the
statement and for definitions and other
details on the elections, see section 2701
and Regulations section 25.2701-2(c).
The election described in (3) above
may be made by attaching a statement to
either a timely or a late filed Form 709
filed by the recipient of the qualified
payment for the year the payment is
received. If the election is made on a
timely filed return, the taxable event is
deemed to occur on the date the qualified
payment is received. If it is made on a
late filed return, the taxable event is
deemed to occur on the first day of the
month immediately preceding the month
in which the return is filed. For information
on what must be in the statement and for
definitions and other details on this
election, see section 2701 and
Regulations section 25.2701-4(d).
All of the elections may be revoked
only with the consent of the IRS.

When To File
Form 709 is an annual return.
Generally, you must file the 2006 Form
709 no earlier than January 1, 2007, but
not later than April 16, 2007.

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Instructions for Form 709

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If the donor died during 2006, the
executor must file the donor’s 2006 Form
709 not later than the earlier of:
• The due date (with extensions) for filing
the donor’s estate tax return or
• April 16, 2007, or the extended due
date granted for filing the donor’s gift tax
return.
Under this rule, the 2006 Form 709 may
be due before April 16, 2007, if the donor
died before July 15, 2006. If the donor
died after July 14, 2006, the due date
(without extensions) is April 16, 2007. If
no estate tax return is required to be filed,
the due date for the 2006 Form 709
(without extensions) is April 16, 2007. For
more details, see Regulations section
25.6075-1.

Extension of Time To File
There are two methods of extending the
time to file the gift tax return. Neither
method extends the time to pay the gift or
GST taxes. If you want an extension of
time to pay the gift or GST taxes, you
must request that separately. (See
Regulations section 25.6161-1.)
By extending the time to file your
income tax return. Any extension of
time granted for filing your calendar year
2006 federal income tax return will also
automatically extend the time to file your
2006 gift tax return. Income tax
extensions are made by using Form
4868, Application for Automatic Extension
of Time To File U.S. Individual Income
Tax Return or Form 2350, Application for
Extension of Time To File U.S. Income
Tax Return. You may only use these
forms to extend the time for filing your gift
tax return if you are also requesting an
extension of time to file your income tax
return.
By filing Form 8892. If you do not
request an extension for your income tax
return, use Form 8892, Application for
Automatic Extension of Time To File
Form 709 and/or Payment of Gift/
Generation-Skipping Transfer Tax, to
request an automatic 6-month extension
of time to file your federal gift tax return.
This form must be used instead of writing
a letter to the Cincinnati Service Center to
request an extension of time to file Form
709. In addition to containing an
extension request, Form 8892 also serves
as a payment voucher (Form 8892-V) for
a balance due on federal gift taxes for
which you are extending the time to file.
For more information, see Form 8892 and
its instructions.

Where To File
File Form 709 at the following address:
Internal Revenue Service Center
Cincinnati, OH 45999

Adequate Disclosure
To begin the running of the statute
of limitations regarding a gift, the
CAUTION gift must be adequately disclosed
on Form 709 (or an attached statement)
filed for the year of the gift.

!

In general, a gift will be considered
adequately disclosed if the return or
statement provides the following:
• A description of the transferred
property and any consideration received
by the donor;
• The identity of, and relationship
between, the donor and each donee;
• If the property is transferred in trust, the
trust’s employer identification number
(EIN) and a brief description of the terms
of the trust (or a copy of the trust
instrument in lieu of the description); and
• Either a qualified appraisal or a detailed
description of the method used to
determine the fair market value of the gift.
See Regulations section
301.6501(c)-1(e) and (f) for details,
including what constitutes a qualified
appraisal, the information required if no
appraisal is provided, and the information
required for transfers under sections 2701
and 2702.

Penalties
The law provides for penalties for both
late filing of returns and late payment of
tax unless you have reasonable cause.
There are also penalties for valuation
understatements that cause an
underpayment of the tax, willful failure to
file a return on time, and willful attempt to
evade or defeat payment of tax.
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. Those filing late (after
the due date, including extensions)
should attach an explanation to the return
to show reasonable cause.
A valuation understatement occurs
when the reported value of property
entered on Form 709 is 65% or less of the
actual value of the property.

Joint Tenancy
If you buy property with your own funds
and the title to such property is held by
yourself and the donee as joint tenants
with right of survivorship and if either you
or the donee may give up those rights by
severing your interest, you have made a
gift to the donee in the amount of half the
value of the property.
If you create a joint bank account for
yourself and the donee (or a similar kind
of ownership by which you can get back
the entire fund without the donee’s
consent), you have made a gift to the
donee when the donee draws on the
account for his or her own benefit. The
amount of the gift is the amount that the
donee took out without any obligation to
repay you.

-4-

If you buy a U.S. savings bond
registered as payable to yourself or the
donee, there is a gift to the donee when
he or she cashes the bond without any
obligation to account to you.

Transfer of Certain Life
Estates Received From
Spouse
If you received a qualified terminable
interest (see Line 12. Election Out of
QTIP Treatment of Annuities on page 10)
from your spouse for which a marital
deduction was elected on your spouse’s
estate or gift tax return, you will be
subject to the gift tax (and GST tax, if
applicable) if you dispose of all or part of
your life income interest (by gift, sale, or
otherwise).
The entire value of the property
involved less:
1. The amount you received on the
disposition and
2. The amount (if any) of the life
income interest you retained after the
transfer will be treated as a taxable gift.
That portion of the property’s value that is
attributable to the remainder interest is a
gift of a future interest for which no annual
exclusion is allowed. To the extent you
made a gift of the life income interest, you
may claim an annual exclusion, treating
the person to whom you transferred the
interest as the donee for purposes of
computing the annual exclusion.

Specific Instructions
Part 1—General
Information
Lines 12–18. Split Gifts
A married couple may not file a
joint gift tax return. However, if
CAUTION after reading the instructions
below, you and your spouse agree to split
your gifts, you should file both of your
individual gift tax returns together (that is,
in the same envelope) to help the IRS
process the returns and to avoid
correspondence from the IRS.

!

