What the Form Is For

Form 1139 is essentially a fast-track application that allows corporations (excluding S corporations) to quickly recover overpaid taxes from previous years. Think of it as an express lane for corporate tax refunds. Instead of waiting through the standard refund process, which can take considerably longer, Form 1139 is designed to be processed by the IRS within 90 days.

This form comes into play when your corporation has experienced specific financial situations that create a tax benefit you can apply to prior years. The most common scenario is a net operating loss (NOL)—essentially when your business deductions exceed your income for the year. Rather than losing the benefit of that loss, you can "carry it back" to years when you made a profit and paid taxes, resulting in a refund.

Beyond NOLs, Form 1139 also handles three other situations: net capital losses (when your capital losses exceed capital gains), unused general business credits that you couldn't fully utilize in the current year, and overpayments resulting from "claim of right" adjustments under Section 1341(b)(1)—a technical provision dealing with income you previously reported but had to repay. IRS.gov

The "tentative" nature of the refund is important to understand. This means the IRS processes your application quickly but reserves the right to review it more thoroughly later. If they discover errors or overstatements, you may have to return the money—with interest.

When You’d Use Form 1139

Timing Is Critical

For Form 1139 to work its magic, timing is absolutely crucial. Generally, you must file this form within 12 months of the end of the tax year in which the loss, unused credit, or claim of right adjustment occurred. Miss this window, and you'll need to use the standard amended return process (Form 1120X), which takes considerably longer—often 6 months or more before you can even file suit if the IRS doesn't act.

Here's a practical example: If your corporation's tax year ended December 31, 2014, and you had a net operating loss, you would have until December 31, 2015, to file Form 1139. This 12-month deadline is firm and inflexible.

The Tax Return Prerequisite

There's an important catch: you must file your corporation's income tax return for the loss year no later than the date you file Form 1139. You cannot jump ahead and file Form 1139 before submitting your actual tax return. The IRS needs that return on file to verify your claimed loss or credit. IRS Instructions for Form 1139, 2014

When Late or Amended Returns Come Into Play

If you've already missed the 12-month window, Form 1139 is no longer an option. Instead, you'll need to file Form 1120X (Amended U.S. Corporation Income Tax Return). While this doesn't provide the expedited 90-day processing, you generally have up to three years from the original filing deadline to file an amended return claiming a refund.

Additionally, if you need to carry back certain types of credits—specifically prior year minimum tax credits or foreign tax credits released due to an NOL or capital loss carryback—Form 1120X is required instead of Form 1139, regardless of timing. The tentative refund process simply doesn't accommodate these more complex credit situations.

Key Rules or Details for 2014

Carryback Periods: Understanding How Far Back You Can Go

The 2014 version of Form 1139 operated under specific carryback period rules that determined how many prior tax years you could reach back to claim refunds:

• Standard NOL: Generally carried back 2 years. Any unused portion could then be carried forward up to 20 years.
• Farming Losses: Extended carryback of 5 years for losses attributable to farming businesses as defined under tax code Section 263A(e)(4).
• Specified Liability Losses: A generous 10-year carryback for losses arising from product liability, environmental cleanup obligations, land reclamation requirements, decommissioning nuclear plants, dismantling drilling platforms, or workers' compensation.
• Qualified Disaster Losses: 5-year carryback for losses from federally declared disasters occurring before January 1, 2010.
• Qualified Gulf Opportunity (GO) Zone Losses: 5-year carryback for losses related to specified GO Zone extension property following Hurricane Katrina.
• Eligible Losses: 3-year carryback for small business losses attributable to federally declared disasters.
• Net Capital Losses: Generally carried back 3 years, though they could only be carried back to the extent they didn't create or increase an NOL in the carryback year.
• Unused General Business Credits: Carried back 1 year (with some exceptions in Section 39(d)).

Waiving the Carryback Period

Interestingly, corporations had the option to waive the entire carryback period and instead carry losses forward only. This election had to be made by checking the appropriate box on Form 1120, Schedule K, line 11, when filing the return for the loss year (including extensions). Once made, this election was irrevocable. Some companies chose this option to avoid triggering IRS reviews of prior-year returns or when they anticipated higher tax rates in future years. IRS Instructions for Form 1139, 2014

Consolidated Returns

For corporations filing consolidated returns, special rules applied. If the consolidated group elected to waive the entire carryback period, they had to attach a specific statement required by Regulations Section 1.1502-21(b)(3), or the election would be invalid. Additionally, when a new qualified member joined a consolidated group, their separate return year ending on the joining date was treated as ending on the same date as the consolidated group's tax year end.

