Instruction 709 (Rev. 2001 ) TO I709

User Manual: TO-709

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Instructions for Form 709

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2001

Department of the Treasury
Internal Revenue Service

Instructions for Form 709
United States Gift (and Generation-Skipping Transfer) Tax Return
(For gifts made during calendar year 2001.)
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 12 of the instructions.
Section references are to the Internal Revenue Code unless otherwise noted.
If you are filing this form solely to elect
gift-splitting for gifts of not more than
$20,000 per donee, you may be able to
use Form 709-A, United States Short
Form Gift Tax Return, instead of this
form. See Who Must File on page 3 and
When the Consenting Spouse Must
Also File a Gift Tax Return on page 5.

For Gifts
Made
After
— — —

and

Before

Use
Revision of
Form 709
Dated

January 1,
1982

November
1981

December
31, 1981

January 1,
1987

January
1987

December
31, 1986

January 1,
1989

December
1988

December
31, 1988

January 1,
1990

December
1989

December
31, 1989

October 9,
1990

October
1990

October 8,
1990

January 1,
1992

November
1991

December
31, 1992

January 1,
1998

December
1996

Changes To Note

• For 2001, mail this form to Internal
Revenue Service Center, Cincinnati,
Ohio, 45999. See Where To File on
page 4.
• For gifts made to spouses who are not
U.S. citizens, the annual exclusion has
increased to $106,000. See page 3.
• The generation-skipping transfer (GST)
lifetime exemption has increased to
$1,060,000. See page 10.
• Act section 561 of the Economic
Growth and Tax Relief Reconciliation Act
of 2001 (code section 2632) made
several changes to the special rules for
allocation of GST exemption. One of the
changes creates an automatic allocation
of GST exemption to “indirect skips.”
Other changes create special elections
including an election out of the automatic

allocation. See the instructions for Line 5
on page 11.

property, whether tangible or intangible,
that you made directly or indirectly, in
trust, or by any other means to a donee.

Photographs of Missing
Children

The gift tax applies not only to the
gratuitous transfer of any kind of property,
but also to sales or exchanges, not made
in the ordinary course of business, where
money or money’s worth is exchanged
but the value of the money (or property)
or money’s worth received is less than the
value of what is sold or exchanged. The
gift tax is in addition to any other tax, such
as Federal income tax, paid or due on the
transfer.

The IRS is a proud partner with the
National Center for Missing and Exploited
Children. Photographs of missing children
selected by the Center may appear in
instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

General Instructions
Note: If you meet all of the following
requirements, you are not required to file
Form 709:
1. You made no gifts during the year
to your spouse;
2. You gave no more than $10,000
during the year to any one donee; and
3. All of the gifts you made were of
present interests.
For additional information, see
Transfers Not Subject to the Gift Tax
below and Who Must File on page 3.

Purpose of Form
Use Form 709 to report the following:
• Transfers subject to the Federal gift
and certain generation-skipping transfer
(GST) taxes and to figure the tax, if any,
due on those transfers, and
• Allocation of the lifetime GST
exemption to property transferred during
the transferor’s lifetime. (For more details,
see the instructions for Part 2 — GST
Exemption Reconciliation on page 10,
and Regulations section 26.2632-1.)
All gift and GST taxes are computed
and filed on a calendar year basis
regardless of your income tax accounting
period.

Transfers Subject to the Gift
Tax
Generally, the Federal gift tax applies to
any transfer by gift of real or personal
Cat. No. 16784X

The exercise or release of a general
power of appointment may be a gift by the
individual possessing the power. General
powers of appointment are those in which
the holders of the power can appoint the
property subject to the power to
themselves, their creditors, their estates,
or the creditors of their estates. To qualify
as a power of appointment, it must be
created by someone other than the holder
of the power.
The gift tax may also apply to the
forgiveness of a debt, to interest-free or
below market interest rate loans, to the
assignment of the benefits of an
insurance policy, to certain property
settlements in divorce cases, and to the
giving up of some amount of annuity in
exchange for the creation of a survivor
annuity.
Bonds that are exempt from Federal
income taxes are not exempt from
Federal gift taxes.
Code sections 2701 and 2702 provide
rules for determining whether certain
transfers to a family member of interests
in corporations, partnerships, and trusts
are gifts. The rules of section 2704
determine whether the lapse of any voting
or liquidation right is a gift.

Transfers Not Subject to the
Gift Tax
Three types of transfers are not subject to
the gift tax. These are transfers to political
organizations and payments that qualify
for the educational and medical
exclusions. These transfers are not “gifts”
as that term is used on Form 709 and its

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Instructions for Form 709

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instructions. You need not file a Form 709
to report these transfers and should not
list them on Schedule A of Form 709 if
you do file Form 709.
Political organizations. The gift tax
does not apply to a transfer to a political
organization (defined in section 527(e)(1))
for the use of the organization.
Educational exclusion. The gift tax
does not apply to an amount you paid on
behalf of an individual to a qualifying
domestic or foreign educational
organization as tuition for the education or
training of the individual. A qualifying
educational organization is one that
normally maintains a regular faculty and
curriculum and normally has a regularly
enrolled body of pupils or students in
attendance at the place where its
educational activities are regularly carried
on. See section 170(b)(1)(A)(ii) and its
regulations.
The payment must be made directly to
the qualifying educational organization
and it must be for tuition. No educational
exclusion is allowed for amounts paid for
books, supplies, room and board, or other
similar expenses that do not constitute
direct tuition costs. To the extent that the
payment to the educational institution was
for something other than tuition, it is a gift
to the individual for whose benefit it was
made, and may be offset by the annual
exclusion if it is otherwise available.
Contributions to a qualified state tuition
program on behalf of a designated
beneficiary do not qualify for the
educational exclusion.
Medical exclusion. The gift tax does not
apply to an amount you paid on behalf of
an individual to a person or institution that
provided medical care for the individual.
The payment must be to the care
provider. The medical care must meet the
requirements of section 213(d) (definition
of medical care for income tax deduction
purposes). Medical care includes
expenses incurred for the diagnosis, cure,
mitigation, treatment, or prevention of
disease, or for the purpose of affecting
any structure or function of the body, or
for transportation primarily for and
essential to medical care. Medical care
also includes amounts paid for medical
insurance on behalf of any individual.
The medical exclusion does not apply
to amounts paid for medical care that are
reimbursed by the donee’s insurance. If
payment for a medical expense is
reimbursed by the donee’s insurance
company, your payment for that expense,
to the extent of the reimbursed amount, is
not eligible for the medical exclusion and
you have made a gift to the donee.
To the extent that the payment was for
something other than medical care, it is a
gift to the individual on whose behalf the

payment was made and may be offset by
the annual exclusion if it is otherwise
available.
The medical and educational
exclusions are allowed without regard to
the relationship between you and the
donee. For examples illustrating these
exclusions, see Regulations section
25.2503-6.
Qualified disclaimers. A donee’s refusal
to accept a gift is called a disclaimer. If a
person makes a qualified disclaimer with
respect to any interest in property, the
property will be treated as if it had never
been transferred to that person.
Accordingly, the disclaimant is not
regarded as making a gift to the person
who receives the property because of the
qualified disclaimer.
Requirements. To be a qualified
disclaimer, a refusal to accept an interest
in property must meet the following
conditions:
1. The refusal must be in writing;
2. The refusal must be received by
the donor, the legal representative of the
donor, the holder of the legal title to the
property to which the interest relates, or
the person in possession of the property
within 9 months after the later of (a) the
day on which the transfer creating the
interest is made or (b) the day on which
the disclaimant reaches age 21;
3. The disclaimant must not have
accepted the interest or any of its
benefits;
4. As a result of the refusal, the
interest must pass without any direction
from the disclaimant to either (a) the
spouse of the decedent or (b) a person
other than the disclaimant; and
5. The refusal must be irrevocable
and unqualified.
The 9-month period for making the
disclaimer generally is determined
separately for each taxable transfer. For
gifts, the period begins on the date the
transfer is a completed transfer for gift tax
purposes. For a transfer by will, it begins
on the date of the decedent’s death.