Note. Form 709-A, United States Short
Form Gift Tax Return, previously used by
married couples to report nontaxable gifts
they consent to split is obsolete.
If you and your spouse agree, all gifts
(including gifts of property held with your
spouse as joint tenants or tenants by the
entirety) either of you make to third
parties during the calendar year will be
considered as made one-half by each of
you if:
• You and your spouse were married to
one another at the time of the gift;
• If divorced or widowed after the gift,
you did not remarry during the rest of the
calendar year;

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Instructions for Form 709

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• Neither of you was a nonresident alien

at the time of the gift; and
• You did not give your spouse a general
power of appointment over the property
interest transferred.
If you transferred property partly to
your spouse and partly to third parties,
you can only split the gifts if the interest
transferred to the third parties is
ascertainable at the time of the gift.
The consent is effective for the entire
calendar year; therefore, all gifts made by
both you and your spouse to third parties
during the calendar year (while you were
married) must be split.
If the consent is effective, the liability
for the entire gift tax of each spouse is
joint and several.
If you meet these requirements and
want your gifts to be considered made
one-half by you and one-half by your
spouse, check the “Yes” box on line 12,
page 1; complete lines 13 through 17;
and have your spouse sign the consent
on line 18.
If you are not married or do not wish to
split gifts, skip to Schedule A.

Line 15
If you were married to one another for all
of 2006, check the “Yes” box and skip to
line 17. If you were married for only part
of the year, check the “No” box and go to
line 16. If you were divorced or widowed
after you made the gift, you cannot elect
to split gifts if you remarried before the
end of 2006.

Line 16
Check the box that explains the change in
your marital status during the year and
give the date you were married, divorced,
or widowed, or the date the donor spouse
died.

Consent of Spouse
Your spouse must sign the consent for
your gift-splitting election to be valid. The
consent may generally be signed at any
time after the end of the calendar year.
However, there are two exceptions.
1. The consent may not be signed
after April 16 following the end of the year
in which the gift was made. But, if neither
you nor your spouse has filed a gift tax
return for the year on or before that date,
the consent must be made on the first gift
tax return for the year filed by either of
you.
2. The consent may not be signed
after a notice of deficiency for the gift tax
for the year has been sent to either you or
your spouse.
The executor for a deceased spouse
or the guardian for a legally incompetent
spouse may sign the consent.

When the Consenting Spouse Must
Also File a Gift Tax Return
In general, if you and your spouse elect
gift splitting, then both spouses must file
his or her own, individual, gift tax return.

However, only one spouse must file a
return if all the requirements of either of
the exceptions below are met. In the
exceptions below, “gifts” means gifts (or
parts of gifts) that do not qualify for the
political organization, educational, or
medical exclusions.
Exception 1. During the calendar year:
• Only one spouse made any gifts,
• The total value of these gifts to each
third-party donee does not exceed
$24,000, and
• All of the gifts were of present interests.
Exception 2. During the calendar year:
• Only one spouse (the donor spouse)
made gifts of more than $12,000 but not
more than $24,000 to any third-party
donee,
• The only gifts made by the other
spouse (the consenting spouse) were
gifts of not more than $12,000 to
third-party donees other than those to
whom the donor spouse made gifts, and
• All of the gifts by both spouses were of
present interests.
If either of the above exceptions is
met, only the donor spouse must file a
return and the consenting spouse
signifies consent on that return.
Specific instructions for Part 2 — Tax
Computation are continued under Part
2 — Tax Computation (Page 1 of Form
709) on page 11. Because you must
complete Schedules A, B, and C to fill out
Part 2, you will find instructions for these
schedules below.

beginning in 2006. You can make this
election for as many separate people as
you made QTP contributions.
You can only apply the election to a
maximum of $60,000. You must report in
2006 all of your QTP contributions for any
single person that exceed $60,000 (in
addition to any other gifts you made to
that person).
For each of the 5 years, you report in
Part 1 of Schedule A, 1/5 (20%) of the
amount for which you made the election.
In column E of Part 1 (Schedule A), list
the date of the gift as the calendar year
for which you are deemed to have made
the gift (that is, the year of the current
Form 709 you are filing). Do not list the
actual year of contribution for subsequent
years.
However, if in any of the last 4 years of
the election, you did not make any other
gifts that would require you to file a Form
709, you do not need to file Form 709 to
report that year’s portion of the election
amount.
Example. In 2006, D contributed
$85,000 to a QTP for the benefit of her
son. D elects to treat $60,000 of this
contribution as having been made ratably
over a 5-year period. Accordingly, for
2006, D reports the following:

Schedule A. Computation
of Taxable Gifts

In 2007, D gives a gift of $20,000 cash
to her niece and no other gifts. On her
2007 Form 709, D reports in Part 1 of
Schedule A, the $20,000 gift to her niece
and a $12,000 gift to her son (the one-fifth
portion of the 2006 gift that is treated as
made in 2007). In column E of Part 1
(Schedule A), D lists “2007” as the date of
the gift.
D makes no gifts in 2008, 2009, or
2010. She is not required to file Form 709
in any of those years to report the 1/5
portion of the QTP gift, because she is
not otherwise required to file Form 709.
You make the election by checking the
box on line B at the top of Schedule A.
The election must be made for the
calendar year in which the contribution is
made. Also attach an explanation that
includes the following:
• The total amount contributed per
individual beneficiary,
• The amount for which the election is
being made, and
• The name of the individual for whom
the contribution was made.
If you are electing gift splitting, apply
the gift splitting rules before applying
these rules. Each spouse would then
decide individually whether to make this
QTP election.

Do not enter on Schedule A any gift or
part of a gift that qualifies for the political
organization, educational, or medical
exclusions. In the instructions below,
“gifts” means gifts (or parts of gifts) that
do not qualify for the political
organization, educational, or medical
exclusions.

Line A. Valuation Discounts
If the value of any gift you report in either
Part 1, Part 2, or Part 3 of Schedule A
reflects a discount for lack of
marketability, a minority interest, a
fractional interest in real estate, blockage,
market absorption, or for any other
reason, answer “Yes” to the question at
the top of Schedule A. Also, attach an
explanation giving the factual basis for the
claimed discounts and the amount of the
discounts taken.

Line B. Qualified Tuition
Programs (529 Plans or
Programs)
If in 2006, you contributed more than
$12,000 to a QTP on behalf of any one
person, you may elect to treat up to
$60,000 of the contribution for that person
as if you had made it ratably over a
5-year period. The election allows you to
apply the annual exclusion to a portion of
the contribution in each of the 5 years,

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$25,000
+ $12,000
$37,000

!

CAUTION

(the amount of the contribution
that exceeded $60,000)
(the 1/5 portion from the election)
the total gift to her son listed in
Part 1 of Schedule A for 2006.

Contributions to QTPs do not
qualify for the education exclusion.

