What the Form Is For

Form 1045 is the IRS's fast-track application that lets individuals, estates, and trusts get a quick tax refund when they've suffered a financial loss that creates what's called a "net operating loss" (NOL). Think of it as a way to reach back in time and apply this year's business losses to previous years when you had income and paid taxes—allowing you to recover some of those tax payments.

The form works like a financial time machine. When your deductible expenses exceed your income for the year, you may have an NOL. Instead of just carrying that loss forward to future years, Form 1045 lets you carry it backward to years when you actually paid taxes, generating a refund check within 90 days. This is especially valuable for business owners, self-employed individuals, and anyone who's experienced significant business losses, certain casualties, or farming setbacks.

The IRS created Form 1045 specifically for speed. Unlike the regular amended return process (Form 1040X), which can take 6 months or more, the IRS must process Form 1045 within 90 days. This rapid processing makes it ideal when you need cash flow relief quickly after a tough business year.

When You’d Use It (Late/Amended Considerations)

You must file Form 1045 within one year after the end of the tax year in which the NOL or unused credit occurred. For a 2012 NOL, this means you had until December 31, 2013, to file the form. Missing this deadline doesn't mean you lose your refund rights—it just means you must use the slower Form 1040X amended return process instead, which has a longer 3-year deadline but takes considerably more time to process.

Timing is critical with Form 1045. You must file your original 2012 tax return before or on the same date you file Form 1045. You can't put the cart before the horse—the IRS needs your completed return to verify your loss before processing the tentative refund application.

If you discover errors in your original Form 1045 or if the IRS disallows your application, you still have the safety net of filing Form 1040X for each carryback year. The Form 1040X gives you different legal rights, including the ability to sue in court if your claim is denied—something you cannot do if Form 1045 is disallowed. This makes Form 1045 a calculated risk: you trade some legal protections for speed.

Key Rules or Details for 2012

The 2012 tax year operated under specific NOL carryback rules. The standard carryback period was 2 years, meaning you'd typically apply your 2012 NOL to 2010 first, then 2011. Any unused portion could then be carried forward up to 20 years (through 2032).

However, special losses qualified for extended carryback periods in 2012:

• Eligible losses (from casualties, theft, or federally declared disasters for small businesses) could carry back 3 years to 2009.
• Farming losses could carry back 5 years to 2007.
• Qualified disaster losses (from federally declared disasters occurring before January 1, 2010) could carry back 5 years.
• Specified liability losses (from product liability or environmental remediation) could carry back an extraordinary 10 years to 2002.

One crucial rule: you cannot pick and choose which years to apply your NOL. You must apply it to the earliest year first, then work forward chronologically until the loss is exhausted or you reach the end of the carryback period.

For 2012, certain deductions were not allowed when calculating your NOL. You couldn't count your standard deduction or personal exemptions, nonbusiness capital losses beyond your capital gains, or the domestic production activities deduction. These exclusions often meant your actual NOL was smaller than your negative taxable income on your return.

Step-by-Step (High Level)

Step 1: Determine if you have an NOL.

Complete your 2012 Form 1040. If line 41 shows a negative number before accounting for limitations, you might have an NOL. Use Schedule A of Form 1045 to calculate your actual NOL by adding back disallowed deductions like personal exemptions and excess nonbusiness deductions.

Step 2: Decide whether to carry back or waive the carryback.

You can elect to skip the carryback entirely and only carry your NOL forward to future years. This makes sense if you expect higher tax rates in future years or had little income in carryback years. To waive the carryback, attach a statement to your 2012 return filed by the due date (including extensions).

Step 3: Complete Form 1045.

Fill out pages 1 and 2, including Schedule A showing your NOL calculation. Identify which years you're carrying back to and enter them in the column headings on page 1. You'll show your tax liability before and after the carryback for each year.

Step 4: Gather required attachments.

Include copies of your 2012 return (pages 1 and 2 of Form 1040), Schedule D if applicable, all K-1s from partnerships or S corporations, Form 6251 for alternative minimum tax calculations, and original or amended returns for the carryback years showing the figures you entered in the "Before carryback" columns.

Step 5: Submit and track.

Mail Form 1045 to the IRS Service Center for your area (separate from your 2012 return). The IRS has 90 days from the later of your filing date or the due date of your 2012 return to process it. They'll issue a tentative refund check, but this doesn't mean your application is accepted as correct—it's still subject to later examination.

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting to adjust for nonallowable deductions.

Many taxpayers incorrectly assume their negative taxable income equals their NOL. You must complete Schedule A and add back items like personal exemptions, standard deductions, and excess nonbusiness capital losses. Use Publication 536 as your guide.

Mistake #2: Filing Form 1045 before filing the 2012 return.

The IRS will reject applications filed before the original return. File them together or ensure your 2012 return is filed first.

Mistake #3: Missing required attachments.

