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 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.

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 $11,000 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:

Year	Amount
1999	$1,010,000
2000	$1,030,000
2001	$1,060,000
2002	$1,100,000

Example. A donor had made $1.5 million in GST transfers through 2001, and had allocated all $1,060,000 of the exemption to those transfers. In 2002, the donor makes a $5,000 taxable generation- skipping transfer. The donor can allocate $5,000 of exemption to the 2002 transfer but cannot allocate the $35,000 of unused 2002 exemption to pre-2002 transfers.

However, if in 1998 the donor had made a $1.5 million transfer to a trust that was not a direct skip, but from which generation-skipping 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 have made no GST transfer during the year of the increase. For example, if your last GST transfer was in 2000, your maximum GST exemption would be $1,030,000, not $1,100,000.

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 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, 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.

Table for Computing 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	- - - - -	18%
$10,000	20,000	$1,800	20%
20,000	40,000	3,800	22%
40,000	60,000	8,200	24%
60,000	80,000	13,000	26%
80,000	100,000	18,200	28%
100,000	150,000	23,800	30%
150,000	250,000	38,800	32%
250,000	500,000	70,800	34%
500,000	750,000	155,800	37%
750,000	1,000,000	248,300	39%
1,000,000	1,250,000	345,800	41%
1,250,000	1,500,000	448,300	43%
1,500,000	2,000,000	555,800	45%
2,000,000	2,500,000	780,800	49%
2,500,000	_ _ _ _ _	1,025,800	50%

Line 5

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.

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 (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 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 $345,800 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.

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 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 also disclose this information to other countries under a tax treaty, or to Federal and state agencies to enforce Federal nontax criminal laws and 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. 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	39 min.
Learning about the law or the form	1 hr., 8 min.
Preparing the form	1 hr., 55 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 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.

Previous | First

Instructions Index | 2002 Tax Help Archives | Tax Help Archives | Home