What Form 706-GS(D) Is For

Form 706-GS(D) is a tax form used by people who receive distributions from a trust when those distributions are subject to the Generation-Skipping Transfer (GST) tax. In simple terms, the GST tax was designed to prevent wealthy families from avoiding estate taxes by transferring assets directly to grandchildren or more distant descendants, effectively “skipping” a generation of taxation.

If you are classified as a “skip person”—typically a grandchild or someone at least two generations younger than the person who created the trust—and you receive money or property from that trust, you may need to file Form 706-GS(D) to calculate and pay the tax on what you received. The trustee of the trust should provide you with Form 706-GS(D-1), which reports the distributions you received and helps you complete your Form 706-GS(D).

However, there's an important exception: if the “inclusion ratio” shown on your Form 706-GS(D-1) is zero for all distributions, you don't need to file Form 706-GS(D) at all. An inclusion ratio of zero means that GST exemption has already been allocated to the trust, effectively shielding the distribution from GST tax.

When You’d Use It (Late/Amended Returns)

Normal Filing Timeline. Form 706-GS(D) operates on a calendar year basis, regardless of your personal income tax year. Generally, you must file this form between January 1 and April 15 of the year following the calendar year when you received the distributions. For example, if you received a taxable distribution in 2010, your return would normally be due by April 15, 2011.

Extensions. If you can't meet the April 15 deadline, you can request an automatic 6-month extension by filing Form 7004 on or before the original due date. This extension is automatic—you don't need IRS approval or a specific reason.

Late Returns. If you miss the deadline without filing for an extension, the IRS can impose penalties for late filing and late payment unless you can demonstrate “reasonable cause” for the delay. If you receive a penalty notice, you can submit an explanation after filing, and the IRS will review whether your circumstances meet reasonable cause criteria. Don't attach explanations to your original return; they won't be considered at that stage.

Amended Returns. If you need to correct information on a previously filed Form 706-GS(D), you can file Form 843, Claim for Refund and Request for Abatement, to claim a refund if you've discovered additional deductible expenses or other errors that resulted in overpayment.

Key Rules or Details for 2010

Zero Percent GST Tax Rate. Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA), the GST tax was retroactively reinstated after being temporarily repealed. However, Section 302(c) of TRUIRJCA provided that the applicable GST tax rate for all generation-skipping transfers occurring during 2010 was zero percent. This means that even though the GST tax technically applied, the actual tax owed was calculated at a rate of 0%, resulting in no tax liability for 2010 distributions.

Extended Filing Deadline. For GST transfers that occurred between January 1, 2010, and December 16, 2010, the IRS extended the filing deadline to September 19, 2011 (the first business day after September 17, 2011). This special extension applied specifically to returns reporting generation-skipping transfers during this period.

Why File at All? You might wonder why you'd need to file a return if the tax rate was zero. The answer is compliance and documentation. Filing establishes an official record of the distribution, demonstrates compliance with reporting requirements, and protects against future questions about whether the distribution occurred and was properly reported. Additionally, proper allocation of GST exemption (which creates that zero inclusion ratio) requires timely filing.

Step-by-Step (High Level)

Step 1: Gather Your Forms

The trustee should send you Form 706-GS(D-1), which reports each distribution you received during the year. Collect all of these forms—you'll need to attach copies to your Form 706-GS(D).

Step 2: Complete Part I (General Information)

Enter your name, Social Security Number (or the trust's Employer Identification Number if you're a trust beneficiary), and your address. If someone else is filing on your behalf—such as a parent filing for a minor or a guardian—include their name and relationship to you.

Step 3: Complete Part II (Distribution Details)

List each taxable distribution you received during the year. Use the item numbers from Form 706-GS(D-1) for reference. For each distribution, you'll report the value and calculate the “tentative transfer” by multiplying the distribution value by the inclusion ratio (provided on Form 706-GS(D-1)). If the inclusion ratio is zero, you don't need to include that distribution. Add up all tentative transfers to get your total.

Step 4: Complete Part III (Tax Calculation)

Calculate your GST tax by first subtracting any adjusted allowable expenses—such as fees you paid to prepare this return or other costs related to determining or collecting the GST tax. Multiply these expenses by the inclusion ratio to get the adjusted amount. Then apply the maximum tax rate that was in effect when you received the distribution. For 2010, this rate was 0%, so your final tax would be zero.

Step 5: Sign and Mail

Either you or your authorized representative must sign the form. As of July 1, 2019, Form 706-GS(D) should be mailed to the IRS in Kansas City, Missouri. Include payment if any tax is due (though for 2010, no payment would be required given the zero percent rate).

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing Because the Tax Rate Was Zero

Even though 2010 had a zero percent GST tax rate, you were still required to file Form 706-GS(D) if you received taxable distributions. Failing to file can result in penalties for late filing. Avoid this by filing even when no payment is due—think of it as creating a paper trail.

Mistake #2: Including Distributions with Zero Inclusion Ratios

If Form 706-GS(D-1) shows an inclusion ratio of zero for a distribution, you don't need to report it on Form 706-GS(D). Including unnecessary distributions makes your return more complicated and invites IRS questions. Avoid this by carefully reviewing each distribution's inclusion ratio before adding it to Part II.

Mistake #3: Incorrect Valuation of Distributions

The value of each distribution should be its fair market value on the date you received it, not what the property was worth when the trust was created or what you think it might be worth in the future. For real estate, deduct any outstanding liens. For closely held business interests, attach appraisals and financial statements. Avoid this by using professional appraisals for complex assets and keeping detailed documentation.

