AICPA: IRS Automation Needed for 1033 Exchanges

AICPA Urges IRS to Automate Disaster Tax Relief for Property Replacements

Teh American Institute of Certified Public Accountants (AICPA) is calling on the Internal Revenue Service to streamline the process for taxpayers seeking extensions on Sec. 1033 replacement period requests following federally declared disasters.The recommendation, made in a letter delivered Monday, focuses on automating procedures to alleviate burdens on both taxpayers and the IRS.

The AICPA argues that the IRS could considerably improve efficiency by leveraging existing online taxpayer accounts. “The IRS could leverage such online accounts to streamline many disaster-related administrative tasks and,therefore,reduce the resources needed to respond thereto,including [Sec. 1033] extension requests,” a statement from the association explained. Automating the submission process would reduce the information required from taxpayers and accelerate the timeframe for requests, confirmations, and notifications.

Did you know? – Section 1033 allows taxpayers to defer capital gains taxes when replacing property damaged or destroyed in a federally declared disaster. The rules differ based on the type of property.

why is this happening? The AICPA’s push stems from long-standing issues with the IRS’s inconsistent and frequently enough delayed approval of extension requests under Section 1033(h). This section currently allows for a four-year replacement period for personal residences damaged in a federally declared disaster, and a two-year period for business or investment property. Taxpayers can request an extension if thay demonstrate reasonable cause, but obtaining approval before the original deadline expires is frequently tough. Who is involved? The AICPA, representing CPAs, is advocating for change directly with the IRS. Taxpayers impacted by disasters and their tax professionals are the primary beneficiaries of the proposed changes.

What is the AICPA proposing? The AICPA proposes a system of automatic approval for extension requests that remain pending for a defined period – between 30 and 60 days – provided certain criteria are met. This would offer a degree of certainty for taxpayers facing prolonged delays. As an alternative to full automation, this would be a step in the right direction.

Pro tip – Keep detailed records of all disaster-related expenses and communications with the IRS. This documentation is crucial when requesting extensions or filing for disaster relief.

Daniel Hauffe, J.D., AICPA senior manager-Tax Policy & Advocacy, emphasized the benefits of automation in a news release issued Tuesday. “Automating this process would significantly reduce the IRS’s need to allocate resources to these types of requests and afford taxpayers and practitioners certainty when attempting to replace property destroyed by disasters.”

The AICPA’s recommendation aligns with a similar proposal made by the IRS Advisory Council in its November 2024 report,IRS Publication 5316,Internal Revenue Service Advisory Council Public Report,highlighting a growing consensus on the need for betterment in this area of tax governance.

Those seeking to comment on this issue or propose additional article ideas can contact Martha Waggoner at [email protected].

Reader question – Have you or someone you know experienced delays in receiving IRS approval for disaster-related tax relief? Share your thoughts.

How did it end? As of the publication of this report,the IRS has not publicly responded to the AICPA’s letter. However, the AICPA’s proposal has gained traction, aligning with a similar recommendation from the IRS Advisory Council, suggesting a potential path toward implementation. The AICPA continues to advocate for a resolution, hoping to provide greater certainty and efficiency for taxpayers navigating disaster recovery.