What Form 1139 Is For

Form 1139 is the IRS's "fast-track" refund application for corporations that need their money back quickly. If your corporation had a bad year and experienced losses or unused tax credits, Form 1139 lets you apply those losses backward to previous profitable years when you paid taxes. Instead of waiting months for a regular amended return to process, Form 1139 gets you a tentative (temporary) refund within 90 days.

Think of it this way: imagine your business paid $50,000 in corporate taxes in 2014 because you had strong profits. Then in 2016, your business suffered a significant loss. Form 1139 allows you to "carry back" that 2016 loss to offset your 2014 profits, generating a refund of taxes you already paid. The IRS processes Form 1139 applications much faster than regular amended returns—typically within 90 days instead of 6+ months.

What Qualifies for Form 1139?

The form handles four main situations: net operating losses (when business deductions exceed income), net capital losses (losses from selling business assets), unused general business credits (tax credits you earned but couldn't use), and claim-of-right adjustments (when you had to repay income you previously reported).

Form 1139 is only available to C corporations, not S corporations or partnerships. It's designed for companies that need cash flow relief sooner rather than later.

When You’d Use Form 1139

Late/Amended Scenarios

Filing Deadline: You must file Form 1139 within 12 months after the end of the tax year in which the loss or unused credit occurred. For a corporation with a calendar year ending December 31, 2016, the deadline to file Form 1139 would be December 31, 2017. This deadline is strict—miss it and you'll have to file the slower Form 1120X instead.

Critical requirement: You must file your regular corporate income tax return (Form 1120) for the loss year before or at the same time you file Form 1139. You cannot file Form 1139 first. The IRS needs to see your actual loss documented on your regular return before processing the refund application.

When NOT to use Form 1139: If more than one year has passed since the loss year ended, you're too late for Form 1139 and must file Form 1120X (Amended U.S. Corporation Income Tax Return) instead. Form 1120X has a different timeline—generally three years from when you filed the original return—but it takes significantly longer to process (typically 3-4 months or more).

Example scenario: Your corporation files its 2016 tax return in April 2017 showing a $200,000 net operating loss. You can file Form 1139 anytime between April 2017 and December 31, 2017, to carry that loss back to 2014 and 2015. Wait until February 2018? You've missed the Form 1139 window and must use Form 1120X.

Key Rules or Details for 2016

Carryback periods for 2016: For losses arising in the 2016 tax year, corporations could generally carry back net operating losses (NOLs) two years. So a 2016 loss could be applied to 2014 and 2015 tax returns. Net capital losses could be carried back three years (to 2013, 2014, and 2015). Unused general business credits typically carried back one year (to 2015). These carryback periods were standard for 2016 before major tax law changes in subsequent years.

Waiving the carryback: Corporations could elect to waive (skip) the carryback period entirely and carry losses forward to future years instead. This election was irrevocable and had to be made by filing the tax return by its due date (including extensions). Some corporations chose this option if they expected higher tax rates in future years or if carryback would trigger alternative minimum tax complications.

Special five-year carryback rule: Under special provisions enacted in the 2009-2010 economic recovery period, certain 2008-2009 losses could be carried back up to five years. However, by 2016, this extended period no longer applied to new losses—it only affected corporations still working through those earlier claims.

Section 965 complications: The 2016 tax year fell into a transitional period regarding international taxation. Corporations needed to be cautious about carrying back losses to years affected by section 965 (transition tax) calculations, though the major section 965 changes came with the 2017 Tax Cuts and Jobs Act.

Economic performance requirement: For accrual-basis corporations (most larger companies), losses claimed on Form 1139 had to meet the "economic performance" test—meaning the underlying expenses creating the loss had to be truly incurred, not just accrued on paper.

Step-by-Step (High Level)

Step 1: Calculate and file your regular tax return. Complete Form 1120 for 2016 showing your net operating loss, capital loss, or unused credits. File this return by the April 2017 deadline (or extended deadline if you filed Form 7004). Form 1139 cannot be filed until after you've filed Form 1120.

Step 2: Gather carryback year information. Pull your filed tax returns for the years you're carrying the loss back to (typically 2014 and 2015 for a 2016 NOL). You'll need the original taxable income figures, tax liability amounts, and payment details from those years.