Transfers Subject to the
Generation-Skipping Transfer
Tax
You must report on Form 709 the GST
tax imposed on inter vivos direct skips.
(See Regulations section 26.2662-1(b) for
instructions on how to report other
generation-skipping transfers.) An inter
vivos direct skip is a transfer made during
the donor’s lifetime that is: (a) subject to
the gift tax; (b) of an interest in property;
and (c) made to a skip person. (See
page 6.)
A transfer is subject to the gift tax if it
is required to be reported on Schedule A

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of Form 709 under the rules contained in
the gift tax portions of these instructions,
including the split gift rules. Therefore,
transfers made to political organizations,
transfers that qualify for the medical or
educational exclusions, transfers that are
fully excluded under the annual exclusion,
and most transfers made to your spouse
are not subject to the GST tax.
Transfers subject to the GST tax are
described in further detail in the
instructions on page 6.
Important: Certain transfers, particularly
transfers to a trust, that are not subject to
gift tax and are therefore not subject to
the GST tax on Form 709 may be subject
to the GST tax at a later date. This is true
even if the transfer is less than the
$10,000 annual exclusion. In this
instance, you may want to apply a GST
exemption amount to the transfer on this
return or on a Notice of Allocation. For
more information, see Part 2 — GST
Exemption Reconciliation on page 10.

Transfers Subject to an “Estate
Tax Inclusion Period”
If property that is transferred by gift in a
GST direct skip would have been
includible in the donor’s estate if the
donor had died immediately after the
transfer (other than by reason of the
donor having died within 3 years of
making the gift), the direct skip will be
treated as having been made at the end
of the “estate tax inclusion period” (ETIP)
rather than at the time it was actually
made. For details, see section 2642(f).
Report the gift portion of such a
transfer in Schedule A, Part 1, at the time
of the actual transfer. Report the GST
portion in Schedule A, Part 2, but only at
the close of the ETIP. Use Form 709 only
to report those transfers where the ETIP
closed due to something other than the
donor’s death. If the ETIP closed as the
result of the donor’s death, report the
transfer on Form 706.
If you are filing this Form 709 solely to
report transfers subject to an ETIP,
complete the form as you normally would
with the following exceptions:
1. Write “ETIP” at the top of page 1;
2. Complete only lines 1 – 4, 6, 8, and
9 of Part 1, General Information;
3. Complete Schedule A, Part 2, as
explained in the instructions for that
schedule on page 8;
4. Complete Column B of Schedule C,
Part 1, as explained in the instructions for
that schedule on page 10;
5. Complete only lines 14 and 15 of
Schedule A, Part 3. (Also list here direct
skips that are subject only to the GST tax
as the result of the termination of an
“estate tax inclusion period.” See

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Instructions for Form 709

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instructions for Schedule C beginning on
page 10.)

Section 2701 Elections
The special valuation rules of section
2701 contain three elections that you
must make with Form 709.
1. A transferor may elect to treat a
qualified payment right he or she holds
(and all other rights of the same class) as
other than a qualified payment right.
2. A person may elect to treat a
distribution right held by that person in a
controlled entity as a qualified payment
right.
3. An interest holder may elect to treat
as a taxable event the payment of a
qualified payment that occurs more than 4
years after its due date.
The elections described in 1 and 2
must be made on the Form 709 that is
filed by the transferor to report the
transfer that is being valued under section
2701. The elections are made by
attaching a statement to Form 709. For
information on what must be in the
statement and for definitions and other
details on the elections, see section 2701
and Regulations section 25.2701-2(c).
The election described in 3 may be
made by attaching a statement to either a
timely or a late filed Form 709 filed by the
recipient of the qualified payment for the
year the payment is received. If the
election is made on a timely filed return,
the taxable event is deemed to occur on
the date the qualified payment is
received. If it is made on a late filed
return, the taxable event is deemed to
occur on the first day of the month
immediately preceding the month in which
the return is filed. For information on what
must be in the statement and for
definitions and other details on this
election, see section 2701 and
Regulations section 25.2701-4(d).
All of the elections may be revoked
only with the consent of the IRS.

Who Must File
Only individuals are required to file gift tax
returns. If a trust, estate, partnership, or
corporation makes a gift, the individual
beneficiaries, partners, or stockholders
are considered donors and may be liable
for the gift and GST taxes.
The donor is responsible for paying the
gift tax. However, if the donor does not
pay the tax, the person receiving the gift
may have to pay the tax.
If a donor dies before filing a return,
the donor’s executor must file the return.
A married couple may not file a joint
gift tax return. However, see Split Gifts —
Gifts by Husband or Wife to Third
Parties on page 4.

If a gift is of community property, it is
considered made one-half by each
spouse. For example, a gift of $100,000
of community property is considered a gift
of $50,000 made by each spouse, and
each spouse must file a gift tax return.
Likewise, each spouse must file a gift
tax return if they have made a gift of
property held by them as joint tenants or
tenants by the entirety.

Citizens or Residents of the
United States
If you are a citizen or resident of the
United States, you must file a gift tax
return (whether or not any tax is ultimately
due) in the following situations:
Gifts to your spouse. You must file a
gift tax return if your spouse is not a U.S.
citizen and the total gifts you made to
your spouse during the year exceed
$106,000, or if you made any gift of a
terminable interest that does not meet the
exception described in Life estate with
power of appointment on page 9.
You must also file a gift tax return to
make the QTIP (Qualified Terminable
Interest Property) election described on
page 9.
Except as described above, you do
not have to file a gift tax return to report
gifts to your spouse regardless of the
amount of these gifts and regardless of
whether the gifts are present or future
interests.
Gifts to donees other than your
spouse. You must file a gift tax return if
you gave gifts to any such donee that are
not fully excluded under the $10,000
annual exclusion (as described below).
Thus, you must file a gift tax return to
report any gift of a future interest
(regardless of amount) or to report gifts to
any donee that total more than $10,000
for the year.
Gifts to charities. If the only gifts you
made during the year are deductible as
gifts to charities, you do not need to file a
return as long as you transferred your
entire interest in the property to qualifying
charities. If you transferred only a partial
interest, or transferred part of your
interest to someone other than a charity,
you must still file a return.

• Was domiciled in a possession of the
United States;
• Was a U.S. citizen; and
• Became a U.S. citizen for a reason
other than being a citizen of a U.S.
possession or being born or residing in a
possession.

Annual Exclusion
The first $10,000 of gifts of present
interests to each donee during the
calendar year is subtracted from total gifts
in figuring the amount of taxable gifts. For
a gift in trust, each beneficiary of the trust
is treated as a separate donee for
purposes of the annual exclusion.
All of the gifts made during the
calendar year to a donee are fully
excluded under the annual exclusion if
they are all gifts of present interests and if
they total $10,000 or less.
Note: For gifts made to spouses who are
not U.S. citizens, the annual exclusion
has been increased to $106,000,
provided the additional $96,000 gift would
otherwise qualify for the gift tax marital
deduction (as described in the line 8
instructions on page 9).
A gift of a future interest cannot be
excluded under the annual exclusion.
A gift is considered a present interest if
the donee has all immediate rights to the
use, possession, and enjoyment of the
property and income from the property. A
gift is considered a future interest if the
donee’s rights to the use, possession,
and enjoyment of the property and
income from the property will not begin
until some future date. Future interests
include reversions, remainders, and other
similar interests or estates.
Note: A contribution to a qualified state
tuition plan on behalf of a designated
beneficiary is considered a gift of a
present interest.

If you are required to file a return to
report noncharitable gifts and you made
gifts to charities, you must include all of
your gifts to charities on the return.
Gift splitting. You must file a gift tax
return to split gifts (regardless of their
amount) with your spouse as described in
the Specific Instructions for Part 1 on
page 4.

A gift to a minor is considered a
present interest if all of the following
conditions are met:
1. Both the property and its income
may be expended by, or for the benefit of,
the minor before the minor reaches age
21;
2. All remaining property and its
income must pass to the minor on the
minor’s 21st birthday; and
3. If the minor dies before the age of
21, the property and its income will be
payable either to the minor’s estate or to
whomever the minor may appoint under a
general power of appointment.

The term citizen of the United States
includes a person who, at the time of
making the gift:

The gift of a present interest to more
than one donee as joint tenants qualifies
for the annual exclusion for each donee.

