The IRS Form That Does Not Exist But Should

There are a few message threads here concerning how to report nonrecognized gain from Section 1033 – when a “casualty gain” is invested back into the same or similar property.  Of course those threads are now closed, and they pop up only by chance anyway only if you use the right key words.

But I recently had to research what to do when fire partially destroyed a rental property and the insurance payments exceeded adjusted basis.  This is one form of involuntary conversion.  All of the proceeds were spent to repair and rebuild, within a couple year’s time.  If that had not been done, there would be a taxable gain.  But Section 1033 allows the gain not to be recognized.  

The situation is similar to a Section 1031 “voluntary conversion,” tax-deferred exchange.  IRS has a form for that, the 8824.  It’s also similar to the “rollover” of gain under the old law for principal residences.  IRS had Form 2119 for that.  But is there a form for Section 1033?  Of course not, what do you think the IRS sees as its mission, helping taxpayers?  

So if you research this, you will find that many years ago someone said to use Forms 4684 and 4797 for gains from involuntary conversions.  Those work if the gain is taxable.  But there is nowhere on the forms to show some or all of the gain is not recognized.  Attaching those forms with “overrides” meant to pound square pegs into round holes, will just risk IRS picking up a number, calling it a math error and sending a bill.  

Meanwhile, dozens of parrot websites have repeated the “4684 and 4797" advice without any official IRS source.  Because there is none.  My solution is to attach a statement, explaining the gain; why it is not recognized; and how this affects the basis of the new or repaired property.  And NOT to attach either the 4684 or 4797.  

If things ever return to normal in Washington, maybe someone will adopt the orphan Section 1033's need for its own form.