Step 3: Complete Form 1139. The form has three main sections: (1) identifying the loss or credit you're carrying back, (2) recalculating each carryback year's tax liability after applying the loss, and (3) computing your refund. Lines 11-28 walk through this recalculation for up to three carryback years in parallel columns.

Step 4: Attach required documentation. You must attach copies of pages 1-2 of your 2016 Form 1120, plus relevant schedules showing the loss (like Schedule D for capital losses or Form 3800 for credit carrybacks). Also attach copies of the carryback years' returns that you're amending. Mark these "Copy Only—Do Not Process" at the top.

Step 5: File separately—not with Form 1120. Mail Form 1139 to the IRS Service Center where you normally file corporate returns, but send it as a separate mailing, not attached to your regular return. Each center has specific addresses.

Step 6: Wait for processing. The IRS has 90 days from the later of (a) when they receive your complete Form 1139 or (b) the due date of your 2016 return to process the application and issue the tentative refund. If approved, you'll receive a check or direct deposit (if Form 8302 was filed for refunds over $1 million).

Important: The tentative refund isn't final—the IRS can audit your claim later and if they find errors, you'll have to repay the excess amount plus interest. The 90-day processing is just about getting your money quickly, not about conclusively resolving the tax treatment.

Common Mistakes and How to Avoid Them

Mistake #1: Filing Form 1139 before Form 1120

The instructions explicitly state that your regular tax return showing the loss must be filed no later than when you file Form 1139. Solution: Always file Form 1120 first, wait for confirmation it was received, then file Form 1139. Better yet, file them together if possible.

Mistake #2: Missing the 12-month deadline

Corporations often discover the deadline too late, thinking they have the same three-year window as amended returns. Solution: Mark your calendar immediately when you realize you'll have a carryback situation. Set a reminder for 11 months after year-end to ensure you don't miss the deadline.

Mistake #3: Incomplete documentation

Failing to attach required forms (copies of both loss-year and carryback-year returns, relevant schedules) causes the IRS to reject the application as incomplete, wasting valuable time. Solution: Use the "What To Attach" checklist in the Form 1139 instructions. Make copies of everything before mailing.

Mistake #4: Math errors in the carryback calculation

The form requires recalculating multiple years' tax liabilities with complex adjustments for items like dividends-received deductions and general business credits. Solution: Use tax preparation software that supports Form 1139 calculations, or work with a tax professional. Double-check all carryover amounts from prior returns.

Mistake #5: Forgetting to handle state returns

Form 1139 is only for federal taxes. Most states have similar quick-refund procedures for carrybacks, but they require separate state forms filed with state tax agencies. Solution: Research your state's carryback refund process immediately after filing Form 1139. Many states require you to wait for IRS approval before filing state claims.

Mistake #6: Not maintaining adequate records

If the IRS questions your tentative refund later (which they can do even after issuing the payment), you need detailed support for every line item creating the loss. Solution: Keep complete documentation of all income and expenses for the loss year, plus copies of all filed returns, for at least seven years.

Mistake #7: Overestimating the refund

Some corporations incorrectly calculate carryback amounts by forgetting that losses must be applied to the earliest carryback year first until exhausted before moving to the next year. Solution: Carefully follow the "waterfall" rules—apply 2016 losses to 2014 first, then use any remaining loss for 2015.

What Happens After You File

Initial Processing

Once the IRS receives your Form 1139, they conduct a preliminary review within days to ensure it's complete. If essential information or attachments are missing, they'll send you a letter requesting the missing items. Responding quickly keeps your 90-day clock running.

The 90-Day Countdown

By law, the IRS must act on Form 1139 applications within 90 days of the later of (1) receiving your complete application or (2) the due date of your loss-year return. "Act on" means issuing the refund or formally denying the application—they must make a decision one way or another.

Tentative Refund Issued

If approved, the IRS issues a "tentative allowance" and sends your refund. This is not a final determination—it's a provisional payment while they continue reviewing. Interest begins accruing on the overpayment from when you made the original tax payment in the carryback year.

