What the Form Is For

Form 706-GS(D) is a specialized tax form used by “skip persons” who receive taxable distributions from a trust that are subject to the generation-skipping transfer (GST) tax. Think of it as a reporting tool for people who inherit or receive money from trusts where the assets “skip” a generation—typically when grandparents give directly to grandchildren, bypassing their own children. Source: IRS.gov

A “skip person” is generally someone who is two or more generations below the person who created the trust (the transferor). This commonly includes grandchildren or great-grandchildren, but can also include unrelated individuals who are more than 37½ years younger than the transferor. The GST tax exists to prevent wealthy families from avoiding estate taxes by bypassing the middle generation entirely.

When you receive such a distribution, the trustee should provide you with Form 706-GS(D-1), which contains the information you need to complete your Form 706-GS(D). The form calculates the GST tax you owe on the distribution based on the property's fair market value at the time you received it. For 2016, the GST tax rate was 40%, matching the top estate tax rate. Source: IRS Instructions for Form 706-GS(D)

Not all distributions require filing—if the trustee indicates that all distributions have an “inclusion ratio” of zero, meaning the trust has sufficient GST exemption applied, you don't need to file Form 706-GS(D).

When You’d Use It (Including Late and Amended Returns)

Regular Filing

Form 706-GS(D) operates on a calendar year basis, regardless of your personal income tax accounting period. You must file the form between January 1 and April 15 of the year following the calendar year when you received the distributions.
Example: If you received a taxable distribution from a trust in 2016, your Form 706-GS(D) would be due by April 15, 2017. Source: IRS.gov

Extensions

If you can't file by the deadline, you have two options for extending your filing time (note that extensions don't extend the time to pay any tax due):

1. Income Tax Extension Automatically Extends Gift/GST Filing

If you file Form 4868 for an automatic extension of your individual income tax return, this also extends your Form 706-GS(D) deadline.

2. Dedicated Extension via Form 7004

You can request an automatic 6-month extension specifically for Form 706-GS(D) by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Source: IRS.gov

Amended Returns

The 2016 instructions don't provide specific guidance for amended Form 706-GS(D) returns. However, if you discover errors after filing—such as incorrect valuation of distributed property or mathematical mistakes—you would typically file Form 843, Claim for Refund and Request for Abatement, if you're seeking a refund for overpaid tax.

The IRS generally has three years from the date of filing to assess additional tax, but adequate disclosure of gifts and valuations is crucial for starting this statute of limitations clock.

Special Situations

If the distribution occurred while subject to an Estate Tax Inclusion Period (ETIP)—meaning the property would have been included in the donor's estate if they had died immediately after the transfer—special timing rules apply. You don't report the GST portion until the ETIP closes, which could be years after the initial transfer.

Key Rules for 2016

GST Tax Rate and Exemption

For 2016, the generation-skipping transfer tax had these key parameters:

• Tax rate: 40% (maximum rate applied to all GST transfers after December 31, 2012)
• GST exemption amount: $5,450,000 (lifetime exemption that could be allocated to trusts)
• Annual exclusion: $14,000 per donee for present interest gifts
  Sources: IRS.gov; IRS Form 709 Instructions 2016

Who Must File

You must file Form 706-GS(D) if you're a skip person who received a taxable distribution from a trust during 2016, provided the distribution has an inclusion ratio greater than zero.
Attach copies of all Forms 706-GS(D-1) you received. Source: IRS.gov

Inclusion Ratio Importance

The inclusion ratio determines how much of the distribution is subject to GST tax:

• 0.000 = Fully exempt (no filing needed)
• 0.500 = 50% subject to GST tax
• 1.000 = Fully subject to GST tax

The trustee calculates this ratio based on how much GST exemption was allocated to the trust.

Valuation Rules

The value of a distribution equals its fair market value (FMV) on the distribution date. FMV is “the price at which the property would change hands between a willing buyer and a willing seller, when neither is forced to buy or sell.”
For closely held stock or real estate, you must determine FMV based on relevant factors and attach appraisals or valuation explanations. Source: IRS.gov

Deductible Expenses

You may deduct adjusted allowable expenses incurred in connection with preparing Form 706-GS(D) or dealing with GST tax matters. These are multiplied by the inclusion ratio to determine the adjusted amount. Source: IRS.gov

Step-by-Step Filing Instructions (High Level)

Step 1: Gather Required Documents

Collect all Forms 706-GS(D-1) from trustees for distributions received during 2016. Attach originals to your return and keep copies.

