What IRS Form 706-GS(D) (2014) Is For
IRS Form 706-GS(D) reports the generation-skipping transfer tax on taxable distributions received from trusts. The Internal Revenue Service requires this filing when skip persons, such as grandchildren or younger beneficiaries, receive property or money transferred across generations. This process ensures that transfer taxes apply correctly and that estate taxes are reported accurately for indirect skips.
The form calculates the GST tax rate, records each taxable distribution, and maintains transparency between taxpayers and the agency. Each Form 706-GS(D-1) attached provides details of transferred assets, inclusion ratios, and exemption amounts. Accurate completion prevents reporting errors and ensures compliance with federal tax requirements.
Proper filing supports accurate estate plan documentation and fair taxation across multiple generations. Taxpayers can reference estate, gift, and trust forms to confirm which filings may apply to GST-related trust distributions.
When You’d Use IRS Form 706-GS(D) (2014)
IRS Form 706-GS(D) applies to distributions received during 2014 that are subject to the generation-skipping transfer tax. This filing requirement arises when a grantor pays or transfers assets from a trust to a younger generation, including great-grandchildren or unrelated persons. In most cases, such transfers qualify as direct skips or indirect taxes administered apart from regular income tax.
The filing period extends from January 1 through April 15 of the following year, with extensions available through Form 7004. The process determines whether the generation-skipping transfer tax exemption (GSTT exemption) applies to the transfer. Filers must report transactions exceeding the lifetime gifts threshold to ensure proper taxation under both direct tax and indirect tax classifications within the estate plan.
Key Rules or Details for 2014
For 2014, the GST tax rate was a flat rate of 40 percent, matching the highest federal estate tax and gift or estate tax levels. The GST exemption of $5,340,000 per person determined whether transfers were taxable or exempt. This allocation allowed certain transfers of wealth to younger generations to remain excluded when properly applied by the donor.
Each Form 706-GS(D-1) listed the inclusion ratio showing how much of the distribution was taxable. Transfers of property or money were valued at fair market value, regardless of type. Married couples could divide exemptions to manage estate taxes and preserve compliance within their estate plan.
In most countries, the value-added tax levied on services sold domestically differs from the taxation imposed on estate transfers.
Step-by-Step (High Level)
Step 1: The preparer gathers all Forms 706-GS(D-1) from trustees, listing each taxable distribution and inclusion ratio. The report must include every instance in which a grantor transfers money or property to a generation younger than the donor. Each example ensures that reporting matches the correct generation level under federal requirements.
Step 2: The trustee completes the identification section with the distributee’s name, Social Security Number, and trust details. The filer calculates the taxable amount and applies the 40 percent gift tax rate for each listed distribution.
Step 3: The executor deducts allowable expenses proportionate to the inclusion ratio, then signs and mails the return to the Internal Revenue Service. Accurate filing protects both the non-skipped person and the estate by verifying compliance with federal standards for reporting.
Common Mistakes and How to Avoid Them
Careful attention to detail prevents reporting errors and filing delays. The table below identifies frequent mistakes and provides clear instructions to correct or prevent 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: Submit Form 706-GS(D) whenever any inclusion ratio above zero exists to ensure all GSTT obligations are properly met.
2. Reporting inaccurate property values
- How to avoid it: Verify the fair market value for every distribution to maintain accurate calculations and comply with IRS tax standards.
3. Omitting Form 706-GS(D-1) attachments
- How to avoid it: Include all required trustee Forms 706-GS(D-1) with the return to provide complete documentation and avoid follow-up correspondence from the IRS.
4. Applying the incorrect tax-year rate
- How to avoid it: Use the correct 2014 GST tax rate of 40% when calculating taxes to ensure accurate payment.
5. Misapplying deduction adjustments
- How to avoid it: Apply deduction amounts proportionally to each inclusion ratio to prevent overstated liabilities or misreported expenses.
Preventing these mistakes supports compliance, accuracy, and timely processing of generation-skipping transfer filings.
What Happens After You File
After filing, the Internal Revenue Service processes the return within six to eight weeks and records any payment received. Refunds from overpaid GSTT taxes are issued once verification is complete, ensuring accurate adjustments. The agency may send a notice or confirmation if clarification of the filing is required.
Penalties and interest apply when the federal tax remains unpaid at the time of filing. Each charge compounds daily at the rate established by law, increasing the total amount owed. Valuation methods, inclusion ratios, and documentation may also be reviewed to confirm accuracy.
Records must be retained for at least four years to support audits or reviews conducted by the Internal Revenue Service. State sales tax, services tax, and goods and services tax remain separate from federal reporting, supporting complete compliance across all transfer taxes.
FAQs
What is the purpose of IRS Form 706-GS(D) (2014)?
It reports the generation-skipping transfer tax on distributions from trusts made to skip persons or younger beneficiaries. The Internal Revenue Service uses it to confirm payment of federal transfer taxes and to ensure proper application of the exemption amount. This process verifies accurate reporting and maintains compliance with the requirements of federal estate administration.
Who must file Form 706-GS(D)?
Any taxpayer who received taxable distributions in 2014 that are subject to the generation-skipping transfer GST must file this form. Each filer must attach all Forms 706-GS(D-1), listing the assets transferred and inclusion ratios used to compute the tax. Filing ensures accurate assessment of estate taxes and GSTT obligations under Internal Revenue Service guidelines.
What is the GST tax exemption for 2014?
The GST tax exemption for 2014 was $5,340,000 per person. This lifetime exemption allowed eligible transfers to remain tax-free and reduced GSTT liabilities for younger generations. Correct application of the exemption ensures compliance with federal requirements and supports proper estate planning.
How does Form 706-GS(D) differ from Form 706-GS(T)?
Form 706-GS(D) applies to recipients of taxable distributions, while Form 706-GS(T) applies to trustees reporting taxable terminations or indirect skips. Each form serves a unique role in generation-skipping transfer reporting and estate management. Using the correct form prevents duplicate reporting and ensures accuracy in federal tax documentation.
What happens if the inclusion ratio is zero?
If the inclusion ratio equals zero, no GST tax is owed, and the distribution remains tax-free. The transfer avoids additional liability because it qualifies as fully exempt under current generation-skipping transfer rules. Proper identification prevents overpayment and ensures accurate exemption reporting.
Taxpayers can reference Federal Fillable Tax Forms to locate related federal forms and schedules used for supporting attachments.