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Nonresident Aliens
Nonresident aliens are subject to gift and
GST taxes for gifts of tangible property
situated in the United States. Under
certain circumstances, they are also
subject to gift and GST taxes for gifts of
intangible property. (See section
2501(a).)
If you are a nonresident alien who
made a gift subject to gift tax, you must
file a gift tax return if: (a) you gave any
gifts of future interests; or (b) your gifts of
present interests to any donee other than
your spouse total more than $10,000; or
(c) your outright gifts to your spouse who
is not a U.S. citizen total more than
$106,000.

When To File
Form 709 is an annual return.
Generally, you must file the 2001 Form
709 on or after January 1 but not later
than April 15, 2002.
If the donor died during 2001, the
executor must file the donor’s 2001 Form
709 not later than the earlier of (a) the
due date (with extensions) for filing the
donor’s estate tax return or (b) April 15,
2002. Under this rule, the 2001 Form 709
may be due before April 15, 2002, if the
donor died before July 15, 2001. If the
donor died after July 14, 2001, the due
date (without extensions) is April 15,
2002. If no estate tax return is required to
be filed, the due date for the 2001 Form
709 (without extensions) is April 15, 2002.
For more details, see Regulations section
25.6075-1.

Extension of Time To File
There are two methods of extending the
time to file the gift tax return. Neither
method extends the time to pay the gift or
GST taxes. If you want an extension of
time to pay the gift or GST taxes, you
must request that separately. (See
Regulations section 25.6161-1.)
By extending the time to file your
income tax return. Any extension of
time granted for filing your calendar year
Federal income tax return will also extend
the time to file any gift tax return. Income
tax extensions are made by using Form
4868, 2688, or 2350, which have
checkboxes for Form 709. See Form
4868 to get an automatic 4-month
extension by phone using a credit card to
pay part or all of the Federal income tax
(but not gift or GST taxes) you expect to
owe for 2001. You may only use one of
these forms to extend the time for filing
your gift tax return if you are also
requesting an extension of time to file
your income tax return.
By letter. You can request an extension
of time to file your gift tax return by writing
to the Cincinnati Service Center at the

address shown below under Where To
File. You must explain the reasons for the
delay. You must use a letter to request
an extension of time to file your gift tax
return unless you are also requesting an
extension to file your income tax return.

Where To File
Send Form 709 to:
Internal Revenue Service Center
Cincinnati, Ohio 45999

Adequate Disclosure
To begin the running of the statute
of limitations regarding a gift, the
CAUTION gift must be adequately disclosed
on Form 709 (or an attached statement)
filed for the year of the gift.

!

In general, a gift will be considered
adequately disclosed if the return or
statement provides the following:
• A description of the transferred
property and any consideration received
by the donor,
• The identity of, and relationship
between, the donor and each donee,
• If the property is transferred in trust, the
trust’s EIN and a brief description of the
terms of the trust (or a copy of the trust
instrument in lieu of the description), and
• Either a qualified appraisal or a detailed
description of the method used to
determine the fair market value of the gift.
See Regulations section
301.6501(c)-1(e) and (f) for details,
including what constitutes a qualified
appraisal, the information required if no
appraisal is provided, and the information
required for transfers under sections 2701
and 2702.

Penalties
The law provides for penalties for both
late filing of returns and late payment of
tax unless you have reasonable cause.
There are also penalties for valuation
understatements that cause an
underpayment of the tax, willful failure to
file a return on time, and willful attempt to
evade or defeat payment of tax.
The late filing penalty will not be
imposed if the taxpayer can show that the
failure to file a timely return is due to
reasonable cause. Those filing late (after
the due date, including extensions)
should attach an explanation to the return
to show reasonable cause.
A valuation understatement occurs
when the reported value of property
entered on Form 709 is 50% or less of the
actual value of the property.

Joint Tenancy
If you buy property with your own funds
and the title to such property is held by
yourself and the donee as joint tenants

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with right of survivorship and if either you
or the donee may give up those rights by
severing your interest, you have made a
gift to the donee in the amount of half the
value of the property.
If you create a joint bank account for
yourself and the donee (or a similar kind
of ownership by which you can get back
the entire fund without the donee’s
consent), you have made a gift to the
donee when the donee draws on the
account for his or her own benefit. The
amount of the gift is the amount that the
donee took out without any obligation to
repay you. If you buy a U.S. savings bond
registered as payable to yourself or the
donee, there is a gift to the donee when
he or she cashes the bond without any
obligation to account to you.

Transfer of Certain Life
Estates
If you received a qualifying terminable
interest (see page 9) from your spouse for
which a marital deduction was elected on
your spouse’s estate or gift tax return, you
will be subject to the gift tax (and GST
tax, if applicable) if you dispose of all or
part of your life income interest (by gift,
sale, or otherwise).
The entire value of the property
involved less (a) the amount you received
on the disposition and (b) the amount (if
any) of the life income interest you
retained after the transfer will be treated
as a taxable gift. That portion of the
property’s value that is attributable to the
remainder interest is a gift of a future
interest for which no annual exclusion is
allowed. To the extent you made a gift of
the life income interest, you may claim an
annual exclusion, treating the person to
whom you transferred the interest as the
donee for purposes of computing the
annual exclusion.

Specific Instructions
Part I—General
Information
Split Gifts—Gifts by Husband
or Wife to Third Parties
A married couple may not file a joint gift
tax return.
However, if after reading the
instructions below, you and your spouse
agree to split your gifts, you should file
both of your individual gift tax returns
together (i.e., in the same envelope) to
avoid correspondence from the IRS.
If you and your spouse agree, all gifts
(including gifts of property held with your

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spouse as joint tenants or tenants by the
entirety) either of you make to third
parties during the calendar year will be
considered as made one-half by each of
you if:
• You and your spouse were married to
one another at the time of the gift;
• If divorced or widowed after the gift,
you did not remarry during the rest of the
calendar year;
• Neither of you was a nonresident alien
at the time of the gift; and
• You did not give your spouse a general
power of appointment over the property
interest transferred.
If you transferred property partly to
your spouse and partly to third parties,
you can only split the gifts if the interest
transferred to the third parties is
ascertainable at the time of the gift.
If you meet these requirements and
want your gifts to be considered made
one-half by you and one-half by your
spouse, check the “Yes” box on line 12,
page 1; complete lines 13 through 17;
and have your spouse sign the consent
on line 18. If you are not married or do not
wish to split gifts, skip to Schedule A.

Line 15
If you were married to one another for the
entire calendar year, check the “Yes” box
and skip to line 17. If you were married for
only part of the year, check the “No” box
and go to line 16.

Line 16
Check the box that explains the change in
your marital status during the year and
give the date you were married, divorced,
or widowed.

Consent of Spouse
To have your gifts (and generationskipping transfers) considered as made
one-half by each of you, your spouse
must sign the consent. The consent may
generally be signed at any time after the
end of the calendar year. However, there
are two exceptions:
1. The consent may not be signed
after April 15 following the end of the year
in which the gift was made. (But, if neither
you nor your spouse has filed a gift tax
return for the year on or before that date,
the consent must be made on the first gift
tax return for the year filed by either of
you.)
2. The consent may not be signed
after a notice of deficiency for the gift or
GST tax for the year has been sent to
either you or your spouse.
The executor for a deceased spouse
or the guardian for a legally incompetent
spouse may sign the consent.
The consent is effective for the entire
calendar year; therefore, all gifts made by
both you and your spouse to third parties

during the calendar year (while you were
married) must be split.
If the consent is effective, the liability
for the entire gift and GST taxes of each
spouse is joint and several.

