Sec. 26.2662-1 Generation-skipping transfer tax return requirements.
(a) In general.
Chapter 13 imposes a tax on generation-skipping transfers (as defined in section 2611). The requirements relating to the return of tax depend on the type of generation-skipping transfer involved. This section contains rules for filing the required tax return. Paragraph (c)(2) of this section provides special rules concerning the return requirements for generation-skipping transfers pursuant to certain trust arrangements (as defined in paragraph (c)(2)(ii) of this section), such as life insurance policies and annuities.
(b) Form of return.
(1) Taxable distributions.
Form 706GS(D) must be filed in accordance with its instructions for any taxable distribution (as defined in section 2612(b)). The trust involved in a transfer described in the preceding sentence must file Form 706GS(D- 1) in accordance with its instructions. A copy of Form 706GS(D-1) shall be sent to each distributee.
(2) Taxable terminations.
Form 706GS(T) must be filed in accordance with its instructions for any taxable termination (as defined in section 2612(a)).
(3) Direct skip
(i) Inter vivos direct skips.
Form 709 must be filed in accordance with its instructions for any direct skip (as defined in section 2612(c)) that is subject to chapter 12 and occurs during the life of the transferor.
(ii) Direct skips occurring at death
(A) In general.
Form 706 or Form 706NA must be filed in accordance with its instructions for any direct skips (as defined in section 2612(c)) that are subject to chapter 11 and occur at the death of the decedent.
(B) Direct skips payable from a trust.
Schedule R-1 of Form 706 must be filed in accordance with its instructions for any direct skip from a trust if such direct skip is subject to chapter 11. See paragraph (c)(2) of this section for special rules relating to the person liable for tax and required to make the return under certain circumstances.
(c) Person liable for tax and required to make return.
(1) In general.
Except as otherwise provided in this section, the following person is liable for the tax imposed by section 2601 and must make the required tax return --
(i) The transferee in a taxable distribution (as defined in section 2612(b));
(ii) The trustee in the case of a taxable termination (as defined in section 2612(a));
(iii) The transferor (as defined in section 2652(a)(1)(B)) in the case of an inter vivos direct skip (as defined in section 2612(c));
(iv) The trustee in the case of a direct skip from a trust or with respect to property that continues to be held in trust; or
(v) The executor in the case of a direct skip (other than a direct skip described in paragraph (c)(1)(iv) of this section) if the transfer is subject to chapter 11. See paragraph (c)(2) of this section for special rules relating to direct skips to or from certain trust arrangements (as defined in paragraph (c)(2)(ii) of this section).
(2) Special rule for direct skips occurring at death with repect to property held in trust arrangements.
(i) In general.
In the case of certain property held in a trust arrangement (as defined in paragraph (c)(2)(ii) of this section) at the date of death of the transferor, the person who is required to make the return and who is liable for the tax imposed by chapter 13 is determined under paragraphs (c)(2)(iii) and (iv) of this section.
(ii) Trust arrangement defined.
For purposes of this section, the term trust arrangement includes any arrangement (other than an estate) which, although not an explicit trust, has the same effect as an explicit trust. For purposes of this section, the term "explicit trust" means a trust described in section 301.7701-4(a).
(iii) Executor's liability in the case of transfers with respect to decedents dying on or after June 24, 1996, if the transfer is less than $250,000.
In the case of a direct skip occurring at death, the executor of the decedent's estate is liable for the tax imposed on that direct skip by chapter 13 and is required to file Form 706 or Form 706NA (and not Schedule R-1 of Form 706) if, at the date of the decedent's death --
(A) The property involved in the direct skip is held in a trust arrangement; and
(B) The total value of the property involved in direct skips with respect to the trustee of that trust arrangement is less than $250,000.
(iv) Executor's liability in the case of transfers with respect to decedents dying prior to June 24, 1996, if the transfer is less than $100,000.
In the case of a direct skip occurring at death with respect to a decedent dying prior to June 24, 1996, the rule in paragraph (c)(2)(iii) of this section that imposes liability upon the executor applies only if the property involved in the direct skip with respect to the trustee of the trust arrangement, in the aggregate, is less than $100,000.
(v) Executor's right of recovery.
In cases where the rules of paragraphs (c)(2)(iii) and (iv) of this section impose liability for the generation-skipping transfer tax on the executor, the executor is entitled to recover from the trustee (if the property continues to be held in trust) or from the recipient of the property (in the case of a transfer from a trust), the generation-skipping transfer tax attributable to the transfer.
(vi) Examples.
The following examples illustrate the application of this paragraph (c)(2) with respect to decedents dying on or after June 24, 1996:
EXAMPLE 1. INSURANCE PROCEEDS LESS THAN $250,000.
On August 1, 1997, T, the insured under an insurance policy, died. The proceeds ($200,000) were includible in T's gross estate for Federal estate tax purposes. T's grandchild, GC, was named the sole beneficiary of the policy. The insurance policy is treated as a trust under section 2652(b)(1), and the payment of the proceeds to GC is a transfer from a trust for purposes of chapter 13. Therefore, the payment of the proceeds to GC is a direct skip. Since the proceeds from the policy ($200,000) are less than $250,000, the executor is liable for the tax imposed by chapter 13 and is required to file Form 706.
EXAMPLE 2. AGGREGATE INSURANCE PROCEEDS OF $250,000 OR MORE.
