Unexpected Quirks of Filing Form 8939

Obviously, any due date for filing an information return with the IRS is important. But there are special features and consequences of the January 17 due date for the Form 8939 that make it especially unforgiving.

Many of us are used to an “automatic” six-month extension of time to file returns such as annual income and gift tax returns and estate tax returns. But there is no “automatic” six-month extension of time to file Form 8939, and the IRS will not grant extensions of the January 17 due date.

It is true that Notices 2011-66 and 2011-76 allow an executor to quite freely amend Form 8939 at any time within six months of the due date – that is, through July 17, 2012. That would include such things as updating the identity, description, character, value, acquisition date, basis, and recipient of assets and making or changing allocations of basis increases to those assets. And additional allocations of the $3,000,000 Spousal Property Basis Increase may be made at any time, so long as a supplemental Form 8939 for that purpose is filed no later than 90 days after each distribution of additional property to the surviving spouse.

But no amended or supplemental Form 8939 may make or revoke the election out of the estate tax. The decision to make the Election must be made and reported on Form 8939 by January 17. In addition, no amendments of any kind will be allowed unless a Form 8939 is filed timely – that is, no later than January 17.

Therefore, even when information for the Form 8939 is incomplete and supplementation by July 17 might be needed, the executor (including a trustee, if there is no court-appointed executor) must file a Form 8939, completed as fully as possible, by January 17. Many of us are used to late-filing penalties that are modest, or in the case of many tax returns are a percentage of some tax that is otherwise payable. But the penalty for filing Form 8939 late can be exposure of the entire estate to a 35 percent federal estate tax that would otherwise not be payable.

Many of us are used to the instructions for the federal estate tax return (Form 706), which provide that “[i]f there is more than one executor, … it is sufficient for only one of the co-executors to sign the return.” But the instructions for Form 8939 say nothing about co-executors. It is not clear if that omission is significant.