Step-by-Step (High Level)

Step 1: Determine Eligibility and Calculate Your Loss or Credit

Before touching Form 1139, confirm that you have a legitimate NOL, net capital loss, unused general business credit, or claim of right adjustment. Calculate the exact amount using your tax return and supporting schedules. For an NOL, this means completing your full corporate tax return to determine that deductions exceed gross income (with certain adjustments).

Step 2: Complete Your Tax Return First

File your corporation's income tax return for the loss year before or simultaneously with Form 1139. This is non-negotiable. The IRS cannot process your tentative refund application without the underlying return on file.

Step 3: Gather Required Attachments

Form 1139 doesn't stand alone. You must attach:

• The first two pages of your corporation's income tax return for the loss year
• All forms and schedules from which the carryback results (such as Schedule D for capital losses, Form 3800 for general business credits)
• Any Form 8886 (Reportable Transaction Disclosure Statement) attached to your tax return
• Applicable election statements (such as NOL carryback waivers)
• Refigured forms and schedules for each carryback year
• Form 8302 if your refund for any single carryback year equals or exceeds $1 million (for electronic deposit)

Step 4: Complete Form 1139

Work through the form systematically:

• Lines 1-4: Identify the reason for filing and the amount of your loss or credit
• Line 5: Special consolidated return information if applicable
• Lines 11-27: This is the computational heart of the form. For each carryback year, you'll show taxable income before and after the carryback, recalculate income tax and alternative minimum tax, adjust credits, and compute the decrease in tax. You may need multiple copies if carrying back beyond three years.
• Line 28: For claim of right adjustments only

Step 5: Sign and File Separately

An authorized corporate officer must sign the form under penalties of perjury. File Form 1139 separately from your income tax return—do not attach it to your return. Send it to the IRS Service Center where you file your corporate tax returns.

Step 6: Wait for Processing (Up to 90 Days)

The IRS commits to processing Form 1139 within 90 days of the later of: (a) the date you file the complete application, or (b) the last day of the month including the due date (with extensions) for your loss-year return. IRS Instructions for Form 1139, 2014

Common Mistakes and How to Avoid Them

Mistake #1: Filing Before the Tax Return

Many corporations, eager for a refund, try to file Form 1139 before filing their actual tax return for the loss year. This creates immediate rejection. Always file or simultaneously submit your tax return with Form 1139.

Mistake #2: Missing Attachments

Incomplete applications with missing schedules, forms, or computations represent one of the most frequent errors. The IRS can disallow your entire application for material omissions. Create a checklist from the "What To Attach" section of the instructions and verify every item before mailing.

Mistake #3: Mathematical Errors in Carryback Computations

Lines 11-27 require precise recalculation of prior-year taxes with the carryback applied. Many filers make computational errors when refiguring taxable income, income tax, alternative minimum tax, or credits. Double-check every calculation. Math errors within the 90-day processing window may result in complete disallowance of the application.

Mistake #4: Confusing "Tentative" with "Final"

Some corporations treat the tentative refund as final approval and are surprised when the IRS later examines the return and assesses additional tax, interest, and penalties. The tentative refund is exactly that—tentative. The IRS reserves the right to fully audit the return and carryback claims. Keep comprehensive documentation and be prepared for potential follow-up examinations.

Mistake #5: Missing the 12-Month Deadline

The 12-month filing deadline from the end of the loss year is absolute for Form 1139. Mark your calendar and file well in advance. If you miss this deadline, you lose access to the expedited process and must use Form 1120X with its longer processing times.

Mistake #6: Using Form 1139 for Ineligible Credits

Attempting to carry back prior-year foreign tax credits, minimum tax credits, or general business credits released by foreign tax credit reductions via Form 1139 will result in rejection. These require Form 1120X. Review the "When To Use Form 1120X" section carefully.

Mistake #7: Incorrect Carryback Period

Applying a standard 2-year NOL carryback when you actually have a farming loss eligible for 5-year carryback (or vice versa) means leaving money on the table or claiming ineligible refunds. Carefully classify your loss type and confirm the applicable carryback period before completing your calculations.

What Happens After You File

The 90-Day Processing Window

Once the IRS receives your complete Form 1139, the clock starts on their 90-day processing commitment. During this time, IRS personnel review your application, verify the calculations, and check that you've included all required documentation. If everything checks out, they'll issue your tentative refund.

