AICPA urges IRS to automate tax extensions for disaster victims

The American Institute of CPAs (AICPA) has urged the Internal Revenue Service (IRS) to introduce an automated approach for handling deadline extension requests from taxpayers affected by federally declared disasters.

The recommendation relates to situations where a taxpayer needs more time to replace property that was involuntarily converted, as addressed under section 1033 of the Internal Revenue Code.

The AICPA’s view is that a more systematic process would reduce uncertainty for taxpayers who request additional time.

Under section 1033(h), the replacement time frame is set at four years for a personal residence and two years for business or investment property when the damage results from a federally declared disaster.

An extension can be requested where the taxpayer has reasonable cause for delay and submits the request before the existing replacement period ends.

A recurring concern, however, is whether the IRS decision on the request is received before the original deadline expires.

To improve this, the AICPA suggests that the IRS uses online taxpayer accounts to support electronic submission and status notifications for section 1033 extension requests, alongside an automated procedure to approve eligible requests from taxpayers affected by federally declared disasters.

As an alternative, the AICPA also proposes a default approval mechanism for requests that remain undecided for longer than a set period (such as 30–60 days), provided certain simplified conditions are satisfied.

AICPA Tax Policy and Advocacy senior manager Daniel Hauffe said: “Many taxpayers and practitioners have encountered challenges and delays when awaiting extension request approvals, with some quickly receiving approval within 30–60 days from the date of submission while others receive approval months after expiration of the replacement period.

“Automating this process would significantly reduce the IRS’ need to allocate resources to these types of requests and afford taxpayers and practitioners certainty when attempting to replace property destroyed by disasters.”

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