What the Form Is For

Form 706-GS(D) is a specialized tax return used by "skip persons" who receive taxable distributions from a trust. But what does that mean in plain English? Think of it as a form you file when you're a grandchild (or someone in a similar generational position) who receives money or property from a family trust, and that distribution triggers a special tax called the generation-skipping transfer (GST) tax. IRS.gov

The GST tax exists to prevent wealthy families from avoiding estate taxes by "skipping" a generation—say, passing assets directly to grandchildren instead of to children. When you receive such a distribution from a trust, you're responsible for calculating and reporting the tax due on those assets using Form 706-GS(D).

Here's how it works: The trustee managing the trust will send you a Form 706-GS(D-1), which is essentially a notification telling you about the distribution you received, its value, and something called an "inclusion ratio" (which determines what portion of the distribution is taxable). You then use that information to complete your Form 706-GS(D) and calculate any tax you owe. Instructions for Form 706-GS(D)

A "skip person" typically means someone who is two or more generations below the person who created the trust (the "settlor"). Most commonly, this is a grandchild, but it can also include great-grandchildren or even certain trusts. The key factor is that generational gap. Instructions for Form 706-GS(D-1)

When You’d Use It (Filing Late or Amended Returns)

Regular Filing Deadlines

Form 706-GS(D) operates on a calendar year basis, regardless of your personal income tax accounting period. If you received taxable distributions from a trust during 2019, you must file Form 706-GS(D) by April 15, 2020—the same general deadline as individual income tax returns. This is true even if you received multiple distributions throughout the year; you report them all on one annual return covering the entire 2019 calendar year. Instructions for Form 706-GS(D)

Extensions

If you can't meet the April 15 deadline, you can request an automatic six-month extension by filing Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) on or before the original due date. The extension is truly automatic—you don't need to explain why you need more time or wait for IRS approval. However, an extension to file is not an extension to pay. If you owe tax, you must still pay it by the original April 15 deadline to avoid interest charges. Instructions for Form 706-GS(D)

Late Filing

If you miss the deadline and didn't request an extension, you may face penalties. The IRS imposes a penalty for late filing unless you can demonstrate "reasonable cause" for the delay. If you receive a penalty notice after filing late, you can respond with an explanation, and the IRS will determine whether you meet reasonable cause criteria. Don't attach explanations to your original return—wait until you receive a notice. Instructions for Form 706-GS(D)

Amended Returns

If you discover errors after filing your Form 706-GS(D), you can file Form 843 (Claim for Refund and Request for Abatement) to correct the return and claim a refund if you overpaid. This might happen if you discover additional deductible expenses that you didn't include on your original return, or if the trustee sends you a corrected Form 706-GS(D-1) with different values. Instructions for Form 706-GS(D)

Important Note on Inclusion Ratios

You don't need to file Form 706-GS(D) at all if all the distributions you received have an inclusion ratio of zero. The inclusion ratio appears on the Form 706-GS(D-1) you receive from the trustee—if it shows zero for all your distributions, no GST tax is due and no filing is required. Instructions for Form 706-GS(D)

Key Rules and Thresholds for 2019

GST Tax Rate

The maximum tax rate for generation-skipping transfers in 2019 was 40 percent. This rate has been consistent since 2013, following several years of fluctuation in prior decades. Instructions for Form 706-GS(D)

GST Exemption Amount

For 2019, the generation-skipping transfer tax exemption was $11.4 million per person. This exemption amount was significantly increased by the Tax Cuts and Jobs Act of 2017 and applies at the trust level, not at your individual level as the distributee. The trustee allocates this exemption to the trust, which determines the inclusion ratio that affects your distributions. IRS Personal Wealth Statistics 2019

How the Inclusion Ratio Works

This is crucial to understanding your tax liability. The inclusion ratio (ranging from 0 to 1) tells you what portion of your distribution is subject to GST tax. An inclusion ratio of 0 means the entire distribution is exempt from GST tax. An inclusion ratio of 1 means the entire distribution is taxable. An inclusion ratio of 0.50 means half the distribution is taxable. You multiply the distribution value by the inclusion ratio to get the "tentative transfer"—the amount subject to the 40% tax rate. Instructions for Form 706-GS(D)

Valuation Rules

Distributions are valued at fair market value on the date of distribution. Fair market value means the price a willing buyer would pay a willing seller when neither is under pressure and both have reasonable knowledge of the relevant facts. For real estate, reduce the value by any outstanding liens. For closely-held business stock, you'll need to consider net worth, earnings capacity, and dividend-paying ability—often requiring professional appraisals. Instructions for Form 706-GS(D)

Deductible Expenses

You can deduct certain expenses from your distribution amount before calculating tax. These include fees you paid to prepare Form 706-GS(D) and any other expenses directly connected to determining, collecting, or obtaining a refund of the GST tax. However, you must "adjust" these expenses by multiplying them by the inclusion ratio. This prorating ensures you only deduct expenses that relate to the taxable portion of your distributions. Instructions for Form 706-GS(D)

Step-by-Step (High Level)