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Instructions for Form 709

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How To Complete Parts 1, 2,
and 3
After you determine which gifts you made
are subject to the gift tax and therefore
should be listed on Schedule A, you must
divide these gifts between:
1. Part 1 — those subject only to the
gift tax (gifts made to nonskip persons —
see Part 1 — Gifts Subject Only to Gift
Tax on page 7),
2. Part 2 — those subject to both the
gift and GST taxes (gifts made to skip
persons — see Gifts Subject to Both Gift
and GST Taxes below and Part 2 — Direct
Skips on page 8), and
3. Part 3 — those subject only to the
gift tax at this time but which could later
be subject to GST tax (gifts that are
indirect skips, see Part 3 — Indirect Skips
on page 9).
If you need more space, attach a
separate sheet using the same format as
Schedule A.
Use the following guidelines when

TIP entering gifts on Schedule A:

• Enter a gift only once — in Part 1, Part
2, or Part 3;

• Do not enter any gift or part of a gift

that qualified for the political organization,
educational, or medical exclusion;
• Enter gifts under “Gifts made by
spouse” only if you have chosen to split
gifts with your spouse and your spouse is
required to file a Form 709 (see Part 1 —
General Information, Lines 12 – 18. Split
Gifts on page 4); and
• In column F, enter the full value of the
gift (including those made by your
spouse, if applicable). If you have chosen
to split gifts, that one-half portion of the
gift is entered in column G.

Gifts to Donees Other Than
Your Spouse
You must always enter all gifts of future
interests that you made during the
calendar year regardless of their value.
No gift splitting. If the total gifts of
present interests to any donee are more
than $12,000 in the calendar year, then
you must enter all such gifts that you
made during the year to or on behalf of
that donee, including those gifts that will
be excluded under the annual exclusion.
If the total is $12,000 or less, you need
not enter on Schedule A any gifts (except
gifts of future interests) that you made to
that donee. Enter these gifts in the top
half of Part 1, 2, or 3, as applicable.
Gift splitting elected. Enter on Schedule
A the entire value of every gift you made
during the calendar year while you were
married, even if the gift’s value will be
less than $12,000 after it is split in
Column G of Part 1, 2, or 3 of
Schedule A.
Gifts made by spouse. If you elected
gift splitting and your spouse made gifts,
list those gifts in the space below “Gifts
made by spouse” in Part 1, 2, or 3. Report

these gifts in the same way you report
gifts you made.

Gifts to Your Spouse
Except for the gifts described below, you
do not need to enter any of your gifts to
your spouse on Schedule A.
Terminable interest. Terminable
interests are defined in the instructions to
Part 4, line 4 on page 9. If all the
terminable interests you gave to your
spouse qualify as life estates with power
of appointment (defined under Life estate
with power of appointment on page 9),
you do not need to enter any of them on
Schedule A.
However, if you gave your spouse any
terminable interest that does not qualify
as a life estate with power of
appointment, you must report on
Schedule A all gifts of terminable interests
you made to your spouse during the year.
Charitable remainder trusts. If you
make a gift to a charitable remainder trust
and your spouse is the only noncharitable
beneficiary (other than yourself), the
interest you gave to your spouse is not
considered a terminable interest and,
therefore, should not be shown on
Schedule A. For definitions and rules
concerning these trusts, see section
2056(b)(8)(B) and Regulations section
20.2055-2.
Future interest. Generally, you should
not report a gift of a future interest to your
spouse unless the future interest is also a
terminable interest that is required to be
reported as described above. However, if
you gave a gift of a future interest to your
spouse and you are required to report the
gift on Form 709 because you gave the
present interest to a donee other than
your spouse, then you should enter the
entire gift, including the future interest
given to your spouse, on Schedule A. You
should use the rules under Gifts Subject
to Both Gift and GST Taxes below to
determine whether to enter the gift on
Schedule A, Part 1, Part 2, or Part 3.
Spouses who are not U.S. citizens. If
your spouse is not a U.S. citizen and you
gave him or her a gift of a future interest,
you must report on Schedule A all gifts to
your spouse for the year. If all gifts to your
spouse were present interests, do not
report on Schedule A any gifts to your
spouse if the total of such gifts for the
year does not exceed $120,000 and all
gifts in excess of $12,000 would qualify
for a marital deduction if your spouse
were a U.S. citizen (see the instructions
for Schedule A, Part 4, line 4, on page 9).
If the gifts exceed $120,000, you must
report all of the gifts even though some
may be excluded.

Gifts Subject to Both Gift
and GST Taxes
Definitions
Direct skip. The GST tax you must
report on Form 709 is that imposed only

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on inter vivos direct skips. An “inter vivos
direct skip” is a transfer that is:
• Subject to the gift tax,
• Of an interest in property, and
• Made to a skip person.
All three requirements must be met
before the gift is subject to the GST tax.
A gift is “subject to the gift tax” if you
are required to list it on Schedule A of
Form 709. However, if you make a
nontaxable gift (which is a direct skip) to a
trust for the benefit of an individual, this
transfer is subject to the GST tax unless:
1. During the lifetime of the
beneficiary, no corpus or income may be
distributed to anyone other than the
beneficiary and
2. If the beneficiary dies before the
termination of the trust, the assets of the
trust will be included in the gross estate of
the beneficiary.
Note. If the property transferred in the
direct skip would have been includible in
the donor’s estate if the donor had died
immediately after the transfer, see
Transfers Subject to an Estate Tax
Inclusion Period (ETIP) on page 3.
To determine if a gift “is of an interest
in property” and “is made to a skip
person,” you must first determine if the
donee is a “natural person” or a “trust” as
defined below.
Trust. For purposes of the GST tax, trust
includes not only an explicit trust, but also
any other arrangement (other than an
estate) that although not explicitly a trust,
has substantially the same effect as a
trust. For example, trust includes life
estates with remainders, terms for years,
and insurance and annuity contracts. A
transfer of property that is conditional on
the occurrence of an event is a transfer
in trust.
Interest in property. If a gift is made to a
natural person, it is always considered a
gift of an interest in property for purposes
of the GST tax.
If a gift is made to a trust, a natural
person will have an interest in the
property transferred to the trust if that
person either has a present right to
receive income or corpus from the trust
(such as an income interest for life) or is a
permissible current recipient of income or
corpus from the trust (for example,
possesses a general power of
appointment).
Skip person. A donee, who is a natural
person, is a skip person if that donee is
assigned to a generation that is two or
more generations below the generation
assignment of the donor. See
Determining the Generation of a
Donee on page 7.
A donee that is a trust is a skip person
if all the interests in the property
transferred to the trust (as defined above)
are held by skip persons.
A trust will also be a skip person if
there are no interests in the property
transferred to the trust held by any
person, and future distributions or

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Instructions for Form 709

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terminations from the trust can be made
only to skip persons.

These gifts should always be listed in
Part 1 of Schedule A.

