Privacy Act and Paperwork Reduction Act Notice.
We ask for the information on this form to carry out the Internal
Revenue laws of the United States. We need it to figure and collect
the right amount of tax. Subtitle B, Estate and Gift Taxes, of the
Internal Revenue Code imposes a tax on certain distributions from a
trust to a skip person. This form is used to determine the amount of
the taxes that you owe. Section 6011 requires you to provide your
taxpayer identification number (SSN, ITIN, or EIN). Routine uses of
this information include giving it to the Department of Justice for
civil and criminal litigation, and to cities, states, and the District
of Columbia for use in administering their tax laws. If you fail to
provide this information in a timely manner, you may be subject to
penalties and interest.
You are not required to provide the information requested on a form
that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a
form or its 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 Code section 6103.
The time needed to complete and file this form will vary depending
on individual circumstances. The average estimated time is:
Recordkeeping
|
7 min.
|
Learning about the law or the form
|
13 min.
|
Preparing the form
|
24 min.
|
Copying, assembling, and sending the form to the IRS
|
19 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 Tax Forms Committee, Western Area
Distribution Center, Rancho Cordova, CA 95743-0001. DO NOT
send the form to this address. Instead, see Where to File
on page 1.
Item To Note
You might be able to deduct on your Form 1040 the
generation-skipping transfer tax you pay with this form. See the
instructions for Part III, line 11, on page 2 for details.
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 Generation- Skipping Trust.
Even if you receive a Form 706-GS(D-1), however, you do not need to
file Form 706-GS(D) if the inclusion ratio found in Part II, line 3,
column d, of Form 706-GS(D-1) is zero for ALL distributions
reported to you. If you are required to file Form 706-GS(D), you do
not have to include any distributions that have an inclusion ratio of
zero.
When To File
The generation-skipping transfer tax on distributions is figured
and reported on a calendar year basis, regardless of your income tax
accounting period. You must file Form 706-GS(D) on or after January 1
but not later than April 15 of the year following the calendar year
when the distributions were made.
If you are not able to file the return by the due date, you may
request an extension of time to file by filing Form 2758,
Application for Extension of Time To File Certain Excise,
Income, Information, and Other Returns. This does not provide for an
automatic extension, so be sure to file Form 2758 in adequate time to
allow the IRS to consider the application and to reply before the
return's regular due date.
Where To File
File Form 706-GS(D) at the Internal Revenue Service Center
specified on your copy of Form 706-GS(D-1).
Penalties and Interest
Section 6651 provides penalties for both late filing and late
payment unless there is reasonable cause for the delay. The law also
provides penalties for willful attempts to evade payment of tax.
The late filing penalty will not be imposed if the taxpayer can
show that the failure to file a timely return is due to reasonable
cause. Taxpayers filing late (after the due date, including
extensions) should attach an explanation to the return to show
reasonable cause.
Section 6662 provides a penalty for underpayment of GST taxes of
$5,000 or more that is attributable to valuation understatements. A
valuation understatement occurs when the reported value of property
listed on Form 706-GS(D) is 50% or less of the actual value of the
property.
Interest will be charged on taxes not paid by their due date, even
if an extension of time to file is granted. Interest is also charged
on any additions to tax imposed by section 6651 from the due date of
the return (including any extensions) until the addition to tax is
paid.
Signature
Either the distributee or an authorized representative must sign
Form 706-GS(D).
If you fill in your own return, leave the Paid Preparer's space
blank. If someone prepares your return and does not charge you, that
person should not sign the return. Generally, anyone who is paid to
prepare your return must sign it and fill in the other blanks in the
Paid Preparer's Use Only area of the return.
Specific Instructions
Part I
Line 1a
If the skip person distributee is a trust, enter the name of the
trust here.
Line 1b
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 to this return
a copy of each Form 706-GS(D-1) you received during the year. You
should also keep a copy for your records.
If you need more space than is provided in Part II, attach an
additional sheet of the same size and use the same format that is used
in Part II. Make sure that the total tentative transfers from the
continuation sheet are included on line 3 of Part II.
Column b
In column b, use the same item number that was used for the
corresponding distribution on Form 706-GS(D-1). If you receive
distributions from more than one trust, you may need to repeat item
numbers.
Column c
There may be instances when the trustee has either not completed
columns e (value) and f (tentative transfer) of
Form 706-GS(D-1) or when you disagree with the amounts the trustee
entered. If this occurs, attach a statement to this return showing
what you think are the correct amounts and how you figured them.
To figure the tentative transfer (col. c of this form),
multiply the applicable inclusion ratio from Part II, col. d,
of Form 706-GS(D-1) by the value of the distribution. Use the
following guidelines to determine the value of the distribution. See
the instructions for Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return, for more information. IRS
forms and publications may be ordered by calling our toll-free number
1-800-TAX-FORM (1-800-829-3676).
You must determine the value of the property distributed as of the
date of the distribution. The date of distribution is listed in Part
II, column c, of Form 706-GS(D-1).