Step 1: Receive Form 706-GS(D-1) from the Trustee

By April 15 of the year following the distribution year, the trustee must send you Form 706-GS(D-1) for each distribution you received. This form contains essential information: the date of distribution, the value of the distribution, and the all-important inclusion ratio. Keep all copies of Form 706-GS(D-1) you receive—you'll need to attach them to your Form 706-GS(D). Instructions for Form 706-GS(D-1)

Step 2: Review the Forms for Accuracy

Check the values and inclusion ratios on Form 706-GS(D-1). If you believe the trustee made an error or disagree with the values listed, you can attach a statement to your return showing what you believe are the correct amounts and explaining how you calculated them. If possible, contact the trustee first to request a corrected Form 706-GS(D-1). Instructions for Form 706-GS(D)

Step 3: Complete Part I (General Information)

Enter basic identifying information: your name (or the trust's name if you're filing for a trust), your Social Security Number or the trust's Employer Identification Number, and the address where you want to receive IRS correspondence. If someone else is filing on your behalf (such as a guardian for a minor), include that person's name and title. Instructions for Form 706-GS(D)

Step 4: Complete Part II (Distributions)

List all taxable distributions you received during 2019. For each distribution, use the same item number that appears on the corresponding Form 706-GS(D-1). Calculate the "tentative transfer" for each distribution by multiplying the distribution value by its inclusion ratio. Then total all the tentative transfers—this is the aggregate amount subject to GST tax. If you need more space, attach additional sheets using the same format. Instructions for Form 706-GS(D)

Step 5: Complete Part III (Tax Calculation)

Start with your total tentative transfers from Part II. Subtract any adjusted allowable expenses (remember to multiply your preparation fees and other qualifying expenses by the inclusion ratio). The result is your taxable amount. Apply the 40% tax rate to calculate your total GST tax due. Instructions for Form 706-GS(D)

Step 6: Make Payment

Make your check payable to "United States Treasury." Write your Social Security Number (or EIN), the year "2019," and "Form 706-GS(D)" on the check. Enclose (but don't staple or attach) the payment with your completed form. Instructions for Form 706-GS(D)

Step 7: File the Return

For 2019 returns, Form 706-GS(D) should be mailed to: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. If using a private delivery service, use the street address: Internal Revenue Submission Processing Center, 333 W. Pershing, Kansas City, MO 64108. (Note: The filing address changed to Kansas City effective July 1, 2019, so returns filed earlier in 2020 might have used the previous Cincinnati address.) Instructions for Form 706-GS(D)

Common Mistakes and How to Avoid Them

Mistake #1: Failing to File When Required

Some people assume that because the trustee files Form 706-GS(D-1), they don't need to file anything themselves. Wrong. The trustee's form is just a notification to you and the IRS. You are responsible for filing Form 706-GS(D) and paying any tax due. However, remember the exception: if all your distributions have an inclusion ratio of zero, you don't need to file. Instructions for Form 706-GS(D)

Mistake #2: Using the Wrong Identification Numbers

For individual skip persons, use your Social Security Number on line 1b and leave line 1c blank. If the skip person is a trust, use the trust's Employer Identification Number on line 1c and leave line 1b blank. Never enter a number on both lines—this causes processing errors. Instructions for Form 706-GS(D)

Mistake #3: Incorrect Valuation

You must use the fair market value on the date of distribution, not when the trust was created or when you're filing the return. For complex assets like real estate or business interests, obtain professional appraisals and attach copies to your return. For real estate, remember to reduce the reported value by any outstanding liens. Undervaluing property by 35% or more can trigger substantial penalties. Instructions for Form 706-GS(D)

Mistake #4: Forgetting to Attach Form 706-GS(D-1)

You must attach copies of all Forms 706-GS(D-1) you received during the year. This is a common oversight that can delay processing of your return. Keep organized records of these forms as you receive them throughout the year. Instructions for Form 706-GS(D)

Mistake #5: Improperly Calculating Adjusted Allowable Expenses

Don't just deduct the full amount of your tax preparation fees. You must multiply your allowable expenses by the inclusion ratio. If you have multiple distributions with different inclusion ratios, you must prorate the expenses based on the relative value of each distribution. The instructions include a detailed example showing how to do this calculation correctly. Instructions for Form 706-GS(D)

Mistake #6: Missing the Payment Deadline

Even if you get an extension to file, you must still pay any estimated tax by the original April 15 deadline. Interest accrues on late payments from the original due date, even if you properly filed for an extension. Calculate your expected tax liability and pay it by April 15 to minimize interest charges. Instructions for Form 706-GS(D)

Mistake #7: Not Keeping Records

Save all documentation related to your distributions, valuations, appraisals, and expense receipts. The IRS can audit your return, and you'll need this documentation to support the values and deductions you claimed. The statute of limitations is generally three years, but keep records longer for valuable assets. IRS Internal Revenue Manual 4.25.11

What Happens After You File

Processing Timeline

After you mail your Form 706-GS(D), the IRS processes it at their Kansas City campus. Processing times vary, but you can generally expect several weeks to several months. The IRS enters your return into their Master File system under a special code (MFT 78) specifically for generation-skipping transfer taxes on distributions. IRS Internal Revenue Manual 5.5.9