Nonskip person. A nonskip person is
any donee who is not a skip person.

Charitable Remainder Trusts

Examples

Gifts in the form of charitable remainder
annuity trusts, charitable remainder
unitrusts, and pooled income funds are
not transfers to skip persons and
therefore are not direct skips. You should
always list these gifts in Part 1 of
Schedule A even if all of the life
beneficiaries are skip persons.

The GST rules can be illustrated by the
following examples.
Example 1. You give your house to
your daughter for her life with the
remainder then passing to her children.
This gift is made to a “trust” even though
there is no explicit trust instrument. The
interest in the property transferred (the
present right to use the house) is
transferred to a nonskip person (your
daughter). Therefore, the trust is not a
skip person because there is an interest
in the transferred property that is held by
a nonskip person, and the gift is not a
direct skip. The transfer is an indirect
skip, however, because on the death of
the daughter, a termination of her interest
in the trust will occur that may be subject
to the GST tax. See the instructions for
Part 3, Schedule A (under Part 3 —
Indirect Skips on page 9) for a discussion
of how to allocate GST exemption to such
a trust.
Example 2. You give $100,000 to
your grandchild. This gift is a direct skip
that is not made in trust. You should list it
in Part 2 of Schedule A.
Example 3. You establish a trust that
is required to accumulate income for 10
years and then pay its income to your
grandchildren for their lives and upon
their deaths distribute the corpus to their
children. Because the trust has no current
beneficiaries, there are no present
interests in the property transferred to the
trust. All of the persons to whom the trust
can make future distributions (including
distributions upon the termination of
interests in property held in trust) are skip
persons (that is, your grandchildren and
great-grandchildren). Therefore, the trust
itself is a skip person and you should list
the gift in Part 2 of Schedule A.
Example 4. You establish a trust
that pays all of its income to your
grandchildren for 10 years. At the end of
10 years, the corpus is to be distributed to
your children. Since for this purpose
interests in trusts are defined only as
present interests, all of the interests in
this trust are held by skip persons (the
children’s interests are future interests).
Therefore, the trust is a skip person and
you should list the entire amount you
transferred to the trust in Part 2 of
Schedule A even though some of the
trust’s ultimate beneficiaries are nonskip
persons.

Determining the Generation of a
Donee
Generally, a generation is determined
along family lines as follows.
1. If the donee is a lineal descendant
of a grandparent of the donor (for
example, the donor’s cousin, niece,
nephew, etc.), the number of generations
between the donor and the descendant
(donee) is determined by subtracting the
number of generations between the
grandparent and the donor from the
number of generations between the
grandparent and the descendant (donee).
2. If the donee is a lineal descendant
of a grandparent of a spouse (or former
spouse) of the donor, the number of
generations between the donor and the
descendant (donee) is determined by
subtracting the number of generations
between the grandparent and the spouse
(or former spouse) from the number of
generations between the grandparent and
the descendant (donee).
3. A person who at any time was
married to a person described in (1) or (2)
above is assigned to the generation of
that person. A person who at any time
was married to the donor is assigned to
the donor’s generation.
4. A relationship by adoption or
half-blood is treated as a relationship by
whole-blood.
5. A person who is not assigned to a
generation according to (1), (2), (3), or (4)
above is assigned to a generation based
on his or her birth date as follows:
a. A person who was born not more
than 121/2 years after the donor is in the
donor’s generation.
b. A person born more than 121/2
years, but not more than 371/2 years, after
the donor is in the first generation
younger than the donor.
c. Similar rules apply for a new
generation every 25 years.
If more than one of the rules for
assigning generations applies to a donee,
that donee is generally assigned to the
youngest of the generations that would
apply.
If an estate or trust, partnership,
corporation, or other entity (other than
certain charitable organizations and trusts
described in sections 511(a)(2) and
511(b)(2) and governmental entities) is a
donee, then each person who indirectly
receives the gift through the entity is
treated as a donee and is assigned to a
generation as explained in the above
rules.
Charitable organizations and trusts,
described in sections 511(a)(2) and
511(b)(2), and governmental entities are
assigned to the donor’s generation.
Transfers to such organizations are
therefore not subject to the GST tax.

Generation Assignment Where
Intervening Parent Is Deceased
If you made a gift to your grandchild and
at the time you made the gift, the
grandchild’s parent (who is your or your
spouse’s or your former spouse’s child) is
deceased, then for purposes of
generation assignment, your grandchild is
considered to be your child rather than
your grandchild. Your grandchild’s
children will be treated as your
grandchildren rather than your
great-grandchildren.
This rule is also applied to your lineal
descendants below the level of
grandchild. For example, if your
grandchild is deceased, your greatgrandchildren who are lineal descendants
of the deceased grandchild are
considered your grandchildren for
purposes of the GST tax.
This special rule may also apply in
other cases of the death of a parent of the
transferee. If property is transferred to an
individual who is a descendant of a parent
of the transferor and that individual’s
parent (who is a lineal descendant of the
parent of the transferor) is deceased at
the time the transfer is subject to gift or
estate tax, then for purposes of
generation assignment, the individual is
treated as if he or she is a member of the
generation that is one generation below
the lower of:
• The transferor’s generation or
• The generation assignment of the
youngest living ancestor of the individual
who is also a descendant of the parent of
the transferor.
The same rules apply to the
generation assignment of any descendant
of the individual.
This rule does not apply to a transfer
to an individual who is not a lineal
descendant of the transferor if the
transferor at the time of the transfer has
any living lineal descendants.
If any transfer of property to a trust
would have been a direct skip except for
this generation assignment rule, then the
rule also applies to transfers from the
trust attributable to such property.
Ninety-day rule. For assigning
individuals to generations for purposes of
the GST tax, any individual who dies no
later than ninety-days after a transfer
occurring by reason of the death of the
transferor is treated as having
predeceased the transferor. The
ninety-day rule applies to transfers
occurring on or after July 18, 2005. See

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Regulations section 26.2651-1 for more
information.

Part 1—Gifts Subject Only to
Gift Tax
List in Part 1 gifts subject only to the gift
tax. Generally, all of the gifts you made to
your spouse (that are required to be
listed, as described earlier), to your
children, and to charitable organizations
are not subject to the GST tax and
should, therefore, be listed only in Part 1.
Group the gifts in four categories:
• Gifts made to your spouse,

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Instructions for Form 709

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• Gifts made to third parties that are to

be split with your spouse,
• Charitable gifts (if you are not splitting
gifts with your spouse), and
• Other gifts.
If a transfer results in gifts to two or more
individuals (such as a life estate to one
with remainder to the other), list the gift to
each separately.
Number and describe all gifts
(including charitable, public, and similar
gifts) in the columns provided in
Schedule A.