Interest on Refunds

You'll receive interest on the refunded amount, calculated from the date you originally paid the carryback-year taxes. For a 2016 loss carried back to 2014, interest runs from when you paid your 2014 taxes (roughly April 2015) until the refund is issued (perhaps July 2017).

No Appeal Rights for Denials

Here's the catch—if the IRS denies your Form 1139 application, you cannot appeal that denial in Tax Court or sue in federal court. Form 1139 is an administrative convenience, not a legal claim. If denied, your only recourse is filing Form 1120X (the regular amended return), which does give you appeal rights but takes much longer.

Later Audit Possibility

The IRS can audit the tentative refund claim at any time within the normal statute of limitations (generally three years from when you filed). If they determine you weren't entitled to the refund or it was too large, they'll assess additional tax plus interest, and potentially penalties if the error was substantial. The tentative payment doesn't mean you're in the clear.

Joint Committee Review

For very large refunds (generally $2 million or more), the claim must be reviewed by the Joint Committee on Taxation (a Congressional body) before becoming final. This adds considerable time—potentially 6-12 months—even though you've already received the tentative refund.

File Form 1120X Anyway

Many tax professionals recommend filing Form 1120X for the carryback years even after getting your Form 1139 refund. This preserves your legal appeal rights and ensures proper documentation if questions arise later. Form 1120X has a longer filing deadline (three years), giving you breathing room.

FAQs

1. Can I e-file Form 1139 electronically?

No. As of 2016, Form 1139 could not be filed electronically. The form must be printed, signed, and mailed to the appropriate IRS Service Center with all required attachments. This is one reason processing takes weeks rather than days. Check IRS.gov for updates, as electronic filing options may have been added in subsequent years.

2. What's the difference between Form 1139 and Form 1120X?

Form 1139 is specifically for carryback situations and offers fast processing (90 days) but no appeal rights if denied. Form 1120X is for any type of corporate return correction, takes longer (3-4 months typically), but provides full appeal rights. Form 1139 has a tight 12-month filing deadline; Form 1120X generally allows three years. Many corporations file Form 1139 for quick cash flow, then follow up with Form 1120X to preserve legal rights.

3. Can my CPA sign Form 1139 on behalf of the corporation?

No. Form 1139 must be signed by a corporate officer (president, vice president, treasurer, chief accounting officer, or other authorized officer). A paid preparer can complete and submit the form, but only a corporate officer can sign it. If the corporation is in bankruptcy or receivership, the trustee or receiver signs instead.

4. Do I have to carry back losses, or can I elect to carry them forward only?

You can elect to waive the entire carryback period and carry losses forward only to future years. This might make sense if you expect higher tax rates ahead or if carryback creates alternative minimum tax complications. The election is irrevocable and must be made by filing a statement with your timely-filed tax return. See the instructions for Schedule K, Line 11 of Form 1120 for making this election.

5. What if I made estimated tax payments during the loss year?

Your 2016 estimated tax payments and any amounts carried forward from 2015 are handled separately from the Form 1139 carryback refund. Those payments are applied to your 2016 tax liability on Form 1120. If they exceed your 2016 liability, you'll get a separate refund or credit for 2016. Form 1139 generates an additional refund by reaching back to recover taxes paid in earlier years.

6. Can small corporations use Form 1139?

Yes, there's no size restriction. Any C corporation can file Form 1139, whether it's a billion-dollar company or a small business with $100,000 in annual revenue. The benefit is particularly valuable for smaller corporations that need cash flow relief. Even if your refund is only $10,000, Form 1139's 90-day processing can make a significant difference to a small business's liquidity.

7. What happens if the IRS hasn't processed my Form 1139 after 90 days?

Contact the IRS Service Center where you filed to check on the status. Delays can occur due to missing information, complex calculations requiring examination, or processing backlogs. Unlike with Form 1120X, you cannot sue in court to force payment of a Form 1139 tentative refund. Your remedy is to file Form 1120X and wait for it to process, which then gives you court options if the IRS fails to act within six months.

Sources: This guide is based on official IRS materials including Form 1139 and its instructions (2016 revision), Form 1120X instructions (November 2016), IRS Publication 542 "Corporations" (December 2016), Instructions for Form 1120 (2016), and IRS.gov resources on carryback procedures. All information reflects tax law as it stood for the 2016 tax year.