The value of a distribution is its fair market value on the date of
distribution. Fair market value is the price at which the property
would change hands between a willing buyer and a willing seller, when
neither is forced to buy or to sell, and both have reasonable
knowledge of all the relevant facts. Fair market value may not be
determined by a forced sale price, nor by the sale price of the item
in a market other than that in which the item is most commonly sold to
the public. The location of the item must be taken into account
whenever appropriate.
Reduce the value of any property being reported in Part II by the
amount of any consideration provided by the distributee.
Stock of close corporations or inactive stock must be valued on the
basis of net worth, earnings, earning and dividend capacity, and other
relevant factors. For such stock, attach balance sheets, particularly
the one nearest the date of the distribution, and statements of net
earnings or operating results and dividends paid for each of the 5
preceding years.
Reduce the reported value of real estate by the amount of any
outstanding lien against the property on the date of distribution.
Attach copies of any such liens. Explain how the reported values were
determined and attach copies of any appraisals.
Part III
Line 4
You may deduct from the amount of the distribution you received any
adjusted allowable expenses incurred in connection with the
preparation of this Form 706-GS(D) or any other expenses incurred in
connection with the determination, collection, or refund of the GST
tax reported or which should have been reported on this return.
Adjusted allowable expenses are equal to the total allowable
expenses multiplied by the inclusion ratio. If you have more than one
inclusion ratio in Part II, column d, of Form 706-GS(D-1),
prorate the total expense among the inclusion ratios based on the
relative value of each distribution made at the various inclusion
ratios.
You may deduct an expense even though it has not been paid at the
time the return is filed as long as the amount of the expense is
clearly ascertainable at that time. If an additional allowable expense
is incurred after the return is filed, file Form 843, Claim
for Refund and Request for Abatement, to claim a refund.
Example.
The following example illustrates the rules above:
You listed three distributions in Part II of Form 706-GS(D). The
value of the first distribution is $10,000 and has an inclusion ratio
of .25. The value of the second distribution is $20,000 and has an
inclusion ratio of .33. The value of the third distribution is $30,000
and has an inclusion ratio of .50. You received the completed return
from the preparer along with the bill for the preparer's fee on April
14 and filed the return on April 15. You paid the preparer's $200 fee
on April 20. The adjusted allowable expense you should report on line
4 of Part III is $80, calculated as follows:
3
FORMULAS
Line 6
Enter the maximum Federal estate tax rate in effect at the time the
generation-skipping distribution occurred. At the time this form was
printed, that rate was 55% (.55).
Line 8
You can only claim a credit for state GST tax if the taxable
distribution occurred at the same time as, and as a result of, the
death of an individual, and the distribution is also reported on this
form. Enter on line 8 the state GST tax, if any, that meets these
requirements.
Line 9
The credit for state GST taxes cannot exceed 5% of the gross GST
tax.
Line 11
The generation-skipping transfer tax you pay on income
distributions qualifies as a deductible tax for the purpose of Federal
income tax. The tax is deductible on Schedule A (Form 1040) filed for
the year in which the GST tax was paid. For example, you would deduct
on your 1999 Schedule A (filed in 2000) the GST tax paid in 1999 on
distributions made in 1998.
You can only deduct the taxes you paid on distributions that were
both reported on Form 706-GS(D) and included in your income on Form
1040. These distributions will be reported to you by the trustee on
Schedule K-1 (Form 1041), Beneficiary's Share of Income,
Deductions, Credits, etc.
To figure the deduction, first look at Part II, column d,
of all Forms 706-GS(D-1) that you received for the year. If the
inclusion ratio is the same for all items, compute a fraction, the
numerator of which is the total of all income items from your
Schedules K-1 (Form 1041) whose values are included in column e
of Form 706-GS(D-1). The denominator is the total of all the fair
market values in column e. Multiply the amount on line 11,
Form 706-GS(D), by this fraction. Enter the result on the applicable
line of Schedule A (Form 1040) (or the applicable line of Form 1041 if
the distribution was made to a trust).
If the distributions, whether from the same or from different
trusts, have different inclusion ratios, the GST tax attributable to
income distributions from each different inclusion ratio must be
figured separately in the following manner.
Step 1. Figure the portion of the total GST tax that is
attributable to distributions having the same inclusion ratio. To do
this, multiply the total GST tax shown on line 11, Form 706-GS(D), by
a fraction. The numerator of the fraction is the amount in Part II,
column c, Form 706-GS(D), for all distributions that have
the same inclusion ratio. The denominator is line 3 of Form 706-GS(D).
Calculate this amount for each different inclusion ratio.
Step 2. Multiply the amount determined in Step 1 above
by a different fraction. The numerator of this fraction is the income
shown on Schedule K-1 (Form 1041) from distributions that both have
the same inclusion ratios and are also included in column e
of Form 706-GS(D-1). The denominator is the total amount shown in
column e of Form 706-GS(D-1) for those same distributions.
Line 13
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).
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