Step 2: Complete Part I (General Information)

• Line 1a: Skip person’s name
• Line 1b: SSN (individual)
• Line 1c: EIN (trusts)
• Lines 2a/2b: Preparer or fiduciary information

Step 3: Complete Part II (Reporting Taxable Distributions)

List all taxable distributions with inclusion ratios > 0. Include:

• Column a: Item number
• Column b: Item number from Form 706-GS(D-1)
• Column c: Tentative transfer = value × inclusion ratio

Attach additional sheets if necessary.

Step 4: Calculate Adjusted Allowable Expenses (Part III)

Enter expenses for return preparation and GST-related work.
Use the prorating formula if multiple inclusion ratios apply.

Step 5: Apply the Tax Rate

• Line 6: Enter 40% (GST rate for 2016)
• Line 7: Multiply line 5 by line 6 to get total GST tax

Step 6: Account for Payments and Calculate Balance

• Line 8: GST taxes already paid by trustee
• Line 9: Balance due or refund

Step 7: Sign, Date, and File

Mail to:
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999

For private delivery:
Internal Revenue Service
201 West Rivercenter Blvd
Covington, KY 41011

Make checks payable to “United States Treasury.”

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing When Required

• Error: Assuming no filing is needed without receiving Form 706-GS(D-1).
• Avoid: Always confirm with the trustee and file if inclusion ratio > 0.

Mistake #2: Incorrect Valuation of Distributed Property

• Error: Using cost basis or outdated values.
• Avoid: Obtain qualified appraisals and document FMV. Source: IRS.gov

Mistake #3: Failing to Properly Calculate Adjusted Allowable Expenses

• Error: Not prorating based on inclusion ratios.
• Avoid: Follow IRS formula and examples. Source: IRS.gov

Mistake #4: Missing the Deadline

• Error: Confusing deadlines or skipping extensions.
• Avoid: File by April 15; extensions don’t delay payment due.

Mistake #5: Not Attaching Form 706-GS(D-1)

• Error: Omitting required attachments.
• Avoid: Staple all received forms to your return. Source: IRS.gov

Mistake #6: Using the Wrong Tax Rate

• Error: Applying outdated GST rate.
• Avoid: Use 40% for 2016. Source: IRS.gov

What Happens After You File

Processing Timeline

IRS processes returns in 8–12 weeks, longer if complex. There’s no online tracking tool.

If You Owe Tax

• Interest accrues daily at federal short-term rate + 3%.
• You can request an installment plan via 1-800-829-1040.

If You’re Due a Refund

Refunds take several months due to manual processing.

Penalties and Interest

• Late filing: 5% per month (max 25%).
• Late payment: 0.5% per month (max 25%).
• Accuracy penalties: 20%–40% for valuation understatements. Source: IRS.gov

Statute of Limitations

IRS generally has three years to assess additional tax—but only if disclosures are adequate.

IRS Examination

High audit risk for:

• Closely-held business interests
• Real estate
• Artwork
• Valuation discounts

If audited, respond promptly and consider professional help.

FAQs

1. What exactly is a "skip person" and how do I know if I am one?

A skip person is typically two or more generations below the transferor (e.g., grandchildren). Exceptions apply under the deceased parent rule. Source: IRS.gov

2. I received Form 706-GS(D-1) showing an inclusion ratio of 0.000. Do I still need to file Form 706-GS(D)?

No. You don’t need to file if all inclusion ratios are zero, but keep the form for records. Source: IRS.gov

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

Contact the trustee immediately. They must provide it for each taxable distribution. Keep written records and consult a tax professional if unresolved. Source: IRS.gov

4. Can I pay the GST tax over time, or must I pay it all at once?

You must pay by April 15. You can request an installment agreement from the IRS if unable to pay in full. Source: IRS.gov

5. I received both cash and property from the trust. How do I value the property portion?

Use fair market value on the distribution date. Get appraisals for non-public assets and attach supporting documentation. Source: IRS.gov

6. What's the difference between Form 706-GS(D) and Form 706-GS(T)?

• Form 706-GS(D): Filed by beneficiaries (“skip persons”).
• Form 706-GS(T): Filed by trustees upon trust termination. Source: IRS.gov

7. I made a mistake on my 2016 Form 706-GS(D). How do I correct it now?

• Overpayment: File Form 843 for refund.
• Underpayment: File a corrected return marked “Amended.”
  Consult a professional for complex cases. Source: IRS.gov

This guide is based on IRS Form 706-GS(D) and instructions for the 2016 tax year. Tax laws change frequently—always refer to current IRS guidance at IRS.gov.