What Form 1045 Is For

Form 1045 is a specialized IRS form that allows individuals, estates, and trusts to apply for a "quick refund"—officially called a tentative refund—when they've experienced certain financial losses or need to correct prior tax years. Think of it as an expedited way to get money back from the IRS without waiting years for the normal refund process.

The form works by letting you "carry back" losses or unused credits from your 2010 tax year to previous years when you made money and paid taxes. Essentially, you're telling the IRS: "If I had known about these losses in earlier years, I would have owed less tax then—so please refund the difference now."

Form 1045 specifically handles four situations. First, it processes Net Operating Loss (NOL) carrybacks—when your business deductions exceed your income for the year, creating a loss you can apply to profitable years. Second, it handles unused general business credit carrybacks—tax credits your business earned but couldn't fully use because they exceeded your tax liability. Third, it covers net section 1256 contracts loss carrybacks—specialized losses from certain futures and options trading. Finally, it addresses claim of right adjustments under section 1341(b)(1)—situations where you received income in one year but had to repay it in a later year.

The biggest advantage of Form 1045 over the alternative Form 1040X (amended return) is speed. The IRS must process your Form 1045 within 90 days, whereas amended returns can take six months or longer. However, this speed comes with a trade-off: Form 1045 processing doesn't mean the IRS has fully accepted your claim—they can still audit and adjust it later.

When You’d Use Form 1045 (Late/Amended Filing)

You must file Form 1045 within one year after the end of the year in which the loss, unused credit, or claim of right adjustment occurred. For 2010, this means you needed to file by December 31, 2011. Missing this deadline doesn't mean you lose your refund forever—you can still use Form 1040X (amended return) instead, which gives you up to three years from the original return's due date. However, you'll lose the 90-day processing guarantee.

There's an important filing sequence to remember: you must file your 2010 income tax return (Form 1040) before or at the same time as Form 1045. The IRS needs your 2010 return to verify the loss or unused credit you're claiming. Don't include Form 1045 in the same envelope as your tax return—mail them separately to the IRS Service Center for your area.

If you're carrying back losses or credits to years that span more than three years, you may need to file multiple Forms 1045—one for each set of carryback years. You only need to complete the detailed Schedule A (showing your NOL calculation) on the first form and only sign that one, but you'll still need separate forms to claim refunds for each affected tax year.

Form 1045 isn't your only option. You can alternatively file Form 1040X to claim the same refunds, which gives you more time (up to three years) and provides stronger legal protections. If the IRS denies a Form 1040X claim, you can challenge that decision in court up to two years after the denial. With Form 1045, if the IRS disallows your application within 90 days, you generally cannot sue over that decision—you'd need to file a separate Form 1040X claim first.

Key Rules for 2010

Standard NOL Carryback

The 2010 tax year included several special provisions that determined how far back you could carry losses. Understanding which type of loss you have is crucial because it dictates your carryback period.

Standard NOL carryback: Most net operating losses must be carried back two years. For example, a 2010 loss would first go to 2008, then any remaining loss to 2009, and finally forward up to 20 years if not fully absorbed. However, 2010 had several special categories with different rules.

Eligible Small Business Credit Carrybacks

Eligible small business credits had enhanced carryback rules in 2010. If your business qualified as a small business (average annual gross receipts of $50 million or less over the previous three years), you could carry unused general business credits back five years instead of the usual one year. This meant a 2010 eligible small business credit could go back to 2005, then 2006, 2007, 2008, and 2009. To claim this benefit, you needed to write "SBJA 2012" at the top of your Form 1045.

Farming Losses (Five-Year Carryback)

Farming losses received favorable treatment, with a five-year carryback period. If any portion of your NOL came from a farming business (as defined in tax code section 263A(e)(4)), that portion went back to 2005 first, then progressed forward through 2009. You could elect out of this extended carryback if you preferred, but the election was irrevocable once made.

Eligible Losses (Three-Year Carryback)

Eligible losses—from fire, storm, shipwreck, other casualty, or theft—qualified for a three-year carryback. For small businesses or farming businesses, losses from federally declared disasters also counted as eligible losses. These went back to 2007 first, then 2008 and 2009.

Qualified Disaster, GO Zone, and Disaster Recovery Assistance Losses (Five-Year Carryback)

Qualified disaster losses, GO Zone losses, and disaster recovery assistance losses all received five-year carryback periods. These special categories related to federally declared disasters occurring before January 1, 2010, and the Gulf Opportunity Zone. The 2010 instructions provided detailed definitions for each category, with specific exclusions for gambling facilities, golf courses, and certain other properties.