Payment Processing

Your payment is processed separately from your return. Make sure you wrote your identification number, the year, and "Form 706-GS(D)" on your check to ensure proper crediting to your account. If you underpaid, you'll receive a notice of the balance due plus interest and possibly penalties. IRS Internal Revenue Manual 3.12.106

Examination and Audits

Like other tax returns, Form 706-GS(D) may be selected for examination. The IRS may review your return to verify valuations, check that inclusion ratios were properly applied, or confirm that all required distributions were reported. Valuation issues are the most common area of scrutiny, particularly for real estate, business interests, and other hard-to-value assets. IRS Internal Revenue Manual 4.25.11

Notices and Correspondence

If the IRS has questions about your return or identifies errors, you'll receive a notice at the address you provided on the form. Common notices include requests for additional documentation, proposed adjustments to values, or notices of penalties for late filing or underpayment. Respond promptly to any IRS correspondence—there are usually strict deadlines for replies. Instructions for Form 706-GS(D)

Refunds

If you overpaid or later discover you're entitled to deduct additional expenses, file Form 843 (Claim for Refund and Request for Abatement). The IRS will review your claim and issue a refund if appropriate. You generally have three years from the filing date to claim a refund. Instructions for Form 706-GS(D)

Record Retention

Keep a copy of your filed Form 706-GS(D), all attached Forms 706-GS(D-1), proof of payment, and supporting documentation for at least three years after filing, or longer if the IRS is auditing your return. These records prove that you properly reported and paid tax on the distributions. Instructions for Form 706-GS(D)

FAQs

Q1: What's the difference between Form 706-GS(D) and other 706 forms?

Form 706 is the main estate tax return filed when someone dies. Form 706-GS(T) is filed by trustees when a trust terminates and distributes assets to skip persons. Form 706-GS(D)—your form—is filed by the distributee (the person receiving the distribution) when they receive distributions from an ongoing trust during their lifetime. Think of it this way: 706-GS(T) is for trust terminations, while 706-GS(D) is for distributions while the trust continues to exist. About Form 706-GS(D)

Q2: Do I have to pay the GST tax myself, or does the trust pay it?

You, as the distributee, are responsible for filing Form 706-GS(D) and paying the GST tax. However, sometimes the trust agreement allows or requires the trustee to pay the tax on your behalf. If the trustee pays the tax from trust assets, that payment itself is treated as an additional taxable distribution to you. This can create a cascading effect. Consult with a tax advisor to understand your specific situation and how your trust agreement addresses this issue. IRS Internal Revenue Manual 5.5.9

Q3: What if I received the distribution years ago but just now learned I should have filed Form 706-GS(D)?

File the return as soon as possible, even if it's late. Attach an explanation of why you're filing late (such as not knowing about the requirement). You may face penalties for late filing and late payment, plus interest, but the penalties may be reduced or eliminated if you can demonstrate reasonable cause. Not filing at all exposes you to more serious penalties and potential criminal consequences for tax evasion. Instructions for Form 706-GS(D)

Q4: Can I e-file Form 706-GS(D)?

As of 2019, Form 706-GS(D) generally must be filed on paper and mailed to the IRS. The IRS has been gradually implementing electronic filing for the Form 706 series, but check the current IRS.gov website for the most up-to-date filing methods. Some forms in the 706 series now accept electronic filing, but this wasn't widely available for Form 706-GS(D) in 2019. About Form 706-GS(D)

Q5: What happens if the trustee didn't send me Form 706-GS(D-1)?

Contact the trustee immediately and request the form—they're legally required to provide it. If the trustee refuses or is unresponsive, you still have an obligation to file Form 706-GS(D) if you received taxable distributions. You may need to calculate the values and inclusion ratios yourself or hire a tax professional to help. Attach a statement to your return explaining that you didn't receive Form 706-GS(D-1) and describing how you determined the values. Instructions for Form 706-GS(D-1)

Q6: Can I set up a payment plan if I can't afford to pay the full tax amount?

Yes. If you can't pay the full amount by the due date, you can request an installment agreement using Form 9465 or through the IRS Online Payment Agreement system. However, interest and penalties will continue to accrue on the unpaid balance until it's paid in full. It's better to pay as much as you can by the deadline and set up a payment plan for the remainder rather than paying nothing at all. IRS Online Payment Agreement

Q7: How does the GST tax interact with income taxes on the distribution?

They're separate taxes addressing different things. The GST tax applies to the transfer of wealth across generations. If the distribution also generates income (such as distributions of dividends or interest that the trust earned), you'll report that income on your regular Form 1040. The GST tax doesn't replace income tax—it's an additional tax on the transfer itself. You may owe both GST tax and income tax on the same distribution, depending on what type of assets were distributed. Instructions for Form 706-GS(D)

This summary is based exclusively on IRS.gov sources current as of the 2019 tax year. Tax laws change frequently. For specific advice regarding your situation, consult a qualified tax professional or estate planning attorney.