Column B
Describe each gift in enough detail so that
the property can be easily identified, as
explained below.
For real estate, give:

• A legal description of each parcel;
• The street number, name, and area if

the property is located in a city; and
• A short statement of any improvements
made to the property.
For bonds, give:
The number of bonds transferred;
The principal amount of each bond;
Name of obligor;
Date of maturity;
Rate of interest;
Date or dates when interest is payable;
Series number, if there is more than
one issue;
• Exchanges where listed or, if unlisted,
give the location of the principal business
office of the corporation; and
• CUSIP number. The CUSIP number is
a nine-digit number assigned by the
American Banking Association to traded
securities.

•
•
•
•
•
•
•

For stocks:

• Give number of shares;
• State whether common or preferred;
• If preferred, give the issue, par value,

quotation at which returned, and exact
name of corporation;
• If unlisted on a principal exchange, give
the location of the principal business
office of the corporation, the state in
which incorporated, and the date of
incorporation;
• If listed, give principal exchange; and
• CUSIP number.
For interests in property based on the
length of a person’s life, give the date of
birth of the person. If you transfer any
interest in a closely held entity, provide
the EIN of the entity.
For life insurance policies, give the
name of the insurer and the policy
number.
Clearly identify in the description
column which gifts create the opening of
an ETIP as described under Transfers
Subject to an Estate Tax Inclusion Period
(ETIP) on page 3. Describe the interest
that is creating the ETIP. An allocation of
GST exemption to property subject to an
ETIP that is made prior to the close of the
ETIP becomes effective no earlier than
the date of the close of the ETIP. See the
instructions for Schedule C under

Schedule C. Computation of GST Tax
beginning on page 10.

Column D. Donor’s Adjusted Basis
of Gifts
Show the basis you would use for income
tax purposes if the gift were sold or
exchanged. Generally, this means cost
plus improvements, less applicable
depreciation, amortization, and depletion.
For more information on adjusted
basis, see Pub. 551, Basis of Assets.

Columns E and F. Date and Value
of Gift
The value of a gift is the fair market value
of the property on the date the gift is
made. The 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 when both have
reasonable knowledge of all 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.
The fair market value of a stock or
bond (whether listed or unlisted) is the
mean between the highest and lowest
selling prices quoted on the valuation
date. If only the closing selling prices are
available, then the fair market value is the
mean between the quoted closing selling
price on the valuation date and on the
trading day before the valuation date. To
figure the fair market value if there were
no sales on the valuation date, see the
instructions for Schedule B of Form 706.
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.
Generally, the best indication of the
value of real property is the price paid for
the property in an arm’s-length
transaction on or before the valuation
date. If there has been no such
transaction, use the comparable sales
method. In comparing similar properties,
consider differences in the date of the
sale, and the size, condition, and location
of the properties, and make all
appropriate adjustments.
The value of all annuities, life estates,
terms for years, remainders, or reversions
is generally the present value on the date
of the gift.
Sections 2701 and 2702 provide
special valuation rules to determine the
amount of the gift when a donor transfers
an equity interest in a corporation or
partnership (section 2701) or makes a gift
in trust (section 2702). The rules only
apply if, immediately after the transfer, the
donor (or an applicable family member)
holds an applicable retained interest in
the corporation or partnership, or retains
an interest in the trust. For details, see
sections 2701 and 2702, and their
regulations.

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Column G. Split Gifts
Enter an amount in this column only if you
have chosen to split gifts with your
spouse.

Split Gifts—Gifts Made by
Spouse
If you elected to split gifts with your
spouse and your spouse has given a
gift(s) that is being split with you, enter in
this area of Part 1 information on the
gift(s) made by your spouse. If only you
made gifts and your are splitting them
with your spouse, do not make an entry in
this area.
Generally, if you elect to split your
gifts, you must split all gifts made by you
and your spouse to third-party donees.
The only exception is if you gave your
spouse a general power of appointment
over a gift you made.

Supplemental Documents
To support the value of your gifts, you
must provide information showing how it
was determined.
For stock of close corporations or
inactive stock, attach balance sheets,
particularly the one nearest the date of
the gift, and statements of net earnings or
operating results and dividends paid for
each of the 5 preceding years.
For each life insurance policy, attach
Form 712, Life Insurance Statement.
Note for single premium or paid-up
policies. In certain situations, for
example, where the surrender value of
the policy exceeds its replacement cost,
the true economic value of the policy will
be greater than the amount shown on line
59 of Form 712. In these situations, report
the full economic value of the policy on
Schedule A. See Rev. Rul. 78-137,
1978-1 C.B. 280 for details.
If the gift was made by means of a
trust, attach a certified or verified copy of
the trust instrument to the return on which
you report your first transfer to the trust.
However, to report subsequent transfers
to the trust, you may attach a brief
description of the terms of the trust or a
copy of the trust instrument.
Also attach any appraisal used to
determine the value of real estate or
other property.
If you do not attach this information,
you must include in Schedule A full
information to explain how the value was
determined.

Part 2—Direct Skips
List in Part 2 only those gifts that are
currently subject to both the gift and GST
taxes. You must list the gifts in Part 2 in
the chronological order that you made
them. Number, describe, and value the
gifts as described in the instructions for
Part 1 on page 7.
If you made a transfer to a trust that
was a direct skip, list the entire gift as one
line entry in Part 2.

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Column C. 2632(b) Election
If you elect under section 2632(b)(3) to
not have the automatic allocation rules of
section 2632(b) apply to a transfer, enter
a check in column C next to the transfer.
You must also attach a statement to Form
709 clearly describing the transaction and
the extent to which the automatic
allocation is not to apply. Reporting a
direct skip on a timely filed Form 709 and
paying the GST tax on the transfer will
qualify as such a statement.
How to report generation-skipping
transfers after the close of an ETIP. If
you are reporting a generation-skipping
transfer that was subject to an ETIP
(provided the ETIP closed as a result of
something other than the death of the
transferor; see Form 706), and you are
also reporting gifts made during the year,
complete Schedule A as you normally
would with the following changes.
Report the transfer subject to an ETIP
on Schedule A, Part 2.
Column B. In addition to the
information already requested, describe
the interest that is closing the ETIP;
explain what caused the interest to
terminate; and list the year the gift portion
of the transfer was reported and its item
number on Schedule A that was originally
filed to report the gift portion of the ETIP
transfer.
Column E. Give the date the ETIP
closed rather than the date of the initial
gift.
Columns F, G, and H. Enter “N/A” in
these columns.
The value is entered only in Column B
of Part 1, Schedule C. See Column B on
page 10.

