What IRS Form 706-GS(D) (2010) Is For
IRS Form 706-GS(D) reports the generation-skipping transfer tax on taxable distributions from a trust to skip persons. The tax applies when assets are transferred in a way that bypasses one generation, such as when grandparents transfer wealth directly to grandchildren. The form ensures that taxpayers meet federal reporting requirements for all applicable trust distributions.
The trustee must provide Form 706-GS(D-1), which lists the inclusion ratio and applicable fraction for each distribution. A zero inclusion ratio means the generation-skipping transfer is exempt from federal tax, but complete documentation must still be maintained for verification. Proper filing confirms that the transferor’s GST exemption accurately covers the taxable distribution.
This process protects the integrity of transfer taxes and ensures that federal estate and gift tax systems remain properly applied across generations. Taxpayers can review Estate, Gift, and Trust Forms for related transfer tax filings and trust reporting references.
When You’d Use IRS Form 706-GS(D) (2010)
Taxpayers file Form 706-GS(D) when they receive taxable distributions from a trust that falls under the generation-skipping transfer tax (GSTT). The form applies when property is transferred to skip persons and when federal estate tax or federal gift tax rules apply. It ensures proper GST taxation and documents distributions that affect the federal estate tax exemption or gift tax exemption.
The form covers trust assets such as cash, real property, and life insurance policies; it applies when distributions exceed the annual gift tax exclusion. Filers must submit it by April 15 following the distribution year or request an extension using Form 7004. Accurate preparation prevents errors and ensures inclusion of trust details in the estate tax return.
Even when the GST exemption eliminates the tax due, filing remains necessary to confirm compliance and preserve accurate tax records for estate and gift purposes.
Key Rules or Details for 2010
In 2010, the federal generation-skipping transfer tax changed under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act. The GSTT tax rate for that year was reduced to zero percent, yet taxpayers were still required to file for gift or estate tax reporting. Filing verifies GST status, identifies GST-exempt distributions, and confirms that automatic allocation occurs for compliance and future audits.
Taxpayers used lifetime GST exemption amounts and GSTT annual exclusion benefits to document transfers accurately. Married couples and a transferor’s spouse reported any initial transfer or life estate interest on their gift tax return. Reporting also applies to irrevocable trusts, contributions to educational institutions, and deductible medical expenses paid for all beneficiaries.
These filings preserved the accuracy of estate inclusion and helped the Internal Revenue Service maintain federal gift and estate tax integrity.
Step-by-Step (High Level)
Step 1: Gather Documentation.
Taxpayers must obtain Form 706-GS(D-1) from the trustee and review all distributions, trust details, and GST exemption data provided.
Step 2: Complete Part I.
The preparer enters identifying information, including the filer’s name, taxpayer identification number, and the transferor’s GST exemption details required for accurate reporting.
Step 3: Complete Part II.
The preparer lists each direct or indirect skip, calculates the inclusion ratio, and determines the taxable amount for each transaction under GSTT rules.
Step 4: Complete Part III.
The preparer calculates the tentative tax liability, applies allowable deductions under Treasury regulations, and verifies total figures before submission.
Step 5: Sign and File.
The authorized filer signs the completed form, attaches supporting documents, and mails the package to the IRS Kansas City Service Center.
Common Mistakes and How to Avoid Them
Taxpayers frequently make avoidable mistakes when preparing Form 706-GS(D). Careful review of each entry and documentation requirement helps prevent errors that can delay IRS processing. The table below presents common filing mistakes and their direct solutions.
Below is a list of common Form 706-GS(D) mistakes and how to avoid them:
1. Failing to file
- How to avoid it: Submit Form 706-GS(D) even when the GSTT tax rate is zero so taxable distributions are properly documented.
2. Using incorrect valuations
- How to avoid it: Use current fair market values and attach supporting appraisals for all transferred assets or business interests.
3. Omitting signatures
- How to avoid it: Review all pages to confirm that both the taxpayer and the preparer have signed and dated the form before mailing.
4. Sending to the wrong address
- How to avoid it: Check the latest IRS instructions to ensure the form is sent to the correct IRS Kansas City address.
5. Misallocating exemptions
- How to avoid it: Verify all GST exemption allocations, lifetime exemption amounts, and inclusion ratios prior to submission.
Avoiding these mistakes promotes accuracy, compliance, and timely IRS confirmation.
What Happens After You File
After submission, the IRS reviews Form 706-GS(D) to verify taxable distributions, inclusion ratios, and allocated GST exemptions. Examiners compare the information to the trustee’s Form 706-GS(D-1) and assess whether any corrections are required. The review ensures compliance with federal estate and gift tax obligations under the United States gift and transfer tax rules.
If the grantor pays or overpays the GSTT amount, they may request an adjustment or refund for gift tax purposes using Form 843. Taxpayers, including a transferor’s spouse, should maintain records to confirm accurate exemption use and proper GST allocation. Failure to respond to IRS correspondence can delay refunds or increase liability.
Proper recordkeeping supports accurate GST taxation, the application of a spouse’s GST exemption, and ongoing compliance with estate and gift tax documentation. Taxpayers can consult the IRS Form Help Center to review required attachments and common filing errors.
FAQs
When is Form 706-GS(D) required for skip persons?
Form 706-GS(D) must be filed when skip persons receive taxable distributions from a trust that trigger the generation-skipping transfer tax. It applies when a transferor allocates assets to beneficiaries two or more generations younger under federal tax law.
What is the difference between a direct skip and an indirect skip?
A direct skip transfers property directly to a skip person, while an indirect skip passes through a trust before reaching the beneficiary. Both transfers may qualify as taxable distributions subject to GSTT.
How does the automatic allocation rule apply to lifetime gifts?
The automatic allocation rule applies when the available GST exemption offsets taxable gifts made during the taxpayer’s lifetime. This ensures that the unused GST exemption covers future taxable events.
How are estate and gift taxes related to GSTT?
The generation-skipping transfer tax operates alongside the federal estate and gift tax systems. Each tax ensures equitable treatment of transfers made to younger generations without avoiding transfer tax responsibilities.
What happens when a taxable termination occurs?
A taxable termination occurs when trust interests pass to skip persons and no non-skip interest remains. The GSTT applies at the highest estate tax rate in effect during that period.
Taxpayers can use Federal Fillable Tax Forms to confirm which federal forms may apply to transfer tax recordkeeping.
