How to File a Tentative Carryback Application

A tentative carryback application is a request submitted to the IRS for a quick tax refund. This process allows a taxpayer who has incurred certain losses or credits, most notably a Net Operating Loss (NOL), to apply them against taxable income from a previous, profitable year. The primary benefit of this application is accelerated access to cash.

Instead of filing a standard amended return for the prior year, the tentative application provides a streamlined path. The IRS is required to review the application and issue a refund within a 90-day window, which helps taxpayers improve their cash flow. The refund is considered “tentative” because the IRS may conduct a more thorough examination at a later date.

Eligibility for Filing a Tentative Carryback

To file for a tentative refund, a taxpayer must have an eligible carryback. While a Net Operating Loss (NOL) is a common reason, other situations also qualify, including the carryback of an unused general business credit, a net section 1256 contracts loss, and an overpayment of tax due to a claim of right adjustment.

An NOL occurs when a business’s tax-deductible expenses for a year exceed its revenues. Individuals, C corporations, estates, and trusts that experience such a loss may be eligible to file a tentative carryback application.

The ability to carry back an NOL has been restricted. For most businesses, NOLs that arise in tax years beginning after December 31, 2020, can only be carried forward to future tax years to offset income and cannot be carried back to prior years.

There are specific exceptions to this rule. Losses from farming businesses can be carried back two years. Non-life insurance companies also retain the ability to carry back their net operating losses for a two-year period. A taxpayer must fall into one of these categories to use the tentative carryback procedure for recent NOLs.

Required Information and Computations for the Application

Preparing a tentative carryback application requires specific forms and a recalculation of a prior year’s tax liability. Individuals, estates, and trusts must use Form 1045, Application for Tentative Refund. Corporations are required to file Form 1139, Corporation Application for Tentative Refund. Current versions of these forms and their instructions can be found on the IRS website.

The filer will need a complete copy of the income tax return for the year the loss or credit occurred, including all schedules and attachments. Additionally, the income tax return for the year to which the item is being carried back, known as the carryback year, is necessary.

The primary task in completing Form 1045 or 1139 is the recomputation of the tax for the carryback year. When applying an NOL, this involves using the loss as a deduction against the income of that prior year. This requires determining the adjusted gross income (AGI) for the carryback year, applying the NOL deduction, and calculating the new, lower taxable income.

Once the new taxable income is established, the tax liability for the carryback year must be recalculated. This new, lower tax amount is then compared to the tax that was originally paid for that year. The difference between the original tax and the recomputed tax is the overpayment, which is the amount of the tentative refund being requested. The forms guide the filer through this calculation.

The Filing Procedure and IRS Processing

The deadline for filing Form 1045 or Form 1139 is firm: it must be filed within 12 months after the end of the tax year in which the loss or credit arose. For a calendar-year taxpayer with an NOL in 2024, the application must be filed by December 31, 2025. Missing this deadline means the taxpayer forfeits the opportunity for an expedited refund and must instead file a standard amended return.

The submission package must include the signed Form 1045 or 1139, a complete copy of the income tax return for the loss or credit year, and copies of any forms or schedules that were changed in the carryback year. The completed package should be mailed to the specific IRS service center designated in the form’s instructions.

After the IRS receives the application, a 90-day processing period begins. During this time, the agency conducts a limited review for mathematical accuracy and completeness. If the application is accepted, the IRS will issue the tentative refund.

The refund is provisional, and its issuance does not prevent the IRS from later conducting a full examination of the tax return from the year the loss or credit originated. If that audit results in the disallowance of the carryback, the taxpayer will be required to repay the refunded amount with interest.