FORM 1045 INSTRUCTIONS: Updated!!!

Form 1045

Individuals, trusts, or estates use the IRS Form 1045 to easily obtain a tax refund that’s related to a prior tax filing instead of obtaining the refund by filing an amended tax return. You can always use IRS Form1045 to get a tax refund because of a business loss.

Here, you’ll discover more about IRS Form 1045, the instructions, and how it works.

What is IRS Form 1045?

The IRS Form 1045 is also known as the Application for Tentative Refund. Individuals, estates, or trusts use the IRS form to file for a quick tax refund, especially because of business loss.

According to the IRS Form 1045 instructions, a refund request must depend on any of the following reasons:

  • An NOL (Net Operating Loss) that’s carried back to a previous tax year.
  • Have a general business credit that’s unused and was carried back to a previous tax year.
  • A net Section 1256 contract loss that’s carried back. For example, a loss from a non-equity option).
  • Realize an overpayment of tax following a claim-of-right change which falls under section 1341(b)(1) of the tax code.

How Does IRS Form 1045 Work?

An individual, estate, or trust may choose to file Form 1045so that they can get a fast tax refund. When this occurs, the application is typically processed within 90 days and the refund is tentatively paid by the IRS.

But the IRS might still decide later that the application is incorrect and it shouldn’t give a refund. It might charge the taxpayer for penalties and interest.

Taxpayers must complete the IRS Form 1045 (Application for Tentative Refund) first before they can receive a refund. This application will be sent differently from the usual income tax return—it could either be done after the income tax return or on the same day.

The IRS Form 1045can be sent up to a year from the year the NOL occurred. Thus, if a taxpaying entity or taxpayer had an NOL in 2021, and needs a refund for it, they can file IRS Form 1045up until the end of 2022.

IRS Form 1045 contains two major application pages alongside three extra worksheet pages for calculating NOLs. You will fill out this application with information like your name, Social Security number, and information about how a carryback (either for an NOL or any other reason) affects your credits, deductions, income, etc. This includes before and after the carryback.

Who Can File Form 1045 (Application For Tentative Refund)?

The following can file Form 1045; individuals, estates, and trusts with Form 1040-X for individuals or Form 1041 for trusts or estates.

You can use Form 1045 to file for a quick tax refund, whereas Forms 1040X and 1041 are not quickly processed.

While the taxpaying entity or taxpayer can just file the IRS Form 1045 within a year of the NOL occurring, the IRS should process it within 90 days.

Contrastingly, you can file both Form 1040X (for individuals) and Form 1041 (for trusts and estates) up to 3 years from the period the NOL occurs. Nevertheless, the IRS has about 6 months to process both Form 1040X and Form 1041. They won’t process either of them within 90 days.

The taxpaying entity or the IRS can question Form 1045 after the refund has been processed, that’s why it is called a tentative refund. Contrastingly, all parties assume that the assertions and information made on both Form 1040X and Form 1041 are accurate and final.

A party that needs a quick refund but is not bothered about having the amended later will have to file Form 1045. Whereas a party that needs accuracy and will wait for the accurate refund with either file Form 1040X—for individuals or Form 1041—for estates and trusts.

Form 1045 Instructions: How to File Form 1045

Form 1045 must be filed within a year from the year the NOL, unused credit, net section 1256 contracts loss, or claim of right change occurred.

The first section of the form involves personal details such as the name, Social Security number, and address of the filer. The section following it involves questions concerning the carryback. Then the taxpayer must find out the amount of reduction in tax from the carryback for every year before the unused credit or NOL.

Lastly, the filer must date and sign the bottom part of the form and the tax preparer (if any).

Form 1045 Instructions: CARES Act

A lot of corporate taxpayers and taxpaying entities had NOLs (Net Operating Losses) in 2020 because of the economic stoppage and turmoil induced by COVID-19. The CARES (Coronavirus Aid, Relief, and Economic Security) Act provides taxpayers the opportunity to turn 2020 NOLs into cash refunds.

