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Taxes

AICPA Recommends Changes to IRS Form 706-GS (D-1)

Form 706-GS(D-1) is used by trustees to report certain distributions from a trust that are subject to the generation-skipping transfer tax (GSTT).

Isaac M. O'Bannon

Jun. 28, 2023

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The American Institute of CPAs (AICPA), provided the Department of the Treasury  and the Internal Revenue Service (IRS) issues and recommendations for improvements to the Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust, and instructions and extensions, as well as guidance and regulations updates if Treasury and the IRS find that there are issues  beyond changes to the form and instructions.

Form 706-GS(D-1) is used by trustees to report certain distributions from a trust that are subject to the generation-skipping transfer tax (GSTT). A skip person is someone related to the transferor by blood, marriage or adoption, who is one or more generations below the transferor.

This form provides the skip person distributee with information needed to figure the tax on the distribution. The IRS then uses the information to verify that the tax has been properly computed.

The AICPA’s recommendations for improvements to Form 706-GS(D-1), instructions and extensions are:

  1. Provide an extension of time to file Form 706-GS(D-1) and include clarity on this in the Form 706-GS(D-1) instructions Add a line to the Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns, to include Form 706-GS(D-1).
     
  2. Provide clarity on when a taxable distribution occurs, including whether the taxable distribution occurs either (1) when the beneficiary is entitled to the distribution, or (2) when the beneficiary receives the distribution.
     
  3. Provide clarity on how to properly describe and provide “enough detail that the IRS can value it” for certain types of property other than real estate, stocks and bonds and other personal property, including examples, such as for closely held entities, life insurance policies, art, collectibles and digital assets.
     
  4. Provide clarity and instructions (similar to what is provided in the instructions for Forms 709 and 706) regarding proper valuation methods for noncash distributions when reporting the value.

“The goal of AICPA’s recommendations is to simplify filing for taxpayers and practitioners and reduce the administrative burden on the IRS,” says Eileen Sherr, Director of Tax Policy & Advocacy for AICPA. “We continue to work with the IRS to find helpful solutions and seek clarity.”