Generation-Skipping Transfer Tax Return for Distributions

Instructions for
Form 706-GS(D)

Department of the Treasury
Internal Revenue Service

(Rev. November 2011)

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

What’s New

• File Form 706-GS(D) for 2011

distributions by April 17, 2012. The
due date is April 17, instead of April
15, because April 15 is a Sunday and
April 16 is the Emancipation Day
holiday in the District of Columbia.
• The IRS has created a page on
IRS.gov for information about Form
706-GS(D) and its instructions, at
www.irs.gov/form706gsd. Information
about any future developments (such
as legislation enacted after we
release it) will be posted on that
page.

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.
If you receive a Form 706-GS(D-1)
and the inclusion ratio found on Part
II, line 3, column d, is zero for all
distributions, you do not need to file
Form 706-GS(D). 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, generally,
must file Form 706-GS(D) on or after
Nov 14, 2011

January 1 but not later than April 15
of the year following the calendar
year when the distributions were
made.
However, for distributions made in
2011, the due date for Form
706-GS(D) will be April 17, 2012,
because April 15 is a Sunday and
April 16 is the Emancipation Day
holiday in the District of Columbia.
See section 7503.
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, Application
for Automatic Extension of Time To
File Certain Business Income Tax,
Information, and Other Returns. 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 following
address:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999

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.
A return is late when it is filed after
the due date, including extensions.
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.
Reasonable Cause Determinations.
If you receive a notice about penalties
and interest after you file Form
706-GS(D), send us an explanation
and we will determine if you meet
reasonable cause criteria. Do not
attach an explanation when you file
Form 706-GS(D). Explanations
attached to the return at the time of
filing will not be considered.
Cat. No. 10828G

Section 6662 provides a penalty
for underpayment of GST taxes which
exceeds $5,000, if the underpayment
is due to a valuation understatement.
A substantial valuation understatement occurs when the reported
value of property listed on Form
706-GS(D) is 65% or less of the
actual value of the property. A gross
valuation understatement occurs
when the reported value of property
listed on Form 706-GS(D) is 40% 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.
Return preparer. The Small
Business and Work Opportunity Tax
Act of 2007 extended return preparer
penalties to all tax return preparers.
Under section 6694 and its
regulations, tax return preparers, who
prepare any return or claim for refund
which shows an understatement of
tax liability due to willful or reckless
conduct, can be penalized $5,000 or
50% of the income earned (or income
to be earned), whichever is greater,
for each return.

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 Use Only 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 the return must sign the
return in the space provided and fill in
the Paid Preparer Use Only area.
See section 7701(a)(36)(B) for
exceptions.
In addition to signing and
completing the required information,
the paid preparer must give a copy of
the completed return to the
distributee.

Note. A paid preparer may sign
original or amended returns by rubber
stamp, mechanical device, or
computer software program.

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

Line 1b
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.

Line 1c
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.

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 a copy of each
Form 706-GS(D-1) you received
during the year to this return. 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
(column c of this form), multiply the
applicable inclusion ratio from Form
706-GS(D-1), Part II, column d by the
value of the distribution. Use the
following guidelines to determine the
value of the distribution.
The value of a distribution is its fair
market value on the date of
distribution. Fair market value (FMV)
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.
FMV 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.
Determine the value of the
property distributed as of the date of
the distribution. The date of
distribution is listed in Form
706-GS(D-1), Part II, column c.
Reduce the value of any property
being reported in Part II by the
amount of any consideration provided
by the distributee.
Value the stock of close
corporations or inactive stock 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
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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.
For more information, see the
Instructions for Form 706, United
States Estate (and GenerationSkipping Transfer) Tax Return. You
can get the Instructions for Form 706,
and other IRS forms and publications,
by calling 1-800-TAX-FORMS or by
visiting IRS.gov.

Part III
Line 4
You may deduct 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 from the amount of the
distribution you received.
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

Line 6
Enter, using the table below, the
applicable rate in effect at the time
the generation-skipping distribution
occurred.

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).

Table of Maximum Tax Rates

If the generation-skipping
transfer occurred

The
maximum
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%

After December 31, 2009, but
before January 1, 2011 . . . .

0%

After December 31, 2010, but
before January 1, 2013 . . . .

35%

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; section 6109
requires you to provide your identification number. This form is used to figure the amount of the taxes that you owe.
Failure to provide this information in a timely manner, or providing false or fraudulent information, may subject you to
penalties. We may disclose this information to the Department of Justice for civil and criminal litigation, and to cities,
states, the District of Columbia, and U.S. commonwealths and possessions 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.
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. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18 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:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the form
to this address. Instead, see Where To File.

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