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$1,500,000 of the exemption to those

Section 2632(c) provides an automatic

You may enter an amount in column C

transfers. In 2006, the donor makes a

allocation to indirect skips of any unused

that is greater than the amount you

$207,000 taxable generation-skipping

GST exemption. The unused exemption

entered in column B.

transfer. The donor can allocate $207,000

is allocated to indirect skips to the extent

Column D

of exemption to the 2006 transfer but

necessary to make the inclusion ratio

cannot allocate the $293,000 of unused

zero for the property transferred. You may

Carry your computation to three decimal

2006 exemption to pre-2006 transfers.

elect out of this automatic allocation as

places (for example, “1.000”).

explained in the instructions for Part 3 on

However, if in 2005, the donor made a

page 9.

$1,750,000 transfer to a trust that was not

a direct skip, but from which generation-

Part 2—Tax Computation

Line 6

skipping transfers could be made in the

(Page 1 of Form 709)

future, the donor could allocate the

Notice of allocation. You may wish to

increased exemption to the trust, even

allocate GST exemption with this return to

Lines 4 and 5

though no additional transfers were made

transfers not reported on this return, such

to the trust. See Regulations section

as a late allocation.

To compute the tax for the amount on line

26.2642-4 for details on the

3 (to be entered on line 4) and the tax for

To allocate your exemption to such

redetermination of the applicable fraction

the amount on line 2 (to be entered on

transfers, attach a statement to this Form

when additional exemption is allocated to

line 5), use the Table for Computing Gift

709 and entitle it “Notice of Allocation.”

the trust.

Tax on page 12.

The notice must contain the following for

You should keep a record of your

each trust (or other transfer):

Line 7

transfers and exemption allocations to

•

Clearly identify the trust, including the

make sure that any future increases are

If you are a citizen or resident of the

trust’s EIN, if known;

allocated correctly.

United States, you must take any

•

If this is a late allocation, the year the

available unified credit against gift tax.

Enter on line 1 of Part 2 the maximum

transfer was reported on Form 709;

Nonresident aliens may not claim the

GST exemption you are allowed. This will

•

The value of the trust assets at the

unified credit. If you are a nonresident

not necessarily be the highest indexed

effective date of the allocation;

alien, delete the $345,800 entry, skip line

amount if you made no generation-

•

The amount of your GST exemption

8, and write in zero on line 11.

skipping transfers during the year of the

allocated to each gift (or a statement that

increase.

you are allocating exemption by means of

Line 10

The donor can apply this exemption to

a formula such as “an amount necessary

Enter 20% of the amount allowed as a

inter vivos transfers (that is, transfers

to produce an inclusion ratio of zero”);

specific exemption for gifts made after

made during the donor’s life) on Form

and

September 8, 1976, and before January

709. The executor can apply the

•

The inclusion ratio of the trust after the

1, 1977. (These amounts will be among

exemption on Form 706 to transfers

allocation.

those listed in Schedule B, column D, for

taking effect at death. An allocation is

gifts made in the third and fourth quarters

irrevocable.

Total the exemption allocations and

of 1976.)

enter this total on line 6.

In the case of inter vivos direct skips, a

portion of the donor’s unused exemption

Note. Where the property involved in

Line 13

is automatically allocated to the

such a transfer is subject to an ETIP

Gift tax conventions are in effect with

transferred property unless the donor

because it would be includible in the

Australia, Austria, Denmark, France,

elects otherwise. To elect out of the

donor’s estate if the donor died

Germany, Japan, Sweden, and the United

automatic allocation of exemption, you

immediately after the transfer (other than

Kingdom. If you are claiming a credit for

must file Form 709 and attach a

by reason of the donor having died within

payment of foreign gift tax, figure the

statement to it clearly describing the

3 years of making the gift), an allocation

credit on an attached sheet and attach

transaction and the extent to which the

of the GST exemption at the time of the

evidence that the foreign taxes were paid.

automatic allocation is not to apply.

transfer will only become effective at the

See the applicable convention for details

Reporting a direct skip on a timely filed

end of the ETIP. For details, see

of computing the credit.

Form 709 and paying the GST tax on the

Transfers Subject to an Estate Tax

transfer will qualify as such a statement.

Inclusion Period (ETIP) on page 3 and

Line 19

Special QTIP election. If you have

section 2642(f).

Make your check or money order payable

elected QTIP treatment for any gifts in

to “United States Treasury” and write the

trust listed on Schedule A, then you may

Part 3—Tax Computation

donor’s social security number on it. You

make an election on Schedule C to treat

You must enter in Part 3 every gift you

may not use an overpayment on Form

the entire trust as non-QTIP for purposes

listed in Part 1 of Schedule C.

1040 to offset the gift and GST taxes

of the GST tax. The election must be

owed on Form 709.

made for the entire trust that contains the

Column C

particular gift involved on this return. Be

You are not required to allocate your

sure to identify by item number the

Signature

available exemption. You may allocate

specific gift for which you are making this

As a donor, you must sign the return. If

some, all, or none of your available

special QTIP election.

you pay another person, firm, or

exemption, as you wish, among the gifts

Line 5

corporation to prepare your return, that

listed in Part 3 of Schedule C. However,

person must also sign the return as

Enter on line 5 the amount of GST

the total exemption claimed in column C

preparer unless he or she is your regular

exemption you are applying to transfers

may not exceed the amount you entered

full-time employee.

reported in Part 3 of Schedule A.

on line 3 of Part 2 of Schedule C.

-11-

Instructions For Form 709 - United States Gift (And Generation-Skipping Transfer) Tax Return - 2006 Page 11

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