When the Consenting Spouse Must
Also File a Gift Tax Return
If the spouses elect gift splitting
(described under Split Gifts on page 4),
then both the donor spouse and the
consenting spouse must each file
separate gift tax returns unless all the
requirements of either Exception 1 or 2
below are met.
Exception 1. During the calendar year:
• Only one spouse made any gifts;
• The total value of these gifts to each
third-party donee does not exceed
$20,000; and
• All of the gifts were of present interests.
Exception 2. During the calendar year:
• Only one spouse (the donor spouse)
made gifts of more than $10,000 but not
more than $20,000 to any third-party
donee;
• The only gifts made by the other
spouse (the consenting spouse) were
gifts of not more than $10,000 to
third-party donees other than those to
whom the donor spouse made gifts; and
• All of the gifts by both spouses were of
present interests.
If either Exception 1 or 2 is met, only
the donor spouse must file a return and
the consenting spouse signifies consent
on that return. This return may be made
on Form 709-A, United States Short
Form Gift Tax Return. This form is much
easier to complete than Form 709, and
you should consider filing it whenever
either of the above exceptions is met
and the gifts consist entirely of present
interests in tangible personal property,
cash, U.S. Savings Bonds, or stocks and
bonds listed on a stock exchange.
Specific instructions for Part 2 — Tax
Computation are continued on page 12.
Because you must complete Schedules
A, B, and C to fill out Part 2, you will find
instructions for these schedules below.

discount for lack of marketability, a
minority interest, a fractional interest in
real estate, blockage, market absorption,
or for any other reason, answer “Yes” to
the question at the top of Schedule A.
Also, attach an explanation giving the
factual basis for the claimed discounts
and the amount of the discounts taken.

Qualified State Tuition
Programs
If your total 2001 contributions to a
qualified state tuition plan on behalf of
any individual beneficiary exceed
$10,000, then for purposes of the annual
exclusion you may elect under section
529(c)(2)(B) to treat up to $50,000 of your
total contributions as having been made
ratably over a 5-year period beginning in
2001.
You must report in 2001 the entire
amount of the contribution in excess of
$50,000.
You make the election by checking the
box on line B at the top of Schedule A.
The election must be made for the
calendar year in which the contribution is
made. Also attach an explanation that
includes the following:
• The total amount contributed per
individual beneficiary;
• The amount for which the election is
being made; and
• The name of the individual for whom
the contribution was made.
If you make this election, report only 1/5
(20%) of your total contributions (up to
$50,000) on the 2001 Form 709. You
must then report an additional 20% of the
total in each of the succeeding 4 years. If
you are electing gift splitting for the
contributions, apply the gift-splitting rules
before applying these rules. In this case,
both spouses must make the section
529(c)(2)(B) election on their respective
returns.
Note: Contributions to qualified state
tuition plans do not qualify for the
educational exclusion.

How To Complete Schedule A

Schedule A—Computation
of Taxable Gifts
Do not enter on Schedule A any gift or
part of a gift that qualifies for the political
organization, educational, or medical
exclusions. In the instructions below,
“gifts” means gifts (or parts of gifts) that
do not qualify for the political
organization, educational, or medical
exclusions.

Valuation Discounts
If the value of any gift you report in either
Part 1 or Part 2 of Schedule A reflects a

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After you determine which gifts you made
are subject to the gift tax and therefore
should be listed on Schedule A, you must
divide these gifts between those subject
only to the gift tax (gifts made to nonskip
persons — see page 6) and those subject
to both the gift and GST taxes (gifts made
to skip persons — see page 6). Gifts made
to nonskip persons are entered in Part 1.
Gifts made to skip persons are entered in
Part 2.
If you need more space, attach a
separate sheet using the same format as
Schedule A.

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Gifts to Donees Other Than
Your Spouse
You must always enter all gifts of future
interests that you made during the
calendar year regardless of their value.
If you do not elect gift splitting. If the
total gifts of present interests to any
donee are more than $10,000 in the
calendar year, then you must enter all
such gifts that you made during the year
to or on behalf of that donee, including
those gifts that will be excluded under the
annual exclusion. If the total is $10,000 or
less, you need not enter on Schedule A
any gifts (except gifts of future interests)
that you made to that donee.
If you elect gift splitting. Enter on
Schedule A the entire value of every gift
you made during the calendar year while
you were married, even if the gift’s value
will be less than $10,000 after it is split on
line 2 of Part 3.

Gifts to Your Spouse
You do not need to enter any of your gifts
to your spouse on Schedule A unless you
gave a gift of a terminable interest to your
spouse, you gave a gift of a future interest
to your spouse as described below, or
your spouse was not a citizen of the
United States at the time of the gift.
Terminable interest. Terminable
interests are defined in the instructions to
line 8. If all the terminable interests you
gave to your spouse qualify as life estates
with power of appointment (defined on
page 9) you do not need to enter any of
them on Schedule A.
However, if you gave your spouse any
terminable interest that does not qualify
as a life estate with power of
appointment, you must report on
Schedule A all gifts of terminable interests
you made to your spouse during the year.
You should not report any gifts you
made to your spouse who is a U.S. citizen
that are not terminable interests (except
as described under Future interest on
this page); however, you must report all
terminable interests, whether or not they
can be deducted.
Charitable remainder trusts. If you
make a gift to a charitable remainder trust
and your spouse is the only noncharitable
beneficiary (other than yourself), the
interest you gave to your spouse is not
considered a terminable interest and,
therefore, should not be shown on
Schedule A. For definitions and rules
concerning these trusts, see section
2056(b)(8)(B) and Regulations section
20.2055-2.
Future interest. Generally, you should
not report gifts of future interests to your
spouse unless the future interest is also a
terminable interest that is required to be

reported as described above. However, if
you gave a gift of a future interest to your
spouse and you are required to report the
gift on Form 709 because you gave the
present interest to a donee other than
your spouse, then you should enter the
entire gift, including the future interest
given to your spouse, on Schedule A. You
should use the rules under Gifts Subject
to Both Gift and GST Taxes, below, to
determine whether to enter the gift on
Schedule A, Part 1 or Part 2.
Non-U.S. citizen spouse donee. If your
spouse is not a U.S. citizen and you gave
him or her a gift of a future interest, you
must report on Schedule A all gifts to your
spouse for the year. If all gifts to your
spouse were present interests, do not
report on Schedule A any gifts to your
spouse if the total of such gifts for the
year does not exceed $106,000 and all
gifts in excess of $10,000 would qualify
for a marital deduction if your spouse
were a U.S. citizen (see the instructions
for Schedule A, Part 3, line 8, on page 9).
If the gifts exceed $106,000, you must
report all of the gifts even though some
may be excluded.

Gifts Subject to Both Gift
and GST Taxes
Direct Skip
The GST tax you must report on Form
709 is that imposed only on inter vivos
direct skips. An “inter vivos direct skip” is
a gift that (a) is subject to the gift tax, (b)
is an interest in property, and (c) is made
to a skip person. All three requirements
must be met before the gift is subject to
the GST tax.
A gift is “subject to the gift tax” if you
are required to list it on Schedule A of
Form 709 (as described above).
However, if you make a nontaxable gift
(which is a direct skip) to a trust for the
benefit of an individual, this transfer is
also subject to the GST tax unless:
1. During the lifetime of the
beneficiary, no corpus or income may be
distributed to anyone other than the
beneficiary and
2. If the beneficiary dies before the
termination of the trust, the assets of the
trust will be included in the gross estate of
the beneficiary.
Note: If the property transferred in the
direct skip would have been includible in
the donor’s estate if the donor had died
immediately after the transfer, see
Transfers Subject to an “Estate Tax
Inclusion Period” on page 2.
To determine if a gift “is of an interest
in property” and “is made to a skip
person,” you must first determine if the

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donee is a “natural person” or a “trust” as
defined below.

Trust
For purposes of the GST tax, trust
includes not only an explicit trust, but also
any other arrangement (other than an
estate) that although not explicitly a trust,
has substantially the same effect as a
trust. For example, trust includes life
estates with remainders, terms for years,
and insurance and annuity contracts. A
transfer of property that is conditional on
the occurrence of an event is a transfer in
trust.

Interest in Property
If a gift is made to a “natural person,” it is
always considered a gift of an interest in
property for purposes of the GST tax.
If a gift is made to a trust, a natural
person will have an interest in the
property transferred to the trust if that
person either has a present right to
receive income or corpus from the trust
(such as an income interest for life) or is a
permissible current recipient of income or
corpus from the trust (e.g., possesses a
general power of appointment).

Skip Person
A donee who is a natural person is a skip
person if that donee is assigned to a
generation that is two or more
generations below the generation
assignment of the donor. See
Determining the Generation of a Donee
below.
A donee that is a trust is a skip person
if all the interests in the property
transferred to the trust (as defined above)
are held by skip persons.
A trust will also be a skip person if
there are no interests in the property
transferred to the trust held by any
person, and future distributions or
terminations from the trust can be made
only to skip persons.

