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

Gifts Subject to Both Gift and GST Taxes

Direct Skip

The GST tax you must report on Form 709 is that imposed only on inter vivos direct skips. An inter vivos direct skip is a gift that (a) is subject to the gift tax, (b) is an interest in property, and (c) is 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 (as described above). However, if you make a nontaxable gift (which is a direct skip) to a trust for the benefit of an individual, this transfer is also 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 on page 2.

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 (e.g., 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 below.

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

Nonskip Person

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

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 (e.g., 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:
   1. A person who was born not more than 12½ years after the donor is in the donor's generation.
   2. A person born more than 12½ years, but not more than 37½ years, after the donor is in the first generation younger than the donor.
   3. 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. These gifts should always be listed in Part 1 of Schedule A.

Charitable Remainder Trusts

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.

Generation Assignment Where Intervening Parent Is Dead

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 dead, 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 dead, your great-grandchildren who are lineal descendants of the dead 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. Beginning with gifts made in 1998, the existing rule that applies to grandchildren of the decedent has been extended to apply to other lineal descendants.

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 dead 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 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.

Examples

The generation-skipping transfer 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. The gift is not a direct skip and you should list it in Part 1 of Schedule A. (However, on the death of the daughter, a termination of her interest in the trust will occur that may be subject to the generation-skipping transfer tax. See the instructions for line 5, Part 2, Schedule C (on page 11) 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 (i.e., 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.

Part 1 - Gifts Subject Only to Gift Tax

List gifts subject only to the gift tax in Part 1. 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; 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. Describe each gift in enough detail so that the property can be easily identified, as explained below.

For real estate provide:

• 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 location of principal business office of corporation, state in which incorporated, and 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.

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 estate tax inclusion period (ETIP) as described under Transfers Subject to an Estate Tax Inclusion Period on page 2. Describe the interest that is creating the ETIP. You may not allocate the GST exemption to these transfers until the close of the ETIP. See the instructions for Schedule C beginning on page 10.

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.

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 wherever 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.

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 - Gifts That are Direct Skips and are Subject to Both Gift Tax and Generation-Skipping Transfer Tax

List in Part 2 only those gifts that are 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 gift in trust, list the entire gift as one line entry in Part 2. Enter the entire value of the property transferred to the trust even if the trust has nonskip person future beneficiaries.

How to report GST transfers after the close of an ETIP. If you are reporting a generation-skipping transfer that was subject to an estate tax inclusion period (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.

1. 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.
2. Column D. Give the date the ETIP closed rather than the date of the initial gift.
3. Column E. Enter N/A in Column E.

The value is entered only in Column B, Part 1, Schedule C. See the instructions for Schedule C.

Part 3 - Taxable Gift Reconciliation

If you have made no gifts yourself and are filing this return only to report gifts made by your spouse but which are being split with you, skip lines 1-3 and enter your share of the split gifts on line 4.

Line 2

If you are not splitting gifts with your spouse, skip this line and enter the amount from line 1 on line 3. If you are splitting gifts with your spouse, show half of the gifts you made to third parties on line 2. On the dotted line indicate which numbered items from Parts 1 and 2 of Schedule A you treated this way. 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.

Line 4

If you are not splitting gifts, skip this line and go to line 5. If you gave all of the gifts, and your spouse is only filing to show his or her half of those gifts, you need not enter any gifts on line 4 of your return or include your spouse's half anywhere else on your return. Your spouse should enter the amount from Schedule A, line 2, of your return on Schedule A, line 4, of his or her return.

If both you and your spouse make gifts for which a return is required, the amount each of you shows on Schedule A, line 2, of his or her return must be shown on Schedule A, line 4, of the other's return.

Line 6

Enter the total annual exclusions you are claiming for the gifts listed on Schedule A (including gifts listed on line 4). See Annual Exclusion on page 3. If you split a gift with your spouse, the annual exclusion you claim against that gift may not be more than your half of the gift.

Deductions

Line 8

Enter on line 8 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 8, indicate which numbered items from Schedule A are gifts to your spouse for which you are claiming the marital deduction.

Do not enter on line 8 any gifts to 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 this time 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 4 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 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 above, 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 on line 8, Part 3, Schedule A. There is no longer a box to check to make the election. 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 9

Enter the amount of the annual exclusions that were claimed for the gifts you listed on line 8.

Line 11

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;
• 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 11, 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 (or line 4) are charitable gifts.