Assume the same facts as in Example 1, except T is the insured under two insurance policies issued by the same insurance company. The proceeds ($150,000) from each policy are includible in T's gross estate for Federal estate tax purposes. T's grandchild, GC1, was named the sole beneficiary of Policy 1, and T's other grandchild, GC2, was named the sole beneficiary of Policy 2. GC1 and GC2 are skip persons (as defined in section 2613). Therefore, the payments of the proceeds are direct skips. Since the total value of the policies ($300,000) exceeds $250,000, the insurance company is liable for the tax imposed by chapter 13 and is required to file Schedule R-1 of Form 706.
EXAMPLE 3. INSURANCE PROCEEDS OF $250,000 OR MORE HELD BY INSURANCE COMPANY.
On August 1, 1997, T, the insured under an insurance policy, dies. The policy provides that the insurance company shall make monthly payments of $750 to GC, T's grandchild, for life with the remainder payable to T's great grandchild, GGC. The face value of the policy is $300,000. Since the proceeds continue to be held by the insurance company (the trustee), the proceeds are treated as if they were transferred to a trust for purposes of chapter 13. The trust is a skip person (as defined in section 2613(a)(2)) and the transfer is a direct skip. Since the total value of the policy ($300,000) exceeds $250,000, the insurance company is liable for the tax imposed by chapter 13 and is required to file Schedule R-1 of Form 706.
EXAMPLE 4. INSURANCE PROCEEDS LESS THAN $250,000 HELD BY INSURANCE COMPANY.
Assume the same facts as in Example 3, except the policy provides that the insurance company shall make monthly payments of $500 to GC and that the face value of the policy is $200,000. The transfer is a transfer to a trust for purposes of chapter 13. However, since the total value of the policy ($200,000) is less than $250,000, the executor is liable for the tax imposed by chapter 13 and is required to file Form 706.
EXAMPLE 5. ON AUGUST 1, 1997, A, THE INSURED UNDER A LIFE INSURANCE POLICY, DIES.
The insurance proceeds on A's life that are payable under policies issued by Company X are in the aggregate amount of $200,000 and are includible in A's gross estate. Because the proceeds are includible in A's gross estate, the generation-skipping transfer that occurs upon A's death, if any, will be a direct skip rather than a taxable distribution or a taxable termination. Accordingly, because the aggregate amount of insurance proceeds with respect to Company X is less than $250,000, Company X may pay the proceeds without regard to whether the beneficiary is a skip person in relation to the decedent-transferor.
(3) Limitation on personal liability of trustee.
Except as provided in paragraph (c)(3)(iii) of this section, a trustee is not personally liable for any increases in the tax imposed by section 2601 which is attributable to the fact that --
(i) A transfer is made to the trust during the life of the transferor for which a gift tax return is not filed; or
(ii) The inclusion ratio with respect to the trust, determined by reference to the transferor's gift tax return, is erroneous, the actual inclusion ratio being greater than the reported inclusion ratio.
(iii) This paragraph (c)(3) does not apply if the trustee has or is deemed to have knowledge of facts sufficient to reasonably conclude that a gift tax return was required to be filed or that the inclusion ratio is erroneous. A trustee is deemed to have knowledge of such facts if the trustee's agent, employee, partner, or co- trustee has knowledge of such facts.
(4) Exceptions.
(i) Legal or mental incapacity.
If a distributee is legally or mentally incapable of making a return, the return may be made for the distributee by the distributee's guardian or, if no guardian has been appointed, by a person charged with the care of the distributee's person or property.
(ii) Returns made by fiduciaries.
See section 6012(b) for a fiduciary's responsibilities regarding the returns of decedents, returns of persons under a disability, returns of estates and trusts, and returns made by joint fiduciaries.
(d) Time and manner of filing return.
(1) In general.
Forms 706, 706NA, 706GS(D), 706GS(D-1), 706GS(T), 709, and Schedule R-1 of Form 706 must be filed with the Internal Revenue Service office with which an estate or gift tax return of the transferor must be filed. The return shall be filed --
(i) Direct skip.
In the case of a direct skip, on or before the date on which an estate or gift tax return is required to be filed with respect to the transfer (see section 6075(b)(3)); and
(ii) Other transfers.
In all other cases, on or before the 15th day of the 4th month after the close of the calendar year in which such transfer occurs. See paragraph (d)(2) of this section for an exception to this rule when an election is made under section 2624(c) to value property included in certain taxable terminations in accordance with section 2032.
(2) Exception for alternative valuation of taxable termination.
In the case of a taxable termination with respect to which an election is made under section 2624(c) to value property in accordance with section 2032, a Form 706GS(T) must be filed on or before the 15th day of the 4th month after the close of the calendar year in which the taxable termination occurred, or on or before the 10th month following the month in which the death that resulted in the taxable termination occurred, whichever is later.
(e) Place for filing returns.
See section 6091 for the place for filing any return, declaration, statement, or other document, or copies thereof, required by chapter 13.
(f) Lien on property.
The liens imposed under sections 6324, 6324A, and 6324B are applicable with respect to the tax imposed under chapter 13. Thus, a lien under section 6324 is imposed in the amount of the tax imposed by section 2601 on all property transferred in a generation-skipping transfer until the tax is fully paid or becomes uncollectible by reason of lapse of time. The lien attaches at the time of the generation-skipping transfer and is in addition to the lien for taxes under section 6321.
[T.D. 8187, 53 FR 8442, Mar. 15, 1988, corrected at 53 FR 13464, Apr. 25, 1988, and 53 FR 18839, May 25, 1988. Revised by T.D. 8644, 60 FR 66898-66926, Dec. 27, 1995, corrected at 61 FR 29653-29654, June 12, 1996.]