Split Gifts—Gifts Made by
Spouse
See this heading under Part 1 on page 8.

Part 3—Indirect Skips
Some gifts made to trusts are subject only
to gift tax at the time of the transfer but
later may be subject to GST tax. The GST
tax could apply either at the time of a
distribution from the trust, at the
termination of the trust, or both.
Section 2632(c) defines indirect skips
and applies special rules to the allocation
of GST exemption to such transfers. In
general, an indirect skip is a transfer of
property that is subject to gift tax (other
than a direct skip) and is made to a GST
trust. A GST trust is a trust that could
have a generation-skipping transfer with
respect to the transferor, unless the trust
provides for certain distributions of trust
corpus to non-skip persons. See section
2632(c)(3)(B) for details.
List in Part 3 those gifts that are
indirect skips as defined in section
2632(c) or may later be subject to GST
tax. This includes indirect skips for which
election (2), described below, will be
made in the current year or has been
made in a previous year. You must list the

gifts in Part 3 in the chronological order
that you made them.

Column C. 2632(c) Election
Section 2632(c) provides for the
automatic allocation of the donor’s
unused GST exemption to indirect skips.
This section also sets forth three different
elections you may make regarding the
allocation of exemption.
Election 1. You may elect not to have the
automatic allocation rules apply to the
current transfer made to a particular
trust.
Election 2. You may elect not to have the
automatic rules apply to both the
current transfer and any and all future
transfers made to a particular trust.
Election 3. You may elect to treat any
trust as a GST trust for purposes of the
automatic allocation rules.
See section 2632(c)(5) for details.
When to make an election. Election (1)
is timely made if it is made on a timely
filed gift tax return for the year the transfer
was made or was deemed to have been
made.
Elections (2) and (3) may be made on
a timely filed gift tax return for the year for
which the election is to become effective.
To make one of these elections, check
column C next to the transfer to which the
election applies. You must also attach an
explanation as described below. If you
are making election (2) or (3) on a return
on which the transfer is not reported,
simply attach the statement described
below.
If you are reporting a transfer to a trust
for which election (2) or (3) was made on
a previously filed return, do not make an
entry in column C for that transfer and do
not attach a statement.
Attachment. You must attach a
statement to Form 709 that describes the
election you are making and clearly
identifies the trusts and/or transfers to
which the election applies.

Split Gifts—Gifts Made by
Spouse
See this heading under Part I on page 8.

Part 4—Taxable Gift
Reconciliation
Line 2
Enter the total annual exclusions you are
claiming for the gifts listed on Schedule A.
See Annual Exclusion on page 2. If you
split a gift with your spouse, the annual
exclusion you claim against that gift may
not be more than the smaller of your half
of the gift or $12,000.

Deductions
Line 4. Marital deduction
Enter on line 4 all of the gifts to your
spouse that you listed on Schedule A and
for which you are claiming a marital
deduction. Do not enter any gift that you
did not include on Schedule A. On the
dotted line on line 4, indicate which

-9-

numbered items from Schedule A are
gifts to your spouse for which you are
claiming the marital deduction.
Do not enter on line 4 any gifts to

TIP your spouse who was not a U.S.
citizen at the time of the gift.
You may deduct all gifts of
nonterminable interests made during the
year that you entered on Schedule A
regardless of amount, and certain gifts of
terminable interests as outlined below.
Terminable interests. Generally, you
cannot take the marital deduction if the
gift to your spouse is a terminable
interest. In most instances, a terminable
interest is nondeductible if someone other
than the donee spouse will have an
interest in the property following the
termination of the donee spouse’s
interest. Some examples of terminable
interests are:
• A life estate,
• An estate for a specified number of
years, or
• Any other property interest that after a
period of time will terminate or fail.
If you transfer an interest to your
spouse as sole joint tenant with yourself
or as a tenant by the entirety, the interest
is not considered a terminable interest
just because the tenancy may be
severed.
Life estate with power of appointment.
You may deduct, without an election, a
gift of a terminable interest if all four
requirements below are met:
1. Your spouse is entitled for life to all
of the income from the entire interest;
2. The income is paid yearly or more
often;
3. Your spouse has the unlimited
power, while he or she is alive or by will,
to appoint the entire interest in all
circumstances; and
4. No part of the entire interest is
subject to another person’s power of
appointment (except to appoint it to your
spouse).
If either the right to income or the
power of appointment given to your
spouse pertains only to a specific portion
of a property interest, the marital
deduction is allowed only to the extent
that the rights of your spouse meet all
four of the above conditions. For
example, if your spouse is to receive all of
the income from the entire interest, but
only has a power to appoint one-half of
the entire interest, then only one-half
qualifies for the marital deduction.
A partial interest in property is treated
as a specific portion of an entire interest
only if the rights of your spouse to the
income and to the power constitute a
fractional or percentile share of the entire
property interest. This means that the
interest or share will reflect any increase
or decrease in the value of the entire
property interest. If the spouse is entitled
to receive a specified sum of income
annually, the capital amount that would
produce such a sum will be considered

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the specific portion from which the spouse
is entitled to receive the income.
Election to deduct qualified terminable
interest property (QTIP). You may elect
to deduct a gift of a terminable interest if it
meets requirements (1), (2), and (4) on
page 9, even though it does not meet
requirement (3).
You make this election simply by
listing the qualified terminable interest
property on Schedule A and deducting its
value from Schedule A, Part 4, line 4. You
are presumed to have made the election
for all qualified property that you both list
and deduct on Schedule A. You may not
make the election on a late filed Form
709.

Line 5
Enter the amount of the annual
exclusions that were claimed for the gifts
you listed on line 4.

Line 7. Charitable Deduction
You may deduct from the total gifts made
during the calendar year all gifts you gave
to or for the use of:
• The United States, a state or political
subdivision of a state or the District of
Columbia, for exclusively public purposes;
• Any corporation, trust, community
chest, fund, or foundation organized and
operated only for religious, charitable,
scientific, literary, or educational
purposes, or to prevent cruelty to children
or animals, or to foster national or
international amateur sports competition
(if none of its activities involve providing
athletic equipment unless it is a qualified
amateur sports organization), as long as
no part of the earnings benefits any one
person, no substantial propaganda is
produced, and no lobbying or
campaigning for any candidate for public
office is done;
• A fraternal society, order, or
association operating under a lodge
system, if the transferred property is to be
used only for religious, charitable,
scientific, literary, or educational
purposes, including the encouragement of
art and the prevention of cruelty to
children or animals; or
• Any war veterans’ organization
organized in the United States (or any of
its possessions), or any of its auxiliary
departments or local chapters or posts, as
long as no part of any of the earnings
benefits any one person.
On line 7, show your total charitable,
public, or similar gifts (minus annual
exclusions allowed). On the dotted line,
indicate which numbered items from the
top of Schedule A are charitable gifts.