How You Receive the Refund

For most refunds, the IRS will issue a check or direct deposit following standard refund procedures. However, if any single carryback year generates a refund of $1 million or more, you must complete Form 8302 to arrange electronic deposit. The IRS sends refunds to the corporation directly, except in consolidated return situations where refunds go to the common parent or designated agent. IRS Instructions for Form 1139, 2014

Potential IRS Contact

Don't be alarmed if the IRS contacts you or your authorized representative (if you filed Form 2848, Power of Attorney) during the 90-day window. They may need clarification on calculations, additional documentation, or corrections to minor errors. Respond promptly to avoid delays.

Disallowance Scenarios

The IRS may disallow your application in whole or in part if they discover material omissions or mathematical errors that aren't corrected within the 90-day period. Unlike a regular claim for refund, you cannot sue in court to challenge the disallowance of a Form 1139 application. However, you can file a regular claim for credit or refund using Form 1120X, which does preserve your right to litigate if the IRS denies that claim.

Post-Approval Examinations

Receiving your tentative refund does not mean the IRS has accepted your application as correct or final. The Service may subsequently examine your loss-year return or any carryback year return. If they determine the claimed deductions or credits resulted from overvalued property, negligence, disregard of rules, or substantial understatement of income tax, they can assess penalties. They'll also charge interest on any amounts determined to be erroneously refunded.

Excessive Allowances

If the IRS later determines that any amount applied, credited, or refunded based on your Form 1139 was excessive, they'll bill you as if it were a math or clerical error on the return. This means potentially quick assessment without the full audit process protections.

Your Rights to File Suit

If the IRS doesn't act on Form 1120X (the alternative to Form 1139) within 6 months of filing, you can file suit in court. Similarly, if the IRS disallows a claim on an amended return and you disagree, you must file suit no later than 2 years after the disallowance date. These litigation timeframes don't apply to Form 1139 itself—only to subsequent amended returns you might file.

FAQs

Q1: Can I file Form 1139 electronically?

No. As of 2014, Form 1139 must be filed on paper. Even if you electronically file your corporate tax return, you must file Form 1139 separately in paper form and mail it to the appropriate IRS Service Center. This requirement continues to be a limitation of the form.

Q2: What's the real advantage of Form 1139 over Form 1120X?

Speed. Form 1139 is processed within 90 days, while Form 1120X can take 6 months or longer. For corporations with cash flow concerns, receiving a refund in 3 months versus 6-12 months can make a significant financial difference. However, Form 1120X provides more comprehensive review and stronger legal protections if you need to litigate.

Q3: Can an S corporation use Form 1139?

No. The form explicitly excludes S corporations. S corporation shareholders handle losses and credits on their personal returns (Form 1045 for individuals serves a similar tentative refund purpose). Form 1139 is only for C corporations and certain other corporate entities.

Q4: What happens if I discover an error after filing Form 1139?

If you discover an error while the application is still being processed (within the 90-day window), contact the IRS Service Center immediately with corrected information. If you've already received the tentative refund and then discover an error, you may need to file Form 1120X to correct the situation—either to claim additional refund or to repay excess amounts before the IRS discovers the error themselves.

Q5: Can I carry back multiple types of losses simultaneously?

Yes. If your corporation has both an NOL and a net capital loss in the same year, you can claim both carrybacks on a single Form 1139. However, be aware that capital losses can only be carried back to the extent they don't create or increase an NOL in the carryback year. Complete the form carefully, showing each type of carryback separately. IRS.gov

Q6: Is there a minimum or maximum refund amount for Form 1139?

There is no minimum refund amount—even small refunds can be claimed through Form 1139. However, if any single carryback year generates a refund of $1 million or more, you must complete Form 8302 to arrange for electronic deposit of that refund. This ensures large refunds are handled securely.

Q7: Should I hire a tax professional to complete Form 1139?

Given the complexity of carryback calculations, the various types of losses with different carryback periods, and the requirement to refigure multiple years of tax returns, most corporations benefit from professional assistance. Errors can result in complete disallowance of your application, delayed refunds, or subsequent assessments with interest and penalties. The cost of professional help is typically modest compared to the refund amounts involved and the risks of errors. Moreover, you can authorize a tax professional to communicate directly with the IRS on your behalf by attaching Form 2848 (Power of Attorney) to your Form 1139.

Key Takeaway: Form 1139 offers corporations a valuable fast-track option for recovering overpaid taxes from prior years when losses or unused credits arise. The 90-day processing commitment provides much faster cash flow relief than standard amended returns. However, the process demands precision, complete documentation, and strict attention to deadlines. Understanding the specific carryback rules for your situation and avoiding common pitfalls will help ensure successful processing of your tentative refund application.

This summary is based on the 2014 revision of Form 1139 and its instructions. For current-year filings, always consult the most recent version of the form and instructions at IRS.gov.