What IRS Form 706-GS(D) (2015) Is For
IRS Form 706-GS(D) reports the generation-skipping transfer tax on money or property distributed from a trust to lineal descendants. The return applies when a family transfers assets that bypass their children through outright transfers or indirect skips. It helps determine whether distributions qualify as taxable gifts or fall within the annual exclusion amount under federal gift tax rules.
The form corresponds with Form 706-GS(D-1), which trustees issue to beneficiaries for accurate reporting. Married couples, a surviving spouse, or a transferor’s spouse must include other gifts when filing. These records ensure compliance with transfer taxes on the entire trust and clarify when distributions are necessarily tax-free.
Filers take advantage of available tax benefits, including the annual gift tax exclusion. Proper reporting prevents future estate exposure, aligns capital gains taxes, and confirms eligibility within the $13.99 million exemption.
Taxpayers can find related trust and transfer tax documents through estate, gift, and trust forms.
When You’d Use IRS Form 706-GS(D) (2015)
Taxpayers file Form 706-GS(D) when they receive a taxable distribution from a generation-skipping trust during 2015. A skip person uses this return to report property, cash, or assets transferred two generations below the transferor. The federal tax filing window opens January 1 and closes April 15, 2016, though Emancipation Day shifted that deadline to April 18 for that year.
Filers who need additional time may request an automatic six-month extension using Form 7004. This extension delays the estate tax filing but does not postpone payment of GST tax, gift tax, or income tax obligations. The form must also account for any inclusion ratio above zero, which indicates that part of the trust distribution is taxable. Filing on time avoids additional taxes and ensures that trust assets remain properly documented.
Key Rules and Details for 2015
The 2015 GST tax rate was 40 percent, and the lifetime exemption amount reached $5,430,000 per person. This GST tax exemption worked alongside federal estate tax and gift tax exemptions that applied to taxable estates and taxable income. Automatic allocation rules allow transferors to apply unused exemptions to future generation-skipping transfers without filing additional forms.
Distributions made as direct skips for medical expenses or tuition paid directly to an educational institution were excluded from GST tax. Special rules apply to deceased parent situations and allow certain beneficiaries to avoid GST tax on younger generations. Trusts created before October 22, 1986, or irrevocable trusts existing on September 25, 1985, remained fully exempt under transition provisions.
Each taxpayer should review trust documents to confirm whether assets transferred qualify for a GSTT exemption or require reporting as a taxable distribution. Proper evaluation prevents errors in the next filing steps.
Step-by-Step (High Level)
Step 1: The preparer gathers Form 706-GS(D-1) and any records showing trust income or property held. The documentation should include valuations of assets transferred to determine taxable amounts.
Step 2: The filer enters identification information, including the beneficiary’s name and taxpayer identification number.
Step 3: The preparer lists each taxable distribution and calculates the tentative tax based on the inclusion ratio.
Step 4: The filer deducts expenses such as professional fees or appraisals adjusted by the same ratio.
Step 5: The executor applies the 40 percent GST tax rate, signs the form, and submits the payment to the IRS processing center.
Verifying each figure reduces the risk of underreporting trust assets or omitting property valuations. Completing each line carefully ensures accuracy across all estate tax return entries and trust beneficiary distributions.
Common Mistakes and How to Avoid Them
Accurate preparation of Form 706-GS(D) prevents errors that delay processing or increase tax liability. The table below presents common mistakes and the exact actions needed to avoid them.
Below is a list of common Form 706-GS(D) mistakes and how to avoid them:
1. Failing to file required returns
- How to avoid it: Review every Form 706-GS(D-1) and confirm that all taxable distributions are properly reported before filing.
2. Using incorrect property values
- How to avoid it: Obtain professional appraisals and record the fair market value of all trust property accurately.
3. Miscalculating deductible expenses
- How to avoid it: Multiply each deductible expense by its applicable inclusion ratio to determine the correct allowable deduction.
4. Combining multiple trusts in one return
- How to avoid it: Report each direct skip or taxable termination separately to maintain accurate and compliant records.
5. Overlooking grandfathered trust exemptions
- How to avoid it: Verify whether the trust qualifies for grandfathered or transition exemptions before calculating GST tax.
Avoiding these filing errors strengthens compliance, improves accuracy, and ensures efficient IRS processing of generation-skipping transfer returns.
What Happens After You File
The IRS generally processes Form 706-GS(D) within six to twelve weeks after receipt. During review, agents verify calculations, check Form 706-GS(D-1), and ensure estate tax return information matches reported trust income. Payments are credited once the check clears and the taxpayer identification number is validated.
If values appear incorrect or attachments are missing, the IRS may request clarification through written correspondence. Late payments generate interest and additional tax penalties that increase monthly until paid in full. The IRS processes refunds after confirming that no tax liability remains outstanding.
Taxpayers should retain copies of all filed documents, property valuations, and proof of payment for at least three years. Maintaining organized records supports any future audit or amended return relating to generation-skipping transfers or gift tax purposes.
FAQs
Who qualifies as a skip person for GST tax purposes?
A skip person is an individual two or more generations younger than the transferor or an unrelated person over 37½ years younger. These beneficiaries often include grandchildren or great-grandchildren receiving trust assets.
Do all distributions trigger GST tax?
Only taxable distributions with an inclusion ratio above zero are subject to GST tax. Transfers for medical expenses or education paid directly to providers are exempt. These exceptions prevent unnecessary taxation on essential educational and healthcare payments.
Can one return include several trusts?
Yes, a single return may combine multiple trust entries if each distribution is listed separately and all Forms 706-GS(D-1) are attached. This method simplifies recordkeeping while ensuring that each taxable distribution is accurately documented.
Are professional fees deductible?
Preparation fees are deductible only when they directly relate to determining or paying GST tax or other transfer taxes. These deductions must be adjusted according to each inclusion ratio reported on the return.
How long should documents be kept?
Keep all records, proof of payment, and appraisals for three years after filing to support the estate plan and future estate tax amendments. Retaining this documentation helps verify compliance if the IRS requests an audit or clarification.
