What Is Form 5939, Application for Tentative Refund?
Understand how Form 5939 lets you apply certain losses or credits to a prior tax year to receive an accelerated, though tentative, refund.
An Application for Tentative Refund is a specialized tax form used to obtain an expedited refund. Taxpayers who experience certain business losses or have unused tax credits can carry those items back to a prior, profitable year. This process recalculates the prior year’s tax, generating a refund much faster than a standard amended return. The Internal Revenue Service (IRS) provides two forms for this purpose: Individuals, trusts, and estates use Form 1045, while corporations file Form 1139.
Determining Eligibility to File
Eligibility to file is restricted to specific circumstances. The core requirement is a qualifying carryback item from a recent tax year. The primary reasons for filing are the carryback of a net operating loss (NOL), an unused general business credit, or a net capital loss.
The option to carry back a net capital loss is only available to corporations, other than S corporations. An unused general business credit must be carried back one year. An NOL occurs when deductible business expenses exceed income for the year.
Taxpayers may also be eligible for an overpayment from a claim of right adjustment, which happens when a taxpayer repays previously taxed income. Filing for a tentative refund is an alternative to a traditional amended return, like Form 1040-X or 1120-X. The main distinction is speed, as an amended return can take six months or longer to process.
Information and Calculations for the Application
Preparing the application requires information from multiple tax years. You will need the return from the year the loss or credit originated, showing the final amount of the net operating loss, net capital loss, or unused general business credit. You also need the tax returns for the prior year or years to which the item is being carried. While most net operating losses are now carried forward, a two-year carryback is permitted for specific situations, like certain farming losses.
The main task is to recalculate the tax for the carryback year. You will need the original adjusted gross income (AGI), taxable income, and total tax liability from the carryback year to serve as a baseline. Applying the NOL or other carryback item to the prior year’s income lowers the AGI and taxable income.
After applying the carryback, you must also refigure any deductions or credits that were limited by the original AGI. The difference between the original tax and the recomputed tax is the amount of the tentative refund.
Filing the Application and Post-Filing Procedures
The application must be filed within 12 months of the end of the tax year in which the loss or credit arose. The completed form must be mailed separately from any other tax return to the IRS service center listed in the form’s instructions. The IRS is required to review the application and issue a refund within a 90-day period. This review is limited to checking for mathematical errors and proper completion, which allows for the quick processing time.
The refund received is tentative because it is subject to change. The IRS can conduct a full examination of the loss and carryback years later. If an audit finds the refund was incorrect, the taxpayer may have to repay some or all of the amount, plus interest.