Line 10. GST Tax
If you will pay GST tax with this return on
any direct skips reported on this return,
the amount of that GST tax is also
considered a gift and must be added to
your other gifts reported on this return.
If you entered gifts on Part 2, or if you
and your spouse elected gift splitting and
your spouse made gifts subject to the
GST tax that you are required to show on

your Form 709, complete Schedule C,
and enter on line 10 the total of Schedule
C, Part 3, column H. Otherwise, enter
zero on line 10.

Schedule C. Computation
of GST Tax

Line 12. Election Out of QTIP
Treatment of Annuities

Part 1—Generation-Skipping
Transfers

Section 2523(f)(6) creates an automatic
QTIP election for gifts of joint and survivor
annuities where the spouses are the only
possible recipients of the annuity prior to
the death of the last surviving spouse.

You must enter in Part 1 all of the gifts
you listed in Part 2 of Schedule A, in that
order and using those same values.

The donor spouse can elect out of
QTIP treatment, however, by checking
the box on line 12 and entering the item
number from Schedule A for the annuities
for which you are making the election.
Any annuities entered on line 12 cannot
also be entered on line 4 of Schedule A,
Part 4. Any such annuities that are not
listed on line 12 must be entered on line 4
of Part 4, Schedule A. If there is more
than one such joint and survivor annuity,
you are not required to make the election
for all of them. Once made, the election is
irrevocable.

Column B
If you are reporting a generation-skipping
transfer that occurred because of the
close of an ETIP, complete column B for
such transfer as follows.
1. Provided the GST exemption is
being allocated on a timely filed gift tax
return, enter the value as of the close of
the ETIP.
2. If the exemption is being allocated
after the due date (including extensions)
for the gift tax return on which the transfer
should be reported, enter the value as of
the time the exemption allocation was
made.

Column C

Schedule B. Gifts From
Prior Periods
If you did not file gift tax returns for
previous periods, check the “No” box on
page 1 of Form 709, line 11a of Part 1 —
General Information and skip to Part 2 —
Tax Computation on the same page.
(However, be sure to complete Schedule
C, if applicable.) If you filed gift tax returns
for previous periods, check the “Yes” box
on line 11a and complete Schedule B by
listing the years or quarters in
chronological order as described below. If
you need more space, attach a separate
sheet using the same format as
Schedule B.
If you filed returns for gifts made
before 1971 or after 1981, show the
calendar years in column A. If you filed
returns for gifts made after 1970 and
before 1982, show the calendar quarters.
In column B, identify the Internal
Revenue Service office where you filed
the returns. If you have changed your
name, be sure to list any other names
under which the returns were filed. If
there was any other variation in the
names under which you filed, such as the
use of full given names instead of initials,
please explain.
In column C, enter the amount of
unified credit actually applied in the prior
period. If you are required to reduce your
allowable unified credit because of gifts
you made after September 8, 1976, and
before January 1, 1977, enter the unified
credit determined after the reduction.
In column E, show the correct amount
(the amount finally determined) of the
taxable gifts for each earlier period.
See Regulations section 25.2504-2 for
rules regarding the final determination of
the value of a gift.

-10-

You are allowed to claim the gift tax
annual exclusion currently allowable with
respect to your reported direct skips
(other than certain direct skips to trusts —
see Note below), using the rules and
limits discussed earlier for the gift tax
annual exclusion. However, you must
allocate the exclusion on a gift-by-gift
basis for GST computation purposes. You
must allocate the exclusion to each gift to
the maximum allowable amount and in
chronological order, beginning with the
earliest gift that qualifies for the exclusion.
Be sure that you do not claim a total
exclusion of more than $12,000 per
donee.
Note. You may not claim any annual
exclusion for a transfer made to a trust
unless the trust meets the requirements
discussed under Direct skip on page 6.

Part 2—GST Exemption
Reconciliation
Line 1
Every donor is allowed a lifetime GST
exemption. The amount of the exemption
for 2006 is $2,000,000. For transfers
made through 1998, the GST exemption
was $1 million. The exemption amounts
for 1999 through 2005 are as follows:
Year
1999 . . . .
2000 . . . .
2001 . . . .
2002 . . . .
2003 . . . .
2004 and 2005

.
.
.
.
.
.

.
.
.
.
.
.

.
.
.
.
.
.

.
.
.
.
.
.

.
.
.
.
.
.

Amount
$1,010,000
$1,030,000
$1,060,000
$1,100,000
$1,120,000
$1,500,000

In general, each annual increase can only
be allocated to transfers made (or
appreciation occurring) during or after the
year of the transfer.
Example. A donor made $1,750,000
in GSTs through 2005, and allocated all

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$1,500,000 of the exemption to those
transfers. In 2006, the donor makes a
$207,000 taxable generation-skipping
transfer. The donor can allocate $207,000
of exemption to the 2006 transfer but
cannot allocate the $293,000 of unused
2006 exemption to pre-2006 transfers.
However, if in 2005, the donor made a
$1,750,000 transfer to a trust that was not
a direct skip, but from which generationskipping transfers could be made in the
future, the donor could allocate the
increased exemption to the trust, even
though no additional transfers were made
to the trust. See Regulations section
26.2642-4 for details on the
redetermination of the applicable fraction
when additional exemption is allocated to
the trust.
You should keep a record of your
transfers and exemption allocations to
make sure that any future increases are
allocated correctly.
Enter on line 1 of Part 2 the maximum
GST exemption you are allowed. This will
not necessarily be the highest indexed
amount if you made no generationskipping transfers during the year of the
increase.
The donor can apply this exemption to
inter vivos transfers (that is, transfers
made during the donor’s life) on Form
709. The executor can apply the
exemption on Form 706 to transfers
taking effect at death. An allocation is
irrevocable.
In the case of inter vivos direct skips, a
portion of the donor’s unused exemption
is automatically allocated to the
transferred property unless the donor
elects otherwise. To elect out of the
automatic allocation of exemption, you
must file Form 709 and attach a
statement to it clearly describing the
transaction and the extent to which the
automatic allocation is not to apply.
Reporting a direct skip on a timely filed
Form 709 and paying the GST tax on the
transfer will qualify as such a statement.
Special QTIP election. If you have
elected QTIP treatment for any gifts in
trust listed on Schedule A, then you may
make an election on Schedule C to treat
the entire trust as non-QTIP for purposes
of the GST tax. The election must be
made for the entire trust that contains the
particular gift involved on this return. Be
sure to identify by item number the
specific gift for which you are making this
special QTIP election.

