IRS Instruction 706-GS(D) – IRS Forms, Instructions, Pubs 2026 – In the complex world of estate planning and taxation, the Generation-Skipping Transfer Tax (GSTT) plays a crucial role in preventing tax avoidance across multiple generations. If you’re a beneficiary receiving distributions from a trust, you may need to file IRS Form 706-GS(D), officially known as the Generation-Skipping Transfer Tax Return for Distributions. This form helps calculate and report any GST tax owed on such distributions. Updated for distributions after December 31, 2010, the latest revision (December 2025) ensures compliance with current IRS guidelines. In this SEO-optimized guide, we’ll break down everything you need to know about IRS Instruction 706-GS(D), including who must file, deadlines, step-by-step completion instructions, and potential penalties.
What Is the Generation-Skipping Transfer Tax (GSTT)?
The GSTT is a federal tax imposed on transfers of property that skip a generation, such as from grandparents to grandchildren, to discourage families from avoiding estate taxes by bypassing intermediate generations. It’s separate from estate or gift taxes and applies at a flat rate of 40% for transfers after December 31, 2012. The tax targets three main types of skips: direct skips, taxable terminations, and taxable distributions. For taxable distributions—the focus of Form 706-GS(D)—the tax is triggered when a skip person (typically two or more generations below the transferor) receives a distribution from a trust subject to GSTT.
Key concepts include:
- Skip Person: An individual or trust that is two or more generations below the transferor.
- Inclusion Ratio: Determines how much of the distribution is taxable (ranges from 0 to 1).
- GST Exemption: Each person has a lifetime exemption (adjusted for inflation; for 2025, it’s tied to the estate tax exclusion of $13,990,000).
Understanding GSTT is essential for high-net-worth individuals engaging in multi-generational wealth transfers.
Purpose of IRS Form 706-GS(D)
Form 706-GS(D) is specifically for skip person distributees to report and pay GST tax on trust distributions. It’s not for trustees—that’s handled by Form 706-GS(D-1), which notifies beneficiaries of taxable distributions. The form calculates the tax based on the distribution’s value, inclusion ratio, and applicable rate, ensuring the IRS collects revenue on skipped generations.
If the inclusion ratio on your Form 706-GS(D-1) is zero for all distributions, no filing is required. This form is filed on a calendar-year basis, regardless of your personal tax year.
Who Must File Form 706-GS(D)?
Any skip person receiving a taxable distribution from a trust must file if the inclusion ratio is greater than zero. This includes:
- Individuals (e.g., grandchildren or further descendants).
- Trusts acting as skip persons.
Exceptions:
- No filing needed if all distributions have a zero inclusion ratio.
- Trustees file Form 706-GS(D-1) to report distributions, but beneficiaries handle the tax return.
If you’re a minor or under disability, a guardian or responsible party files on your behalf. Always attach copies of Form 706-GS(D-1) received from trustees.
When and Where to File Form 706-GS(D)
File between January 1 and April 15 of the year following the calendar year of the distributions. For 2025 distributions, the deadline is April 15, 2026.
For an automatic 6-month extension, submit Form 7004 by the original due date—no reason required.
Mail to:
- Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999.
- For private delivery services (PDS): Internal Revenue Submission Processing Center, 333 W. Pershing, Kansas City, MO 64108.
Supplemental returns (for changes) go to a different address: Internal Revenue Service Center, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.
How to Complete Form 706-GS(D): Step-by-Step Instructions?
Follow IRS Instruction 706-GS(D) carefully. The form has three parts:
Part I: General Information
- Line 1a: Enter the distributee’s name (trust name if applicable).
- Line 1b/1c: SSN for individuals or TIN for trusts.
- Line 2a: Trustee or responsible party’s name.
- Lines 2b–2i: Mailing address for IRS correspondence.
Part II: Tax Computation
Complete Part III first.
- Line 3: Total distributions from Part III.
- Line 4: Deduct adjusted allowable expenses (e.g., preparation fees prorated by inclusion ratio).
- Line 6: Applicable tax rate (40% for post-2012 distributions).
- Calculate tax on line 7, subtract credits/payments on line 8, and determine due or overpayment.
Payment options: EFTPS, same-day wire, check, or cash at retail partners.
Part III: Distributions
List each distribution from Form 706-GS(D-1), including description, value, inclusion ratio, and taxable amount. Use additional sheets if needed.
Sign the form; paid preparers must provide details and give you a copy.
Penalties and Interest for Non-Compliance
Late filing or payment incurs penalties under Section 6651 (up to 25% for late filing, 0.5% per month for late payment). Underpayments due to negligence or valuation understatements trigger a 20% penalty under Section 6662. Interest accrues from the due date.
Reasonable cause may waive penalties—submit explanations separately if notified. Paid preparers face penalties for understatements.
Recent Updates to Form 706-GS(D) Instructions
The December 2025 revision includes no major changes from prior years but confirms the 40% rate and updated addresses. Always check IRS.gov for inflation adjustments to exemptions.
Common Mistakes to Avoid
- Forgetting to attach Form 706-GS(D-1).
- Miscalculating the inclusion ratio.
- Not deducting allowable expenses.
- Filing late without an extension.
FAQs About IRS Form 706-GS(D)
1. What if I receive multiple distributions?
Report all on Part III, aggregating totals in Part II.
2. Can I e-file Form 706-GS(D)?
No, it’s paper-filed only.
3. How do I claim a refund for overpayment?
Use Form 843 if expenses are incurred post-filing.
For personalized advice, consult a tax professional. This guide is for informational purposes based on official IRS sources. Stay compliant to avoid costly penalties in your generation-skipping transfer tax obligations.