Nonskip Person
A nonskip person is any donee who is not
a skip person.

Determining the Generation of a
Donee
Generally, a generation is determined
along family lines as follows:
1. If the donee is a lineal descendant
of a grandparent of the donor (e.g., the
donor’s cousin, niece, nephew, etc.), the
number of generations between the donor
and the descendant (donee) is
determined by subtracting the number of
generations between the grandparent and
the donor from the number of generations
between the grandparent and the
descendant (donee).

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2. If the donee is a lineal descendant
of a grandparent of a spouse (or former
spouse) of the donor, the number of
generations between the donor and the
descendant (donee) is determined by
subtracting the number of generations
between the grandparent and the spouse
(or former spouse) from the number of
generations between the grandparent and
the descendant (donee).
3. A person who at any time was
married to a person described in 1 or 2
above is assigned to the generation of
that person. A person who at any time
was married to the donor is assigned to
the donor’s generation.
4. A relationship by adoption or
half-blood is treated as a relationship by
whole-blood.
5. A person who is not assigned to a
generation according to 1, 2, 3, or 4
above is assigned to a generation based
on his or her birth date as follows:
a. A person who was born not more
than 121/2 years after the donor is in the
donor’s generation.
b. A person born more than 121/2
years, but not more than 371/2 years, after
the donor is in the first generation
younger than the donor.
c. Similar rules apply for a new
generation every 25 years.
If more than one of the rules for
assigning generations applies to a donee,
that donee is generally assigned to the
youngest of the generations that would
apply.
If an estate or trust, partnership,
corporation, or other entity (other than
certain charitable organizations and trusts
described in sections 511(a)(2) and
511(b)(2) and governmental entities) is a
donee, then each person who indirectly
receives the gift through the entity is
treated as a donee and is assigned to a
generation as explained in the above
rules.
Charitable organizations and trusts
described in sections 511(a)(2) and
511(b)(2) and governmental entities are
assigned to the donor’s generation.
Transfers to such organizations are
therefore not subject to the GST tax.
These gifts should always be listed in Part
1 of Schedule A.

Generation Assignment Where
Intervening Parent Is Dead
If you made a gift to your grandchild and
at the time you made the gift, the
grandchild’s parent (who is your or your
spouse’s or your former spouse’s child) is
dead, then for purposes of generation
assignment, your grandchild is
considered to be your child rather than
your grandchild. Your grandchild’s
children will be treated as your
grandchildren rather than your
great-grandchildren.
This rule is also applied to your lineal
descendants below the level of
grandchild. For example, if your
grandchild is dead, your
great-grandchildren who are lineal
descendants of the dead grandchild are
considered your grandchildren for
purposes of the GST tax.
This special rule may also apply in
other cases of the death of a parent of the
transferee. Beginning with gifts made in
1998, the existing rule that applies to
grandchildren of the decedent has been
extended to apply to other lineal
descendants.
If property is transferred to an
individual who is a descendant of a parent
of the transferor and that individual’s
parent (who is a lineal descendant of the
parent of the transferor) is dead at the
time the transfer is subject to gift or estate
tax, then for purposes of generation
assignment, the individual is treated as if
he or she is a member of the generation
that is one generation below the lower of:
• the transferor’s generation or
• the generation assignment of the
youngest living ancestor of the individual
who is also a descendant of the parent of
the transferor.
The same rules apply to the
generation assignment of any descendant
of the individual.
This rule does not apply to a transfer
to an individual who is not a lineal
descendant of the transferor if the
transferor has any living lineal
descendants.
If any transfer of property to a trust
would have been a direct skip except for
this generation assignment rule, then the
rule also applies to transfers from the
trust attributable to such property.

Charitable Remainder Trusts

Examples

Gifts in the form of charitable remainder
annuity trusts, charitable remainder
unitrusts, and pooled income funds are
not transfers to skip persons and
therefore are not direct skips. You should
always list these gifts in Part 1 of
Schedule A even if all of the life
beneficiaries are skip persons.

The generation-skipping transfer rules
can be illustrated by the following
examples:
Example 1. You give your house to
your daughter for her life with the
remainder then passing to her children.
This gift is made to a “trust” even though
there is no explicit trust instrument. The

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interest in the property transferred (the
present right to use the house) is
transferred to a nonskip person (your
daughter). Therefore, the trust is not a
skip person because there is an interest
in the transferred property that is held by
a nonskip person. The gift is not a direct
skip and you should list it in Part 1 of
Schedule A. (However, on the death of
the daughter, a termination of her interest
in the trust will occur that may be subject
to the generation-skipping transfer tax.
See the instructions for line 5, Part 2,
Schedule C (on page 11) for a discussion
of how to allocate GST exemption to such
a trust.)
Example 2. You give $100,000 to
your grandchild. This gift is a direct skip
that is not made in trust. You should list it
in Part 2 of Schedule A.
Example 3. You establish a trust that
is required to accumulate income for 10
years and then pay its income to your
grandchildren for their lives and upon
their deaths distribute the corpus to their
children. Because the trust has no current
beneficiaries, there are no present
interests in the property transferred to the
trust. All of the persons to whom the trust
can make future distributions (including
distributions upon the termination of
interests in property held in trust) are skip
persons (i.e., your grandchildren and
great-grandchildren). Therefore, the trust
itself is a skip person and you should list
the gift in Part 2 of Schedule A.
Example 4. You establish a trust that
pays all of its income to your
grandchildren for 10 years. At the end of
10 years, the corpus is to be distributed to
your children. Since for this purpose
interests in trusts are defined only as
present interests, all of the interests in
this trust are held by skip persons (the
children’s interests are future interests).
Therefore, the trust is a skip person and
you should list the entire amount you
transferred to the trust in Part 2 of
Schedule A even though some of the
trust’s ultimate beneficiaries are nonskip
persons.

Part 1—Gifts Subject Only to
Gift Tax
List gifts subject only to the gift tax in Part
1. Generally, all of the gifts you made to
your spouse (that are required to be
listed, as described earlier), to your
children, and to charitable organizations
are not subject to the GST tax and
should, therefore, be listed only in Part 1.
Group the gifts in four categories: gifts
made to your spouse; gifts made to third
parties that are to be split with your
spouse; charitable gifts (if you are not
splitting gifts with your spouse); and other
gifts. If a transfer results in gifts to two or

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more individuals (such as a life estate to
one with remainder to the other), list the
gift to each separately.
Number and describe all gifts
(including charitable, public, and similar
gifts) in the columns provided in Schedule
A. Describe each gift in enough detail so
that the property can be easily identified,
as explained below.
For real estate provide:

• A legal description of each parcel;
• The street number, name, and area if
the property is located in a city; and

• A short statement of any improvements
made to the property.
For bonds, give:
• The number of bonds transferred;
• The principal amount of each bond;
• Name of obligor;
• Date of maturity;
• Rate of interest;
• Date or dates when interest is payable;
• Series number if there is more than one
issue;
• Exchanges where listed or, if unlisted,
give the location of the principal business
office of the corporation; and
• CUSIP number. The CUSIP number is
a nine-digit number assigned by the
American Banking Association to traded
securities.
For stocks:
• Give number of shares;
• State whether common or preferred;
• If preferred, give the issue, par value,
quotation at which returned, and exact
name of corporation;
• If unlisted on a principal exchange, give
location of principal business office of
corporation, state in which incorporated,
and date of incorporation;
• If listed, give principal exchange; and
• CUSIP number.
For interests in property based on the
length of a person’s life, give the date of
birth of the person.
For life insurance policies, give the
name of the insurer and the policy
number.
Clearly identify in the description
column which gifts create the opening of
an estate tax inclusion period (ETIP) as
described under Transfers Subject to an
“Estate Tax Inclusion Period” on page
2. Describe the interest that is creating
the ETIP. You may not allocate the GST
exemption to these transfers until the
close of the ETIP. See the instructions for
Schedule C beginning on page 10.

Donor’s Adjusted Basis of Gifts
Show the basis you would use for income
tax purposes if the gift were sold or
exchanged. Generally, this means cost
plus improvements, less applicable
depreciation, amortization, and depletion.

