What Form 706-GS(D) (2022) Is For
IRS Form 706-GS(D) (2022) is used by individuals who receive taxable distributions from a trust subject to the generation-skipping transfer tax. This federal tax applies when assets are transferred to someone who is two or more generations younger than the grantor, such as a grandchild or great-grandchild. The purpose of this tax is to prevent large estates from avoiding estate and gift taxes by transferring assets directly to younger generations.
This form must be filed by any skip person who receives money or property from a trust when the inclusion ratio is greater than zero. The trustee provides Form 706-GS(D-1) for each taxable distribution, which supplies the information required to complete the return. If the inclusion ratio is zero, no filing is necessary.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions for IRS Form 706-GS(D) (2022)—Generation-Skipping Transfer Tax, see our comprehensive guide.
When You’d Use Form 706-GS(D)
Taxpayers use Form 706-GS(D) when they receive a taxable distribution from a trust that is subject to the generation-skipping transfer tax. This applies to skip persons such as grandchildren, great-grandchildren, or other younger beneficiaries who receive transferred assets from a grantor’s trust. The form must be filed by April 15 of the year following the taxable distribution.
If a taxpayer cannot meet the filing deadline, an automatic six-month extension may be requested using Form 7004. However, an extension to the filing does not extend the time to pay taxes owed. Late filing or payment may result in additional taxes, penalties, and interest, unless reasonable cause can be demonstrated.
Key Rules or Details for 2022
For 2022, the generation-skipping transfer tax rate was 40 percent, matching the top federal estate and gift tax rate, with a GSTT exemption amount of $12,060,000 per individual. A skip person—such as a grandchild or great-grandchild—must report taxable distributions based on the fair market value of assets transferred, reduced by any consideration paid. Allowable expenses, such as appraisal or preparation fees, can be deducted; however, they must be adjusted according to the inclusion ratio to ensure accurate taxation under federal transfer tax rules.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for estate, gift, and trust forms.
Step-by-Step (High Level)
Step 1: Gather Forms 706-GS(D-1)
The taxpayer should collect every Form 706-GS(D-1) received from trustees for the calendar year. Each form lists the distribution date, fair market value, and inclusion ratio for each taxable distribution and will be attached to the return.
Step 2: Complete Part I — General Information
The taxpayer should enter the filer’s legal name, address, and Social Security Number or EIN, as applicable. If a representative or guardian is filing, the filer should include the representative's or guardian's name and their relationship to the filer.
Step 3: Complete Part II — Taxable Distributions
The taxpayer should list each taxable distribution using the exact item numbers shown on the related Forms 706-GS(D-1). The filer should attach copies of all Forms 706-GS(D-1) and include any explanatory statement if reported values differ.
Step 4: Complete Part III — Tax Computation
The taxpayer should total tentative transfers, subtract adjusted allowable expenses, and apply the 40 percent rate for 2022 to compute the GST tax due. The filer should verify inclusion ratios and prorate expenses when multiple ratios apply.
Step 5: Sign, Pay, and Mail
The taxpayer should sign and date the return, and a paid preparer should also sign the Paid Preparer section if used. The filer should enclose the payment and mail the package to the IRS Service Center in Kansas City, Missouri.
Common Mistakes and How to Avoid Them
Common filing errors can delay processing or result in IRS penalties. Taxpayers can prevent these issues by following a few key steps.
- Filing Form 1139 before the 2018 return: The IRS rejects early filings; always submit Form 1120 first or simultaneously.
- Missing the 12-month deadline: The tentative refund window closes one year after the loss year; mark the date immediately after the end of the year.
- Claiming ineligible carrybacks: Non-farming losses cannot be carried back for 2018; confirm eligibility under current tax law before filing.
- Making calculation errors: Double-check all math and totals to ensure taxable income and refund amounts are correct.
- Exceeding the 80% deduction limit: Review adjusted taxable income carefully and cap deductions at 80%.
- Using Form 1139 for Section 965 years: The IRS disallows refund claims for Section 965 inclusion years; verify the year before filing.
Careful preparation, timely payment, and complete documentation help taxpayers file Form 706-GS(D) accurately, avoiding unnecessary delays or penalties.
What Happens After You File
After filing Form 706-GS(D), the IRS processes the return and applies any payments made toward the generation-skipping transfer tax. Most tax returns are processed within several weeks, though complex filings may take longer. If additional information or documentation is required, the IRS will send a written notice to the taxpayer for clarification.
If an overpayment occurs, a refund will be issued after review, while underpayments will accrue interest until the balance is fully paid. Taxpayers should retain copies of all forms, valuations, and receipts indefinitely, as these may be needed for audits or future estate and gift tax filings. Keeping accurate records ensures proper compliance with federal tax laws and supports any claims or corrections made later.
FAQs
What is IRS Form 706-GS(D) (2022) used for?
IRS Form 706-GS(D) (2022) is used to report the generation-skipping transfer tax on taxable distributions received by a skip person. It ensures that transferred assets are properly taxed under federal estate and gift tax laws.
Who is considered a skip person for generation-skipping transfer tax purposes?
A skip person is an individual who is two or more generations younger than the grantor, such as grandchildren or great-grandchildren. Skip persons receiving taxable distributions or outright transfers must file this form when required.
How does the GST tax relate to estate and gift taxes?
The GST tax operates in conjunction with the estate tax and gift tax to prevent families from evading federal transfer taxes. It applies when assets are transferred to future generations, bypassing children or other intermediate heirs.
What is the exemption amount for GSTT in 2022?
The GSTT exemption amount for 2022 was $12,060,000 per person. This lifetime exemption shields eligible transfers from additional tax, reducing the impact of taxation on wealth passed to younger generations.
What happens if Form 706-GS(D) is filed late?
If a taxpayer files Form 706-GS(D) after the deadline without requesting an extension, the IRS may impose interest and penalties on taxes owed. Timely filing helps avoid additional tax and ensures compliance with federal tax rules.
How are taxable distributions valued for GST tax purposes?
Each taxable distribution is valued at its fair market value when transferred. The inclusion ratio determines how much of the property or money is subject to tax, ensuring accurate reporting of assets transferred between generations.