A taxpayer may apply for a tentative carryback change of the tax for a preceding tax year affected by an NOL carryback, a business credit carryback, or a capital loss carryback under Sec. 6411.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L.116-136 restored and strengthened the net operating loss (NOL) carryback by approving a five-year carryback for losses incurred in tax years starting in 2018, 2019, and 2020.

The CARES Act also amends a technical issue that stops NOLs from being carried back for a tax year ending in 2018.

Taxpayers with an NOL from a fiscal year starting in 2017 and ending in 2018 may file a claim for a tentative refund or elect to waive a carryback within 120 days after the CARES Act’s enactment on March 27, 2020, to carry those losses back two years.

Additionally, the CARES Act permits businesses to claim unused Alternative Minimum Tax (AMT) credits instantly. Any unused AMT credits could be claimed as refundable credits during the four tax years starting in 2018, 2019, 2020, and 2021 after the corporate AMT was eliminated.

Following the CARES Act, the credits can be claimed in full in tax years starting in 2018 and 2019. And under the CARES Act, a corporation can elect to take the whole refundable AMT credit in 2018, instead of the remaining half in 2019.

If a corporation wants to claim the remaining credit in 2019, it can do so on its 2019 tax return. If the corporation wants to claim the whole credit in 2018, it must either correct its return for 2018 or file Form 1139, Corporation Application for Tentative Refund, for a tentative refund.

To seek a tentative refund based on an NOL carryback, taxpayers often file Form 1139 or Form 1045, Application for Tentative Refund.

In most cases, a taxpayer must file Form 1139 or 1045 within one year after the taxpayer’s tax year and the filing of the taxpayer’s income tax return for the year in which the loss occurred.

The IRS announced in Notice 2020-26 that the due date for filing Forms 1139 or 1045 for an NOL that occurred in a tax year that started in 2018 and ended by June 30, 2019, has been postponed to six months (e.g., June 30, 2020, for a tax year ended Dec. 31, 2018).

The IRS has 90 days from the date the form is filed to undertake a limited examination or review of the application for omissions or errors and to approve or deny the application.

Taxpayers should know the IRS’s temporary processes for faxing Forms 1139 and 1045, which are used to collect AMT credit refunds and carry back NOLs.

The Tax Cuts and Jobs Act (TCJA) altered the instructions for deducting Net Operating Losses in 2017. Before 2017, NOLs were fully deductible and could be carried back two years and carried forward twenty years.

However, TCJA altered the NOL rules in 2017 by:

  • Restricting NOL deductions to eighty percent of taxable income
  • Preventing NOL carrybacks
  • Lifting the twenty-year threshold on NOL carryovers.

The CARES Act subsequently changed the NOL instructions again in 2020.

Conclusion

Individuals, estates, or trusts can use IRS Form 1045 to quickly file for a tax refund that is related to a previous tax filing or business loss rather than filing an amended tax return. Unlike the amended tax return, Form 1045 is a faster way for getting a tax refund.

Your reasons for filing Form 1045 must depend on any of the reasons shown in the Form 1045 instructions.

FAQs

How long does it take to process Form 1045?

The IRS typically takes 90 days to process Form 1045.

How do I claim my NOL carryback?

Typically, taxpayers must file Form 1045 or Form 1139 within one year of the end of the taxable year in which the NOL occurred to apply for a tentative refund depending on the NOL carryback.

How many years can you carry back a Net Operating Loss (NOL)?

You can carry back NOLs that occurred in tax years ending after 2020 for up to a year. But certain farming losses are exempted from this. And it may carry them back two years.

Can Form 1045 be filed electronically?

The tax return where you generated Form 1045 can be e-filed. However, Form 1045 cannot be e-filed.

Does everyone get a tax refund?

The IRS does not issue tax refunds automatically without a tax return. Therefore, file one if you want to claim any tax refund that is due to you.

References

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