The instructions explicitly warn that incomplete applications may be delayed or disallowed. Create a checklist: 2012 Form 1040 (pages 1-2), Schedule A and D if applicable, all K-1s, Forms 6251 for each carryback year, and detailed computations for any refigured items.

Mistake #4: Applying the NOL to the wrong years.

You cannot skip years. A 2-year carryback NOL must go to 2010 first, then 2011. If your 2010 modified taxable income was only $5,000 but you have a $40,000 NOL, you must use $5,000 against 2010 before applying the remaining $35,000 to 2011.

Mistake #5: Failing to refigure AGI-based deductions.

When you apply an NOL carryback, your adjusted gross income for that year decreases, which affects percentage-based deductions like medical expenses (7.5% of AGI threshold in 2012), miscellaneous deductions (2% floor), and casualty losses (10% of AGI). You must recalculate these in the "After carryback" column.

Mistake #6: Mixing up business and nonbusiness income and deductions.

Schedule A requires careful segregation. Business deductions include self-employment income, rental losses, and employee business expenses. Nonbusiness deductions include IRAs, alimony, and most itemized deductions. Getting this wrong distorts your NOL calculation.

What Happens After You File

Within 90 days, the IRS will either approve your tentative refund or notify you of issues. If approved, you'll receive a refund check relatively quickly. However, "tentative" is the key word—the IRS can still audit your application later and determine you received too much. If they find an overstatement, they'll bill you as if it were a math error, plus interest compounded daily and potentially penalties.

The tentative refund isn't a final determination. The IRS explicitly states in the instructions that processing your Form 1045 "does not mean the IRS has accepted your application as correct." They reserve the right to examine the NOL year and all carryback years. This examination could happen months or even years later.

If your application is disallowed in whole or part, you cannot sue over the disallowance. Your only recourse is filing formal amended returns (Form 1040X) within the normal 3-year statute of limitations. This is why some tax professionals recommend filing Form 1040X from the start for very large refunds or complex situations—you preserve your right to litigate if the IRS denies your claim.

If your NOL isn't fully absorbed by the carryback years, the unused portion carries forward. You'll need to complete Schedule B of Form 1045 to calculate the remaining carryover, then deduct it on your 2013 return (and beyond, if necessary, for up to 20 years).

FAQs

Q1: What's the difference between Form 1045 and Form 1040X for NOL carrybacks?

Form 1045 is faster (90-day processing requirement) but offers fewer legal protections—you can't sue if it's disallowed. Form 1040X takes longer (typically 6+ months) but gives you the right to litigate if denied. Form 1045 requires one form for all carryback years; Form 1040X requires a separate form for each year. Many taxpayers file Form 1045 for speed, knowing they can still file Form 1040X later if needed.

Q2: Can I use Form 1045 if I filed jointly in 2012 but separately in a carryback year (or vice versa)?

Yes, but special allocation rules apply. The instructions note that if you filed joint returns for some years and separate returns for others, you must carefully allocate the NOL between spouses. Publication 536 contains worksheets for these situations. Both spouses must sign Form 1045 if it's based on a joint 2012 return.

Q3: What if I had alternative minimum tax (AMT) in a carryback year?

An NOL carryback can trigger or increase AMT liability in carryback years, even if you didn't owe AMT when you originally filed. You must refigure AMT for each carryback year using Form 6251 and include this in your calculations. The 90% limitation on alternative tax net operating loss deductions doesn't apply to qualified disaster or GO Zone losses.

Q4: Can partnerships or S corporations file Form 1045?

No. Partnerships and S corporations are pass-through entities that cannot use NOLs at the entity level. However, individual partners or shareholders use their separate shares of the partnership's or S corporation's income and deductions to figure their own NOLs on their personal returns, then file Form 1045 individually.

Q5: I had an NOL in 2012 but expect to be in a higher tax bracket in future years. Should I waive the carryback?

Possibly. If your 2010-2011 income was low (meaning little tax to refund) but you expect substantial income in 2013-2015, waiving the carryback and carrying the NOL forward might save more tax overall. However, this election is irrevocable and must be made by filing a statement with your timely-filed 2012 return (or within 6 months on an amended return). Consult a tax professional to model both scenarios.

Q6: What happens if I make an error on Form 1045?

If you discover an error before the IRS processes your form, file a corrected Form 1045 immediately. If the IRS has already issued a tentative refund and later discovers your error, they'll assess additional tax as if it were a math error. If your application is formally disallowed, you must file Form 1040X for the affected years if you still believe you're entitled to a refund.

Q7: Does the 90-day processing time start when I mail the form or when the IRS receives it?

The 90-day clock starts on the later of: (1) the date the IRS receives your complete application, or (2) the last day of the month that includes the due date (including extensions) of your 2012 return. For a 2012 calendar-year return with an October 15, 2013 extension, if you filed Form 1045 on September 1, 2013, the 90 days wouldn't start until October 31, 2013.

Source: All information compiled from official IRS documents: Form 1045 Instructions for 2012, Form 1045 (2012), and Publication 536 (2012).