For more information on adjusted
basis, see Pub. 551, Basis of Assets.

Date and Value of Gift
The value of a gift is the fair market value
of the property on the date the gift is
made. The fair market value is the price
at which the property would change
hands between a willing buyer and a
willing seller, when neither is forced to
buy or to sell, and when both have
reasonable knowledge of all relevant
facts. Fair market value may not be
determined by a forced sale price, nor by
the sale price of the item in a market
other than that in which the item is most
commonly sold to the public. The location
of the item must be taken into account
wherever appropriate.
The fair market value of a stock or
bond (whether listed or unlisted) is the
mean between the highest and lowest
selling prices quoted on the valuation
date. If only the closing selling prices are
available, then the fair market value is the
mean between the quoted closing selling
price on the valuation date and on the
trading day before the valuation date. To
figure the fair market value if there were
no sales on the valuation date, see the
instructions for Schedule B of Form 706.
Stock of close corporations or inactive
stock must be valued on the basis of net
worth, earnings, earning and dividend
capacity, and other relevant factors.
Generally, the best indication of the
value of real property is the price paid for
the property in an arm’s-length
transaction on or before the valuation
date. If there has been no such
transaction, use the comparable sales
method. In comparing similar properties,
consider differences in the date of the
sale, and the size, condition, and location
of the properties, and make all
appropriate adjustments.
The value of all annuities, life estates,
terms for years, remainders, or reversions
is generally the present value on the date
of the gift.
Sections 2701 and 2702 provide
special valuation rules to determine the
amount of the gift when a donor transfers
an equity interest in a corporation or
partnership (section 2701) or makes a gift
in trust (section 2702). The rules only
apply if, immediately after the transfer, the
donor (or an applicable family member)
holds an applicable retained interest in
the corporation or partnership, or retains
an interest in the trust. For details, see
sections 2701 and 2702, and their
regulations.

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Supplemental Documents
To support the value of your gifts, you
must provide information showing how it
was determined.
For stock of close corporations or
inactive stock, attach balance sheets,
particularly the one nearest the date of
the gift, and statements of net earnings or
operating results and dividends paid for
each of the 5 preceding years.
For each life insurance policy, attach
Form 712, Life Insurance Statement.
Note for single premium or paid-up
policies: In certain situations, for
example, where the surrender value of
the policy exceeds its replacement cost,
the true economic value of the policy will
be greater than the amount shown on line
59 of Form 712. In these situations, report
the full economic value of the policy on
Schedule A. See Rev. Rul. 78-137,
1978-1 C.B. 280 for details.
If the gift was made by means of a
trust, attach a certified or verified copy of
the trust instrument to the return on which
you report your first transfer to the trust.
However, to report subsequent transfers
to the trust, you may attach a brief
description of the terms of the trust or a
copy of the trust instrument.
Also attach any appraisal used to
determine the value of real estate or other
property.
If you do not attach this information,
you must include in Schedule A full
information to explain how the value was
determined.

Part 2—Gifts That are Direct
Skips and are Subject to Both
Gift Tax and
Generation-Skipping Transfer
Tax
List in Part 2 only those gifts that are
subject to both the gift and GST taxes.
You must list the gifts in Part 2 in the
chronological order that you made
them. Number, describe, and value the
gifts as described in the instructions for
Part 1 on page 7.
If you made a gift in trust, list the entire
gift as one line entry in Part 2. Enter the
entire value of the property transferred to
the trust even if the trust has nonskip
person future beneficiaries.
How to report GST transfers after the
close of an ETIP. If you are reporting a
generation-skipping transfer that was
subject to an “estate tax inclusion period”
(ETIP) (provided the ETIP closed as a
result of something other than the death
of the transferor — see Form 706), and
you are also reporting gifts made during
the year, complete Schedule A as you

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normally would with the following
changes:
Report the transfer subject to an ETIP
on Schedule A, Part 2.
1. Column B. In addition to the
information already requested, describe
the interest that is closing the ETIP;
explain what caused the interest to
terminate; and list the year the gift portion
of the transfer was reported and its item
number on Schedule A that was originally
filed to report the gift portion of the ETIP
transfer.
2. Column D. Give the date the ETIP
closed rather than the date of the initial
gift.
3. Column E. Enter “N/A” in
Column E.
The value is entered only in Column B,
Part 1, Schedule C. See the instructions
for Schedule C.

Part 3—Taxable Gift
Reconciliation
If you have made no gifts yourself and are
filing this return only to report gifts made
by your spouse but which are being split
with you, skip lines 1 – 3 and enter your
share of the split gifts on line 4.

Line 2
If you are not splitting gifts with your
spouse, skip this line and enter the
amount from line 1 on line 3. If you are
splitting gifts with your spouse, show half
of the gifts you made to third parties on
line 2. On the dotted line indicate which
numbered items from Parts 1 and 2 of
Schedule A you treated this way.
Generally, if you elect to split your gifts,
you must split all gifts made by you and
your spouse to third-party donees. The
only exception is if you gave your spouse
a general power of appointment over a
gift you made.

Line 4
If you are not splitting gifts, skip this line
and go to line 5. If you gave all of the
gifts, and your spouse is only filing to
show his or her half of those gifts, you
need not enter any gifts on line 4 of your
return or include your spouse’s half
anywhere else on your return. Your
spouse should enter the amount from
Schedule A, line 2, of your return on
Schedule A, line 4, of his or her return.
If both you and your spouse make gifts
for which a return is required, the amount
each of you shows on Schedule A, line 2,
of his or her return must be shown on
Schedule A, line 4, of the other’s return.

Line 6
Enter the total annual exclusions you are
claiming for the gifts listed on Schedule A
(including gifts listed on line 4). See
Annual Exclusion on page 3. If you split

a gift with your spouse, the annual
exclusion you claim against that gift may
not be more than your half of the gift.

Deductions
Line 8
Enter on line 8 all of the gifts to your
spouse that you listed on Schedule A and
for which you are claiming a marital
deduction. Do not enter any gift that
you did not include on Schedule A. On
the dotted line on line 8, indicate which
numbered items from Schedule A are
gifts to your spouse for which you are
claiming the marital deduction.
Do not enter on line 8 any gifts to
TIP your spouse who was not a U.S.
citizen at the time of the gift.
You may deduct all gifts of
nonterminable interests made during this
time that you entered on Schedule A
regardless of amount, and certain gifts of
terminable interests as outlined below.
Terminable interests. Generally, you
cannot take the marital deduction if the
gift to your spouse is a terminable
interest. In most instances, a terminable
interest is nondeductible if someone other
than the donee spouse will have an
interest in the property following the
termination of the donee spouse’s
interest. Some examples of terminable
interests are:
• A life estate;
• An estate for a specified number of
years; or
• Any other property interest that after a
period of time will terminate or fail.
If you transfer an interest to your
spouse as sole joint tenant with yourself
or as a tenant by the entirety, the interest
is not considered a terminable interest
just because the tenancy may be
severed.
Life estate with power of appointment.
You may deduct, without an election, a
gift of a terminable interest if all four
requirements below are met:
1. Your spouse is entitled for life to all
of the income from the entire interest;
2. The income is paid yearly or more
often;
3. Your spouse has the unlimited
power, while he or she is alive or by will,
to appoint the entire interest in all
circumstances; and
4. No part of the entire interest is
subject to another person’s power of
appointment (except to appoint it to your
spouse).
If either the right to income or the
power of appointment given to your
spouse pertains only to a specific
portion of a property interest, the marital
deduction is allowed only to the extent
that the rights of your spouse meet all 4 of

-9-

the above conditions. For example, if your
spouse is to receive all of the income
from the entire interest, but only has a
power to appoint one-half of the entire
interest, then only one-half qualifies for
the marital deduction.
A partial interest in property is treated
as a specific portion of an entire interest
only if the rights of your spouse to the
income and to the power constitute a
fractional or percentile share of the entire
property interest. This means that the
interest or share will reflect any increase
or decrease in the value of the entire
property interest. If the spouse is entitled
to receive a specified sum of income
annually, the capital amount that would
produce such a sum will be considered
the specific portion from which the spouse
is entitled to receive the income.
Election to deduct qualified terminable
interest property (QTIP). You may elect
to deduct a gift of a terminable interest if it
meets requirements 1, 2, and 4 above,
even though it does not meet
requirement 3.
You make this election simply by
listing the qualified terminable interest
property on Schedule A and deducting its
value on line 8, Part 3, Schedule A. There
is no longer a box to check to make the
election. You are presumed to have made
the election for all qualified property that
you both list and deduct on Schedule A.
You may not make the election on a late
filed Form 709.

