What the Form Is For

Form 706-GS(D) is a tax form filed by individuals (called “skip person distributees”) who receive money or property from a trust that's subject to the Generation-Skipping Transfer (GST) tax. Think of the GST tax as an additional layer of taxation designed to prevent wealthy families from avoiding estate taxes by skipping a generation—for example, when a grandparent gives assets directly to a grandchild, bypassing their own children.

If you're a grandchild, great-grandchild, or other beneficiary who is two or more generations younger than the person who created the trust, you're considered a “skip person.” When you receive distributions from certain trusts, you may owe GST tax on top of any other taxes. Form 706-GS(D) is how you calculate and report that tax to the IRS.

The trustee of the trust should first send you Form 706-GS(D-1), which provides the information you need to complete your Form 706-GS(D). Without this notification form from the trustee, you won't have the details necessary to accurately report your distributions. IRS.gov

When You’d Use It (Filing, Late Returns, and Amended Returns)

When to File: You must file Form 706-GS(D) if you received a taxable distribution from a trust during 2018 and the trustee sent you a Form 706-GS(D-1) showing an inclusion ratio greater than zero. The GST tax is calculated on a calendar year basis, regardless of your personal income tax accounting period. Your return is due between January 1 and April 15 of the year following the distribution (so April 15, 2019, for 2018 distributions). If April 15 falls on a weekend or holiday, the deadline extends to the next business day.

Extension of Time: You can get an automatic 6-month extension to file by submitting Form 8892 before the original due date. Note that an extension to file your regular income tax return (Form 1040) automatically extends the deadline for your gift tax return as well, but does not extend the time to pay any taxes owed.

Late Returns: If you miss the deadline, penalties and interest will apply unless you can show reasonable cause. The IRS imposes penalties for both late filing and late payment. Interest accrues on any unpaid tax from the due date until the balance is paid in full.

Amended Returns: If you discover errors after filing, you'll need to file an amended Form 706-GS(D). If you paid too much tax and are seeking a refund, use Form 843 (Claim for Refund and Request for Abatement) to request the overpayment back. IRS.gov

Key Rules for 2018

Exemption Amount: For 2018, the GST tax exemption was $11,180,000 per person. This means the person who created the trust (the transferor) could shield up to this amount from GST tax by allocating their exemption. However, if the exemption wasn't fully allocated, or if distributions exceed the exempted amount, you as the beneficiary may owe GST tax.

Tax Rate: The GST tax rate for 2018 was a flat 40%—the same as the top estate and gift tax rate. This rate applies to the taxable amount of your distribution after adjusting for the inclusion ratio.

Inclusion Ratio: This critical number (provided by the trustee on Form 706-GS(D-1)) determines what portion of your distribution is subject to GST tax. An inclusion ratio of zero means no GST tax is due on that distribution, so you don't need to report it. An inclusion ratio of 1.0 means the entire distribution is taxable. Ratios between zero and one mean a proportional amount is taxable.

Annual Exclusion: Unlike gift tax returns, there is no annual exclusion for GST distributions reported on Form 706-GS(D). You must report all taxable distributions regardless of amount.

Where to File: For distributions made in 2018, if you filed before June 30, 2019, you mailed your return to Cincinnati, OH. After June 30, 2019, the filing location changed to Kansas City, MO. IRS.gov

Step-by-Step (High Level)

Step 1: Gather Your Documents

Collect all Forms 706-GS(D-1) you received from trustees during 2018. You must attach copies of these forms to your return. These notifications contain the essential information: distribution dates, values, and inclusion ratios.

Step 2: Complete Part I (General Information)

Enter your identifying information: name, Social Security number (or EIN if you're a trust), address, citizenship, and legal residence. If someone else is filing on your behalf (like a guardian or trustee), include their information as well.

Step 3: Fill Out Part II (Report Distributions)

List each taxable distribution you received. For each item, enter the item number from Form 706-GS(D-1), calculate the tentative transfer by multiplying the distribution value by the inclusion ratio, and show any consideration you paid. If you received distributions from multiple trusts or with different inclusion ratios, list each separately. Attach additional sheets if needed.

Step 4: Calculate Adjusted Allowable Expenses (Part III, Line 4)

You can deduct certain expenses related to preparing this return or determining the GST tax. These include preparation fees, legal fees, and accounting costs. However, you must adjust these expenses by the inclusion ratio—if your inclusion ratio is 0.50, you can only deduct 50% of qualifying expenses.

Step 5: Compute the Tax (Part III)

Follow the worksheet in Part III to calculate your GST tax. This involves subtracting allowable expenses, determining the maximum tax rate in effect when the distribution occurred (40% for 2018), and computing your final tax liability.

Step 6: Sign and Submit

Sign and date the return. Make your check payable to “United States Treasury” and write your SSN, the year (2018), and “Form 706-GS(D)” on the check. Mail everything together to the appropriate IRS address.

IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing When Required
Many beneficiaries don't realize they need to file if they received Form 706-GS(D-1). Solution: Carefully review any forms trustees send you. If the inclusion ratio in Part II, column d, is greater than zero for any distribution, you must file.

Mistake #2: Missing or Incorrect Identification Numbers
Using the wrong Social Security number or failing to include your EIN (if you're a trust) will cause processing delays or rejection. Solution: Double-check that all numbers match your official documents exactly.

Mistake #3: Failing to Attach Form 706-GS(D-1)
The IRS requires you to attach copies of all Forms 706-GS(D-1) you received. Solution: Make copies before filing and keep the originals for your records.

Mistake #4: Incorrectly Calculating the Tentative Transfer
Some filers forget to multiply the distribution value by the inclusion ratio. Solution: Use the formula: Tentative Transfer = Distribution Value × Inclusion Ratio. If the trustee didn't complete the value columns on Form 706-GS(D-1), attach a statement explaining your calculations.

Mistake #5: Not Adjusting Expenses Properly
You cannot deduct the full amount of preparation fees—you must multiply these expenses by your inclusion ratio(s). Solution: Follow the prorating formula in the instructions carefully, especially if you have multiple distributions with different inclusion ratios.

Mistake #6: Using the Wrong Tax Rate
The maximum tax rate varies by year. Solution: Use the table in the instructions to confirm the correct rate for when your distribution occurred (40% for 2018).

Mistake #7: Mailing to the Wrong Address
The IRS changed filing addresses during 2018-2019. Solution: Always check the most current instructions for the correct mailing address based on your filing date. IRS.gov

What Happens After You File

Processing Time: The IRS will process your return and issue any refunds or balance due notices. Processing typically takes several weeks to a few months. If you owe additional tax, you'll receive a notice with payment instructions.

Notices and Correspondence: The IRS will send notices to the address you provided on line 2b of the return. Keep this address current, and respond promptly to any IRS correspondence.

Statute of Limitations: Once filed, the IRS generally has three years from the due date (or filing date, if later) to audit your return. However, if you substantially undervalued property (reporting 65% or less of actual value), the IRS has up to six years to assess additional tax.

Penalties and Interest: If you owe tax and filed or paid late, the IRS will assess penalties and interest. If you later receive a penalty notice and believe you had reasonable cause for the delay, you can request penalty relief by sending an explanation to the IRS—but only after receiving the notice, not when initially filing.

Audit Risk: Returns claiming large valuation discounts or involving complex trust structures face higher audit risk. Keep thorough documentation of all valuations and calculations for at least three years (preferably six years for substantial valuation issues).

Payment Plans: If you cannot pay the full amount owed, you can request an installment agreement using Form 9465, though interest will continue to accrue until the balance is paid. IRS.gov

FAQs

Q1: Do I need to file if the inclusion ratio is zero?

No. If all distributions you received have an inclusion ratio of zero (shown on Form 706-GS(D-1), Part II, line 3, column d), you don't need to file Form 706-GS(D). Zero inclusion ratio means no GST tax is due.

Q2: What if I never received Form 706-GS(D-1) from the trustee?

Contact the trustee immediately and request the form. Trustees are legally required to file Form 706-GS(D-1) for taxable distributions. If the trustee fails to provide it, you may need to consult with a tax professional to determine your filing obligations.

Q3: Can I file Form 706-GS(D) electronically?

As of 2018, Form 706-GS(D) could not be filed electronically. You must file a paper return by mail to the appropriate IRS Service Center.

Q4: What's the difference between Form 706-GS(D) and Form 706-GS(T)?

Form 706-GS(D) is filed by distributees (beneficiaries who receive distributions from a trust). Form 706-GS(T) is filed by trustees to report GST tax due on certain termination events. These are separate forms for different situations.

Q5: How do I determine the fair market value if I disagree with the trustee's valuation?

If you believe the values on Form 706-GS(D-1) are incorrect, attach a statement to your Form 706-GS(D) explaining your position, showing your calculations, and providing supporting documentation such as appraisals. However, disagreements over valuation can lead to audits, so consult a tax professional.

Q6: Can I deduct state GST taxes I paid?

The instructions don't specifically address state GST taxes, but generally, state taxes aren't deductible expenses for calculating federal GST tax. However, you may be able to deduct them on your income tax return depending on your situation.

Q7: What if I received distributions from multiple trusts?

You must report all taxable distributions from all trusts on a single Form 706-GS(D) for the calendar year. List each distribution separately in Part II, using continuation sheets if necessary. You may repeat item numbers if distributions came from different trusts. Attach all Forms 706-GS(D-1) from all trusts.

Additional Resources

• IRS Form 706-GS(D) Page
• Instructions for Form 706-GS(D)
• IRS Taxpayer Assistance: 1-800-829-1040

This guide provides general information for the 2018 tax year. Tax laws are complex and change frequently. For specific situations, consult a qualified tax professional or estate planning attorney.