Form 1045 (2010): Tentative Refund Application Guide Checklist

Form 1045 (2010) – Application for Tentative Refund

Purpose and Overview

Form 1045 permits individuals, estates, and trusts to claim a tentative refund when a net operating loss or net section 1256 contracts loss from 2010 is carried back to prior tax years.

Schedule A appears on page 3 of the 2010 instructions to reflect the Domestic Production Activities Deduction computation under Section 199, which you must enter on line 23 of the NOL worksheet. Modified charitable contribution and casualty loss thresholds applicable to carryback years 2000–2009 are incorporated throughout the form.

Filing Status and Initial Requirements

You must verify whether your 2010 return was filed on one of the following forms.

• Form 1040
• Form 1040NR
• Form 1041 for estates and trusts

Enter taxable income on Schedule A (page 3), line 1, following the specific line positions for each form type. Form 1041 filers must increase taxable income by the charitable deduction, income distribution deduction, and exemption amount. The instructions reference different line positions for each form type filed in 2010.

Capital Loss and Gain Calculations

Nonbusiness Capital Losses and Gains

Schedule A requires you to complete lines 2 through 10 for nonbusiness capital losses and gains.

• Enter nonbusiness capital losses before limitation as a positive number on line 2.
• Enter nonbusiness capital gains without regard to section 1202 exclusion on line 3.
• Apply the capital loss limitation rules specific to 2010 by comparing lines 2 and 3.
• Enter the appropriate excess on line 4 or line 5 based on which amount is greater.

Business Capital Losses and Gains

The business capital loss and gain section spans Schedule A, lines 11 through 17.

• Enter business capital losses before limitation on line 11.
• Enter business capital gains without regard to section 1202 exclusion on line 12.
• Combine lines 10 and 12 on line 13, then subtract line 13 from line 11.

The 2010 form instructs you to reference line 16 of Schedule D (Form 1040) for long-term capital losses. Any section 1202 exclusion amount must be included as a positive number on line 16.

Net Operating Loss Computation

Schedule A, line 24, requires you to compute the net operating loss by combining lines 1, 9, 17, and 21 through 24. Enter NOL carryback from years before 2010 as a positive number on line 21. If the result is negative, you must enter the NOL on both page 1, line 1a, and Schedule A, line 24.

NOL Carryback Periods

The general NOL carryback period for 2010 is two years to the second and first tax years before the loss year.

• Eligible losses carry back three years.
• Farming losses and qualified disaster losses carry back five years.
• Specified liability losses carry back ten years.

Any loss not applied in the carryback years can be carried forward up to 20 years.

Domestic Production Activities Deduction

Schedule A, line 23, requires you to enter the Domestic Production Activities Deduction from the applicable 2010 return.

• Form 1040, line 35
• Form 1040NR, line 34
• Form 1041, line 15a

You must enter this amount as a positive number. Section 199 Domestic Production Activities Deduction functions as a component of the NOL calculation on the form.

Itemized Deduction Adjustments for Carryback Years

You must complete the Adjustment to Itemized Deductions section on page 4, lines 11 through 37, only if line 3, 4, or 5 on page 3 exceeds zero.

Year-specific thresholds require the following calculations.

• The medical expense floor requires multiplying the modified adjusted gross income on line 13 by 7.5 percent.
• The casualty loss floor requires multiplying the modified adjusted gross income by 10 percent.
• The miscellaneous deduction floor requires multiplying the modified adjusted gross income by 2 percent.

Charitable Contribution Thresholds by Year

Each carryback year has a specific charitable contribution threshold listed on page 4.

1. $128,950 for 2000
2. $132,950 for 2001
3. $137,300 for 2002
4. $139,500 for 2003
5. $142,700 for 2004
6. $145,950 for 2005
7. $150,500 for 2006
8. $156,400 for 2007
9. $159,950 for 2008
10. $166,800 for 2009

The 2010 form lists thresholds through 2009.

Tax Decrease Computation

Page 2, lines 10 through 26, require you to complete the computation of the decrease in tax for each carryback year.

You must complete the following steps for each prior tax year to which the NOL is carried back.

1. Enter adjusted gross income before carryback on the first line.
2. Enter the NOL deduction after carryback from page 3 on the next line.
3. Itemized or standard deductions and exemption amounts must be included.
4. Taxable income requires computation from these amounts.
5. Income tax before and after carryback requires separate computation.

You must reference the carryback year's actual tax return to verify deduction amounts as required by the instructions. Three columns appear on the form for three separate carryback years, consistent with the two-year general carryback period plus one additional year for eligible losses.

Required Questions and Disclosures

Page 1, questions 2 through 9, require specific answers regarding prior carrybacks, accounting changes, and reportable transactions.

• If this application carries back an unused credit created by another carryback, you must enter the year of the first carryback on line 2a.
• If you filed joint and separate returns across the carryback years, list those years on line 3 and indicate “J” for joint or “S” for separate.

Tax Court and Disclosure Questions

Question 7 asks whether you have filed a Tax Court petition for any carryback year. You must answer “Yes” or “No” and attach an explanation if “Yes.” A pending Tax Court case may restrict the allowability of the carryback.

Question 8 asks whether any decrease in tax is due to a loss or credit from a reportable transaction requiring Form 8886 disclosure.

Question 9 asks whether the carryback of an NOL or net Section 1256 contracts loss caused the release of foreign tax credits. These questions reflect IRS scrutiny of carryback claims.

Income Tax Computation and Additional Requirements

Page 2, line 17, requires you to attach a computation of income tax. Provide a detailed written explanation showing how income tax was computed for each carryback year. Include references to applicable tax rates, credits, and alternative minimum tax where applicable. Failure to provide an adequate explanation may delay processing.

You must report self-employment tax and other taxes on page 2, lines 23 through 25. Multiple Forms 1045 may be necessary if you carry back any portion of an NOL or unused general business credit to tax years before the three years preceding the 2010 tax year. Complete lines 1 through 9 and Schedule A on only one Form 1045. Use this Form 1045 for the earliest preceding tax years.

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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.