Line 9
Enter the amount of the annual
exclusions that were claimed for the gifts
you listed on line 8.

Line 11
You may deduct from the total gifts made
during the calendar year all gifts you gave
to or for the use of:
• The United States, a state or political
subdivision of a state or the District of
Columbia, for exclusively public purposes;
• Any corporation, trust, community
chest, fund, or foundation organized and
operated only for religious, charitable,
scientific, literary, or educational
purposes, or to prevent cruelty to children
or animals, or to foster national or
international amateur sports competition
(if none of its activities involve providing
athletic equipment (unless it is a qualified
amateur sports organization)), as long as
no part of the earnings benefits any one
person, no substantial propaganda is
produced, and no lobbying or
campaigning for any candidate for public
office is done;
• A fraternal society, order, or
association operating under a lodge
system, if the transferred property is to be
used only for religious, charitable,

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Instructions for Form 709

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scientific, literary, or educational
purposes, including the encouragement of
art and the prevention of cruelty to
children or animals;
• Any war veterans’ organization
organized in the United States (or any of
its possessions), or any of its auxiliary
departments or local chapters or posts, as
long as no part of any of the earnings
benefits any one person.
On line 11, show your total charitable,
public, or similar gifts (minus annual
exclusions allowed). On the dotted line,
indicate which numbered items from the
top of Schedule A (or line 4) are
charitable gifts.

Line 14
If you will pay GST tax with this return on
any direct skips reported on this return,
the amount of that GST tax is also
considered a gift and must be added to
your other gifts reported on this return.
If you entered gifts on Part 2, or if you
and your spouse elected gift splitting and
your spouse made gifts subject to the
GST tax that you are required to show on
your Form 709, complete Schedule C,
and enter on line 14 the total of Schedule
C, Part 3, column H. Otherwise, enter
zero on line 14.

Line 17
Section 2523(f)(6) creates an automatic
QTIP election for gifts of joint and survivor
annuities where the spouses are the only
possible recipients of the annuity prior to
the death of the last surviving spouse.
The donor spouse can elect out of
QTIP treatment, however, by checking
the box on line 17 and entering the item
number from Schedule A for the annuities
for which you are making the election.
Any annuities entered on line 17 cannot
also be entered on line 8 of Schedule A,
Part 3. Any such annuities that are not
listed on line 17 must be entered on line 8
of Part 3, Schedule A. If there is more
than one such joint and survivor annuity,
you are not required to make the election
for all of them. Once made, the election is
irrevocable.

sheet using the same format as Schedule
B.
If you filed returns for gifts made
before 1971 or after 1981, show the
calendar years in column A. If you filed
returns for gifts made after 1970 and
before 1982, show the calendar quarters.
In column B, identify the Internal
Revenue Service office where you filed
the returns. If you have changed your
name, be sure to list any other names
under which the returns were filed. If
there was any other variation in the
names under which you filed, such as the
use of full given names instead of initials,
please explain.
In column E, show the correct amount
(the amount finally determined) of the
taxable gifts for each earlier period.
See Regulations section 25.2504-2 for
rules regarding the final determination of
the value of a gift.

Schedule C—Computation
of Generation-Skipping
Transfer Tax

If you did not file gift tax returns for
previous periods, check the “No” box on
line 11a of Part 1, page 1, and skip to the
Tax Computation on page 1. (However,
be sure to complete Schedule C, if
applicable.) If you filed gift tax returns for
previous periods, check the “Yes” box on
line 11a and complete Schedule B by
listing the years or quarters in
chronological order as described below. If
you need more space, attach a separate

Note: You may not claim any annual
exclusion for a direct skip made to a trust
unless the trust meets the requirements
discussed under Direct Skip on page 6.

Part 2—GST Exemption
Reconciliation
Line 1
Every donor is allowed a lifetime GST
exemption. The amount of the exemption
is indexed for inflation and is published
annually by the IRS in a revenue
procedure. For transfers made through
1998, the GST exemption was $1 million.
The increased exemption amounts are as
follows:
Year
1999 . . . . . . . . .
2000 . . . . . . . . .
2001 . . . . . . . . .

Amount
$1,010,000
$1,030,000
$1,060,000

Part 1—Generation-Skipping
Transfers

Each annual increase can only be
allocated to transfers made during or after
the year of the transfer.

You must enter in Part 1 all of the gifts
you listed in Part 2 of Schedule A in that
order and using those same values.

Example. A donor had made $1.5 million
in GST transfers through 1998 and had
allocated all $1 million of the exemption to
those transfers. In 2001, the donor makes
a $5,000 taxable generation- skipping
transfer. The donor can allocate $5,000 of
exemption to the 2001 transfer but cannot
allocate $5,000 of the unused exemption
to pre-1999 transfers, $20,000 of the
unused exemption to pre-2000 transfers,
or $30,000 of the unused exemption to
pre-2001 transfers.

Column B—“Transfers Subject to
an ETIP”
If you are reporting a generation-skipping
transfer that occurred because of the
close of an ETIP, complete column B for
such transfer as follows:
1. Provided the GST exemption is
being allocated on a timely filed gift tax
return, enter the value as of the close of
the ETIP.
2. If the exemption is being allocated
after the due date (including extensions)
for the gift tax return on which the transfer
should be reported, enter the value as of
the time the exemption allocation was
made.

Column C

Schedule B—Gifts From
Prior Periods

basis for GST computation purposes. You
must allocate the exclusion to each gift to
the maximum allowable amount and in
chronological order, beginning with the
earliest gift that qualifies for the exclusion.
Be sure that you do not claim a total
exclusion of more than $10,000 per
donee.

If you elected gift splitting, enter half the
value of each gift entered in column B. If
you did not elect gift splitting, enter zero
in column C.

Column E
You are allowed to claim the gift tax
annual exclusion currently allowable with
respect to your reported direct skips
(other than certain direct skips to trusts —
see Note below), using the rules and
limits discussed earlier for the gift tax
annual exclusion. However, you must
allocate the exclusion on a gift-by-gift

-10-

You should keep a record of your
transfers and exemption allocations to
make sure that any future increases are
allocated correctly.
Enter on line 1 of Part 2 the maximum
GST exemption you are allowed. This will
not necessarily be the highest indexed
amount if you have made no GST transfer
during the year of the increase. For
example, if your last GST transfer was in
1998, your maximum GST exemption
would be $1,000,000, not $1,060,000.
The donor can apply this exemption to
inter vivos transfers (i.e., transfers made
during the donor’s life) on Form 709. The
executor can apply the exemption on
Form 706 to transfers taking effect at
death. An allocation is irrevocable.
In the case of inter vivos direct skips, a
portion of the donor’s unused exemption
is automatically allocated to the
transferred property unless the donor

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Instructions for Form 709

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elects otherwise. To elect out of the
automatic application of exemption, you
must file Form 709 and attach a
statement to it clearly describing the
transaction and the extent to which the
automatic allocation is not to apply.
Reporting a direct skip on a timely filed
Form 709 and paying the GST tax on the
transfer will qualify as such a statement.
Special QTIP election. If you have
elected QTIP treatment for any gifts in
trust listed on Schedule A, Part 1, then
you may make an election on Schedule C
to treat the entire trust as non-QTIP for
purposes of the GST tax. The election
must be made for the entire trust that
contains the particular gift involved on this
return. Be sure to identify by item number
the specific gift for which you are making
this special QTIP election.