Line 5
Enter on line 5 the amount of GST
exemption you are applying to transfers
reported in Part 3 of Schedule A.

Section 2632(c) provides an automatic
allocation to indirect skips of any unused
GST exemption. The unused exemption
is allocated to indirect skips to the extent
necessary to make the inclusion ratio
zero for the property transferred. You may
elect out of this automatic allocation as
explained in the instructions for Part 3 on
page 9.

You may enter an amount in column C
that is greater than the amount you
entered in column B.

Line 6

Part 2—Tax Computation
(Page 1 of Form 709)

Notice of allocation. You may wish to
allocate GST exemption with this return to
transfers not reported on this return, such
as a late allocation.
To allocate your exemption to such
transfers, attach a statement to this Form
709 and entitle it “Notice of Allocation.”
The notice must contain the following for
each trust (or other transfer):
• Clearly identify the trust, including the
trust’s EIN, if known;
• If this is a late allocation, the year the
transfer was reported on Form 709;
• The value of the trust assets at the
effective date of the allocation;
• The amount of your GST exemption
allocated to each gift (or a statement that
you are allocating exemption by means of
a formula such as “an amount necessary
to produce an inclusion ratio of zero”);
and
• The inclusion ratio of the trust after the
allocation.
Total the exemption allocations and
enter this total on line 6.
Note. Where the property involved in
such a transfer is subject to an ETIP
because it would be includible in the
donor’s estate if the donor died
immediately after the transfer (other than
by reason of the donor having died within
3 years of making the gift), an allocation
of the GST exemption at the time of the
transfer will only become effective at the
end of the ETIP. For details, see
Transfers Subject to an Estate Tax
Inclusion Period (ETIP) on page 3 and
section 2642(f).

Part 3—Tax Computation
You must enter in Part 3 every gift you
listed in Part 1 of Schedule C.

Column C
You are not required to allocate your
available exemption. You may allocate
some, all, or none of your available
exemption, as you wish, among the gifts
listed in Part 3 of Schedule C. However,
the total exemption claimed in column C
may not exceed the amount you entered
on line 3 of Part 2 of Schedule C.

-11-

Column D
Carry your computation to three decimal
places (for example, “1.000”).

Lines 4 and 5
To compute the tax for the amount on line
3 (to be entered on line 4) and the tax for
the amount on line 2 (to be entered on
line 5), use the Table for Computing Gift
Tax on page 12.

Line 7
If you are a citizen or resident of the
United States, you must take any
available unified credit against gift tax.
Nonresident aliens may not claim the
unified credit. If you are a nonresident
alien, delete the $345,800 entry, skip line
8, and write in zero on line 11.

Line 10
Enter 20% of the amount allowed as a
specific exemption for gifts made after
September 8, 1976, and before January
1, 1977. (These amounts will be among
those listed in Schedule B, column D, for
gifts made in the third and fourth quarters
of 1976.)

Line 13
Gift tax conventions are in effect with
Australia, Austria, Denmark, France,
Germany, Japan, Sweden, and the United
Kingdom. If you are claiming a credit for
payment of foreign gift tax, figure the
credit on an attached sheet and attach
evidence that the foreign taxes were paid.
See the applicable convention for details
of computing the credit.

Line 19
Make your check or money order payable
to “United States Treasury” and write the
donor’s social security number on it. You
may not use an overpayment on Form
1040 to offset the gift and GST taxes
owed on Form 709.

Signature
As a donor, you must sign the return. If
you pay another person, firm, or
corporation to prepare your return, that
person must also sign the return as
preparer unless he or she is your regular
full-time employee.

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Table for Computing Gift Tax
Column A

Column B

Column C

Column D

Taxable
amount
over

Taxable
amount
not over —

Tax on
amount in
Column A

Rate of tax
on excess
over amount
in Column A

----$10,000
20,000
40,000
60,000

$10,000
20,000
40,000
60,000
80,000

----$1,800
3,800
8,200
13,000

18%
20%
22%
24%
26%

80,000
100,000
150,000
250,000
500,000

100,000
150,000
250,000
500,000
750,000

18,200
23,800
38,800
70,800
155,800

28%
30%
32%
34%
37%

750,000
1,000,000
1,250,000
1,500,000
2,000,000

1,000,000
1,250,000
1,500,000
2,000,000
-------

248,300
345,800
448,300
555,800
780,800

39%
41%
43%
45%
46%

Disclosure, 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 the information to
figure and collect the right amount of tax.
Form 709 is used to report (1) transfers
subject to the federal gift and certain GST
taxes and to figure the tax, if any, due on
those transfers, and (2) allocation of the
lifetime GST exemption to property
transferred during the transferor’s lifetime.
Our legal right to ask for the
information requested on this form is
sections 6001, 6011, 6019, and 6061,
and their regulations. You are required to
provide the information requested on this
form. Section 6109 requires that you
provide your social security number; this
is so we know who you are, and can
process your Form 709.
Generally, tax returns and return
information are confidential, as stated in
section 6103. However, section 6103

allows or requires the Internal Revenue
Service to disclose or give such
information shown on your Form 709 to
the Department of Justice to enforce the
tax laws, both civil and criminal, and to
cities, states, the District of Columbia,
U.S. commonwealths or possessions, and
certain foreign governments 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.
We may disclose the information on
your Form 709 to the Department of the
Treasury and contractors for tax
administration purposes; and to other
persons as necessary to obtain
information which we cannot get in any
other way for purposes of determining the
amount of or to collect the tax you owe.

-12-

We may disclose the information on your
Form 709 to the Comptroller General to
review the Internal Revenue Service. We
may also disclose the information on your
Form 709 to Committees of Congress;
federal, state and local child support
agencies; and to other federal agencies
for the purpose of determining entitlement
for benefits or the eligibility for, and the
repayment of, loans.
If you are required to but do not file a
Form 709, or do not provide the
information requested on the form, or
provide fraudulent information, you may
be charged penalties and be subject to
criminal prosecution.
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 instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law.
The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated average
time is:
Recordkeeping . . . . . . . . . .

52 min.

Learning about the law or the
form . . . . . . . . . . . . . . . . . . 1 hr., 53 min.
Preparing the form . . . . . . . . 1 hr., 58 min.
Copying, assembling, and
sending the form to the IRS

1 hr., 3 min.

If you have comments concerning the
accuracy of these time 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 tax form to this
office. Instead, see Where To File on
page 4.