Line 14

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 14 the total of Schedule C, Part 3, column H. Otherwise, enter zero on line 14.

Line 17

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.

The donor spouse can elect out of QTIP treatment, however, by checking the box on line 17 and entering the item number from Schedule A for the annuities for which you are making the election. Any annuities entered on line 17 cannot also be entered on line 8 of Schedule A, Part 3. Any such annuities that are not listed on line 17 must be entered on line 8 of Part 3, 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.

Schedule B - Gifts From Prior Periods

If you did not file gift tax returns for previous periods, check the No box on line 11a of Part 1, page 1, and skip to the Tax Computation on page 1. (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 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.

Schedule C - Computation of Generation-Skipping Transfer Tax

Part 1 - Generation-Skipping Transfers

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.

Column B - Transfers Subject to an ETIP

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

If you elected gift splitting, enter half the value of each gift entered in column B. If you did not elect gift splitting, enter zero in column C.

Column E

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 $10,000 per donee.

Note: You may not claim any annual exclusion for a direct skip 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 is indexed for inflation and is published annually by the IRS in a revenue procedure. For transfers made through 1998, the GST exemption was $1 million. The increased exemption amounts are as follows:

Example. A donor had made $1.5 million in GST transfers through 1998 and had allocated all $1 million of the exemption to those transfers. In 2001, the donor makes a $5,000 taxable generation- skipping transfer. The donor can allocate $5,000 of exemption to the 2001 transfer but cannot allocate $5,000 of the unused exemption to pre-1999 transfers, $20,000 of the unused exemption to pre-2000 transfers, or $30,000 of the unused exemption to pre-2001 transfers.

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 have made no GST transfer during the year of the increase. For example, if your last GST transfer was in 1998, your maximum GST exemption would be $1,000,000, not $1,060,000.

The donor can apply this exemption to inter vivos transfers (i.e., 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 application 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, Part 1, 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

New section 2632(c) provides for the automatic allocation of the donor's unused exemption to indirect skips. In general, an indirect skip is the 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. See Elections below for the rules on electing out of this automatic allocation and electing to treat a trust as a GST trust.

Elections. There are three different elections you may make.

1. You may elect not to have the automatic allocation rules apply to an indirect skip.
2. You may elect not to have the automatic rules apply to any or all transfers made to a particular trust.
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 filed if it is filed 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.

Attachment. To make these elections, 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.

Other transfers in trust. You may wish to allocate your exemption to transfers made in trust that do not qualify under the automatic allocation rules. Such transfers may currently be subject to gift tax but not be direct skips. However, future terminations and distributions made from such a trust could be subject to GST tax.

Also, you may wish to allocate your exemption to a trust that is not involved in a transfer listed on Schedule A or C. For example, if your only gift for the year was $10,000 transferred to a trust that had your children as present beneficiaries and your grandchildren as future beneficiaries, you would not be required to file Form 709 for the year. However, future distributions from the trust or the termination of the trust may result in GST tax being due. In this case, you may want to allocate GST exemption to the transfer at the time of the transfer.

Notice of allocation. To allocate your exemption to such transfers, attach a statement to this Form 709 and entitle it Notice of Allocation. You may file one Notice of Allocation and consolidate on it all of your Schedule A, Part 1, transfers, plus all transfers not appearing on Form 709, to which you wish to allocate your exemption. The notice must contain the following for each trust:

• Clearly identify the trust, including the trust's EIN, if known;
• The item number(s) from column A, Schedule A, Part 1, of the gifts to that trust (if applicable);
• The values shown in column E, Schedule A, Part 1, for the gifts (adjusted to account for split gifts, if any, reported on Schedule A, Part 3, line 2) (or, if the allocation is late, the value of the trust assets at the time 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 5.

Note: Where the property involved in such a transfer is subject to an estate tax inclusion period 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), you cannot allocate the GST exemption at the time of the transfer but must wait until the end of the estate tax inclusion period (ETIP). Also, an automatic allocation would not take effect until the end of the ETIP. For details, see Transfers Subject to an Estate Tax Inclusion Period on page 2, 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.

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

Column D

Carry your computation to three decimal places (e.g., 1.000).

Part 2 - Tax Computation (Page 1 of Form)

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 $220,550 entry 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 column D of Schedule B, 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. Table

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 generation-skipping transfer (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, and 6019, 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 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. 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:

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 Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this office. Instead, see Where To File on page 4.

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