Line 5
New section 2632(c) provides for the
automatic allocation of the donor’s
unused exemption to indirect skips. In
general, an indirect skip is the transfer of
property that is subject to gift tax (other
than a direct skip) and is made to a GST
trust. A GST trust is a trust that could
have a generation-skipping transfer with
respect to the transferor, unless the trust
provides for certain distributions of trust
corpus to non-skip persons. See section
2632(c)(3)(B) for details. See Elections
below for the rules on electing out of this
automatic allocation and electing to treat
a trust as a GST trust.
Elections. There are three different
elections you may make.
1. You may elect not to have the
automatic allocation rules apply to an
indirect skip.
2. You may elect not to have the
automatic rules apply to any or all
transfers made to a particular trust.
3. You may elect to treat any trust as
a GST trust for purposes of the automatic
allocation rules.
See section 2632(c)(5)for details.
When to make an election. Election
1 is timely filed if it is filed on a timely
filed gift tax return for the year the transfer
was made or was deemed to have been
made.
Elections 2 and 3 may be made on a
timely filed gift tax return for the year for
which the election is to become effective.
Attachment. To make these
elections, attach a statement to Form 709
that describes the election you are
making and clearly identifies the trusts
and/or transfers to which the election
applies.
Other transfers in trust. You may wish
to allocate your exemption to transfers
made in trust that do not qualify under the
automatic allocation rules. Such transfers

may currently be subject to gift tax but not
be direct skips. However, future
terminations and distributions made
from such a trust could be subject to
GST tax.
Also, you may wish to allocate your
exemption to a trust that is not involved in
a transfer listed on Schedule A or C. For
example, if your only gift for the year was
$10,000 transferred to a trust that had
your children as present beneficiaries and
your grandchildren as future beneficiaries,
you would not be required to file Form
709 for the year. However, future
distributions from the trust or the
termination of the trust may result in GST
tax being due. In this case, you may want
to allocate GST exemption to the transfer
at the time of the transfer.
Notice of allocation. To allocate your
exemption to such transfers, attach a
statement to this Form 709 and entitle it
“Notice of Allocation.” You may file one
Notice of Allocation and consolidate on it
all of your Schedule A, Part 1, transfers,
plus all transfers not appearing on Form
709, to which you wish to allocate your
exemption. The notice must contain the
following for each trust:
• Clearly identify the trust, including the
trust’s EIN, if known;
• The item number(s) from column A,
Schedule A, Part 1, of the gifts to that
trust (if applicable);
• The values shown in column E,
Schedule A, Part 1, for the gifts (adjusted
to account for split gifts, if any, reported
on Schedule A, Part 3, line 2) (or, if the
allocation is late, the value of the trust
assets at the time of the allocation);

• The amount of your GST exemption
allocated to each gift (or a statement that
you are allocating exemption by means of
a formula such as “an amount necessary
to produce an inclusion ratio of zero”);
and
• The inclusion ratio of the trust after the
allocation.
Total the exemption allocations and
enter this total on line 5.
Note: Where the property involved in
such a transfer is subject to an estate tax
inclusion period because it would be
includible in the donor’s estate if the
donor died immediately after the transfer
(other than by reason of the donor having
died within 3 years of making the gift),
you cannot allocate the GST exemption at
the time of the transfer but must wait until
the end of the estate tax inclusion period
(ETIP). Also, an automatic allocation
would not take effect until the end of the
ETIP. For details, see Transfers Subject
to an “Estate Tax Inclusion Period” on
page 2, and section 2642(f).

Part 3—Tax Computation
You must enter in Part 3 every gift you
listed in Part 1 of Schedule C.

Column C
You are not required to allocate your
available exemption. You may allocate
some, all, or none of your available
exemption, as you wish, among the gifts
listed in Part 3 of Schedule C. However,
the total exemption claimed in column C
may not exceed the amount you entered
on line 3 of Part 2 of Schedule C.

Table for Computing Tax
Column A

Column B

Column C

Column D

Taxable
amount
over—

Taxable
amount
not over—

Tax on
amount in
Column A

Rate of tax
on excess
over amount
in Column A

----$10,000
20,000
40,000
60,000

$10,000
20,000
40,000
60,000
80,000

----$1,800
3,800
8,200
13,000

18%
20%
22%
24%
26%

80,000
100,000
150,000
250,000
500,000

100,000
150,000
250,000
500,000
750,000

18,200
23,800
38,800
70,800
155,800

28%
30%
32%
34%
37%

750,000
1,000,000
1,250,000
1,500,000
2,000,000

1,000,000
1,250,000
1,500,000
2,000,000
2,500,000

248,300
345,800
448,300
555,800
780,800

39%
41%
43%
45%
49%

2,500,000
3,000,000
10,000,000
17,184,000

3,000,000
10,000,000
17,184,000
-----

1,025,800
1,290,800
5,140,800
9,451,200

53%
55%
60%
55%

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Page 12 of 12

Instructions for Form 709

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You may enter an amount in column C
that is greater than the amount you
entered in column B.

Column D
Carry your computation to three decimal
places (e.g., “1.000”).

Part 2—Tax Computation
(Page 1 of Form)
Line 7
If you are a citizen or resident of the
United States, you must take any
available unified credit against gift tax.
Nonresident aliens may not claim the
unified credit. If you are a nonresident
alien, delete the $220,550 entry and write
in zero on line 11.

Line 10
Enter 20% of the amount allowed as a
specific exemption for gifts made after
September 8, 1976, and before January
1, 1977. (These amounts will be among
those listed in column D of Schedule B,
for gifts made in the third and fourth
quarters of 1976.)

Line 13
Gift tax conventions are in effect with
Australia, Austria, Denmark, France,
Germany, Japan, Sweden, and the United
Kingdom. If you are claiming a credit for
payment of foreign gift tax, figure the
credit on an attached sheet and attach
evidence that the foreign taxes were paid.
See the applicable convention for details
of computing the credit.

Line 19
Make your check or money order payable
to “United States Treasury” and write the
donor’s social security number on it. You
may not use an overpayment on Form
1040 to offset the gift and GST taxes
owed on Form 709.

Signature

corporation to prepare your return, that
person must also sign the return as
preparer unless he or she is your regular
full-time employee.
Disclosure, Privacy Act, and
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of the
United States. We need the information to
figure and collect the right amount of tax.
Form 709 is used to report (1) transfers
subject to the Federal gift and certain
generation-skipping transfer (GST) taxes
and to figure the tax, if any, due on those
transfers, and (2) allocation of the lifetime
GST exemption to property transferred
during the transferor’s lifetime.
Our legal right to ask for the
information requested on this form is
sections 6001, 6011, and 6019, and their
regulations. You are required to provide
the information requested on this form.
Section 6109 requires that you provide
your social security number; this is so we
know who you are, and can process your
Form 709.
Generally, tax returns and return
information are confidential, as stated in
section 6103. However, section 6103
allows or requires the Internal Revenue
Service to disclose or give such
information shown on your Form 709 to
the Department of Justice to enforce the
tax laws, both civil and criminal, and to
cities, states, the District of Columbia,
U.S. commonwealths or possessions, and
certain foreign governments for use in
administering their tax laws.
We may disclose the information on
your Form 709 to the Department of the
Treasury and contractors for tax
administration purposes; and to other
persons as necessary to obtain
information which we cannot get in any
other way for purposes of determining the
amount of or to collect the tax you owe.
We may disclose the information on your

As a donor, you must sign the return. If
you pay another person, firm, or

-12-

Printed on recycled paper

Form 709 to the Comptroller General to
review the Internal Revenue Service. We
may also disclose the information on your
Form 709 to Committees of Congress;
Federal, state and local child support
agencies; and to other Federal agencies
for the purpose of determining entitlement
for benefits or the eligibility for, and the
repayment of, loans.
If you are required to but do not file a
Form 709, or do not provide the
information requested on the form, or
provide fraudulent information, you may
be charged penalties and be subject to
criminal prosecution.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating
to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law.
The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated average
time is:
Recordkeeping . . . . . . . . . .

39 min.

Learning about the law or the
form . . . . . . . . . . . . . . . . . .

1 hr., 8 min.

Preparing the form . . . . . . . . 1 hr., 55 min.
Copying, assembling, and
sending the form to the IRS

1 hr., 3 min.

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler,
we would be happy to hear from you. You
can write to the Tax Forms Committee,
Western Area Distribution Center,
Rancho Cordova, CA 95743-0001. Do
not send the tax form to this office.
Instead, see Where To File on page 4.



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