AICPA calls on IRS to automate Sec. 1033 extension requests

The IRS should consider implementing an automated procedure to process Sec. 1033 replacement period extension requests for taxpayers affected by federally declared disasters, the AICPA recommended in a letter dated Monday.

“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,” the letter said. “By connecting the extension submission process to online taxpayer accounts, the IRS would further reduce the amount of information needed to submit an extension request and would streamline the time frame for receiving requests, confirming receipt of such requests, and issuing notifications of extension grants and rejections.”

Sec. 1033(h) provides 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 may request an extension if the taxpayer has reasonable cause for the delay and submits a request before the replacement period expires.

The primary issue with extension requests, however, has been whether the taxpayer receives approval before expiration of the original replacement period, the AICPA said.

“For many years, our members have experienced fluctuations and inconsistencies in the IRS’s ability to timely approve” the extensions, the letter said. “This inconsistency leaves taxpayers with a significant level of uncertainty and needless hesitation when replacing destroyed property.”

If the IRS does not agree with the AICPA’s recommendation that the requests be automated, then the AICPA asked that the agency consider automatic approval of extension requests that have been pending for more than a specified period of time, such as 30 to 60 days, provided certain streamlined criteria are met.

“Many taxpayers and practitioners have encountered challenges and delays when awaiting extension request approvals,” with some waiting several months after the replacement period has expired, Daniel Hauffe, J.D., AICPA senior manager–Tax Policy & Advocacy, said in a news release sent 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 letter notes that the IRS Advisory Council made a similar recommendation in its November 2024 report, IRS Publication 5316, Internal Revenue Service Advisory Council Public Report.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.