Mistake #4: Forgetting to Deduct Allowable Expenses

You can deduct expenses directly connected to preparing Form 706-GS(D) or determining the GST tax, such as attorney fees or accountant fees. Don't forget to adjust these expenses by multiplying them by the inclusion ratio. If you have multiple inclusion ratios, prorate expenses based on the relative value of each distribution. Avoid this by keeping receipts for all professional fees and calculating the adjusted expense carefully.

Mistake #5: Using the Wrong Mailing Address

The IRS changed the filing address for Form 706-GS(D) effective July 1, 2019. Using an old address can delay processing. Avoid this by checking the current instructions for the correct address, which is now in Kansas City, Missouri.

Mistake #6: Not Signing the Return

An unsigned return is not considered filed. If a paid preparer completes your return, they must also sign it and provide their information. Avoid this by double-checking that all required signatures are present before mailing.

What Happens After You File

Initial Processing. Once you mail Form 706-GS(D) to the IRS, it will be processed at their submission center. The IRS will check for completeness, accuracy of calculations, and consistency with Forms 706-GS(D-1) submitted by trustees. This processing typically takes several weeks to several months.

Possible IRS Contact. If the IRS finds discrepancies, missing information, or questions about valuations, you may receive a letter requesting clarification or additional documentation. Respond promptly and provide any requested information. Common issues include mismatched values between your return and the trustee's Form 706-GS(D-1), or insufficient documentation for property valuations.

Penalties and Interest. If you filed late without reasonable cause or underpaid the tax, the IRS may assess penalties. For 2010 returns, given the zero percent tax rate, underpayment penalties would be unlikely, but late filing penalties could still apply. Interest accrues on unpaid taxes from the original due date until paid. If you receive a penalty notice and believe you had reasonable cause for any delay, you can submit an explanation for the IRS to review.

Valuation Disputes. Section 6662 imposes penalties for substantial understatement of property values. If you reported property values that are 65% or less of the actual fair market value (or 40% or less for gross understatement), you may face additional penalties. This risk underscores the importance of professional appraisals for valuable or unusual assets.

Refunds. If you later discover that you overpaid GST tax or incurred additional deductible expenses after filing, you can file Form 843 to request a refund. Include detailed documentation supporting your claim.

Record Retention. Keep copies of Form 706-GS(D), all Forms 706-GS(D-1), supporting documentation, and any IRS correspondence indefinitely. These records may be needed if the IRS later examines your return or if questions arise about basis adjustments when you eventually sell distributed property.

FAQs

Q1: I received a distribution in 2010, but the Form 706-GS(D-1) shows an inclusion ratio of zero. Do I still need to file?

No. If all distributions you received have an inclusion ratio of zero, you are not required to file Form 706-GS(D). The zero inclusion ratio means that GST exemption was properly allocated to the trust, effectively eliminating any GST tax liability on those distributions.

Q2: How do I know if I'm a “skip person” who needs to file this form?

You're generally a skip person if you're at least two generations younger than the person who created the trust (the “transferor”). For family relationships, this typically means you're a grandchild or great-grandchild of the transferor. If you're not related by blood, you're a skip person if you're more than 37½ years younger than the transferor. The trustee who sent you Form 706-GS(D-1) has already determined that you're a skip person; otherwise, they wouldn't have sent you the form.

Q3: What if I can't afford to pay the GST tax that's calculated on my return?

For 2010 specifically, the GST tax rate was zero percent, so no payment would have been due. For other years, if you cannot pay the full amount, the IRS offers payment plans (installment agreements) that you can request using Form 9465. You'll still owe interest on unpaid balances, but penalties may be reduced if you set up a payment plan before the due date.

Q4: The trustee didn't send me a Form 706-GS(D-1). What should I do?

Contact the trustee immediately and request the form. Trustees are legally required to provide Form 706-GS(D-1) to skip person distributees who receive taxable distributions. If the trustee is unresponsive, you may need to consult an estate planning attorney. Without Form 706-GS(D-1), you won't have the information needed to complete Form 706-GS(D) accurately.

Q5: Can I e-file Form 706-GS(D)?

As of the most recent guidance, Form 706-GS(D) must be filed by mail and cannot be e-filed. Make sure to send it to the correct IRS address, keep copies of everything you submit, and consider using certified mail with return receipt requested for proof of timely filing.

Q6: I made a mistake on my Form 706-GS(D) that I already filed. How do I correct it?

File Form 843, Claim for Refund and Request for Abatement, to correct errors and request a refund if you overpaid. Attach an explanation of the error and any supporting documentation. If you discover additional expenses that you should have deducted, you can claim them on Form 843 even after your original return was filed.

Q7: Why was 2010 different from other years for GST tax purposes?

Congress temporarily repealed the estate and GST taxes for 2010, then retroactively reinstated them later that year with special rules. While the GST tax technically applied to 2010 transfers, the tax rate was set at zero percent. This unusual situation meant taxpayers still had reporting obligations but no actual tax liability. Extended filing deadlines were also provided to give taxpayers time to adjust to the reinstated rules.

Sources

All information in this summary is derived from authoritative IRS.gov sources, including the Instructions for Form 706-GS(D) (Publication i706gsd.pdf, Rev. June 2019), About Form 706-GS(D) from IRS.gov, and IRS Notice 2011-66 regarding 2010 special rules for generation-skipping transfer tax.