Specified Liability Losses (Ten-Year Carryback)

Specified liability losses—the rarest category—could be carried back ten years. These involved product liability or environmental remediation situations where the triggering event occurred at least three years before 2010 and you used accrual accounting throughout.

Election to Waive Carryback

One critical 2010 rule: you could waive the carryback period entirely and only carry losses forward. To do this, you needed to attach a statement to your 2010 tax return (filed by the due date including extensions) electing to "relinquish the entire carryback period" under section 172(b)(3). This election was irrevocable but could avoid creating alternative minimum tax (AMT) problems in earlier years.

Step-by-Step (High Level)

Step 1: Determine Your Loss or Unused Credit

Calculate your 2010 net operating loss using Schedule A of Form 1045, or identify your unused general business credit from Form 3800. You'll need to separate business income/deductions from nonbusiness items. Business income includes salaries, rental income, and business property sales. Nonbusiness deductions include most itemized deductions, IRA contributions, and the standard deduction (minus disaster losses).

Step 2: Identify Which Years to Carry Back To

Based on your loss type, determine the earliest year. For most NOLs, this is 2008 (two years back). For farming losses or eligible small business credits, it's 2005 (five years back). Make sure you have copies of your tax returns for all affected years.

Step 3: Gather Required Attachments

You must attach copies of: pages 1 and 2 of your 2010 Form 1040 with relevant schedules (A, D, J if applicable); all Schedule K-1s from partnerships or S corporations contributing to the loss; Forms 3800, 6251, or 6781 if claiming credits or section 1256 losses; and any Form 8886 reportable transaction disclosures. Without these, your application may be automatically disallowed.

Step 4: Complete the Computation Section (Lines 10–27)

This is the heart of Form 1045. You'll fill in paired columns—"Before carryback" and "After carryback"—for each year receiving the carryback. Start with the earliest year. In the "Before" column, enter figures from your original return. In the "After" column, refigure your income, deductions, and tax liability as if the loss had occurred in that earlier year. This shows how much less tax you would have owed.

Step 5: Refigure Percentage-Based Deductions

When your adjusted gross income changes due to the carryback, certain deductions must be recalculated: medical expenses (based on 7.5% of AGI in 2010), miscellaneous deductions (2% of AGI floor), casualty losses (10% of AGI), and the overall itemized deduction limitation. Schedule B, lines 11-38, provides a detailed worksheet for these adjustments, but only complete it if you itemized deductions.

Step 6: Calculate the Decrease in Tax

For each carryback year, subtract your "After carryback" tax (line 26) from your "Before carryback" tax (line 25). This difference is your refund for that year. Add up the decreases from all carryback years to find your total tentative refund.

Step 7: Complete Schedule B If Needed

If your NOL isn't fully absorbed by the first carryback year, use Schedule B to calculate "modified taxable income" and determine how much loss carries to the next year. Modified taxable income adds back certain items like the net capital loss deduction and section 1202 exclusion to show how much loss the year can absorb.

Step 8: Sign, Date, and Mail Separately

Both spouses must sign joint applications. Mail Form 1045 separately from your 2010 tax return to your IRS Service Center. Keep copies of everything. The IRS should process your application within 90 days of the later of: when you filed the complete application, or the last day of the month including your 2010 return's due date (including extensions).

Common Mistakes and How to Avoid Them

Mistake 1: Missing the One-Year Deadline

Many taxpayers discover losses years later during audits or when reviewing old returns. Remember that Form 1045 must be filed within one year after the loss year ends—December 31, 2011, for a 2010 calendar-year loss. Mark this deadline prominently when you discover a loss. If you've missed it, immediately switch to Form 1040X, which gives you three years from the original return's due date.

Mistake 2: Incomplete Attachments

The IRS will disallow applications with "material omissions." This means every required schedule and form must be attached. Create a checklist: 2010 Form 1040 pages 1-2, Schedule A (if itemizing), Schedule D (if capital gains/losses), Schedule J (if income averaging), all relevant Schedules K-1, Forms 3800/6251/6781 as applicable, extension requests, and Form 8886 disclosures. Missing even one can delay or deny your refund.

Mistake 3: Failing to Refigure Percentage-Based Deductions

When your AGI changes, deductions tied to AGI percentages must be recalculated. The most commonly forgotten: medical expenses, miscellaneous itemized deductions, and the overall itemized deduction phase-out for high earners. For 2010 carrybacks, high earners (AGI over $166,800, or half that for married filing separately) faced additional limits on itemized deductions. Use Schedule B's detailed worksheets—lines 11 through 38—to ensure accuracy.

Mistake 4: Applying Carrybacks in the Wrong Order

If you have multiple types of losses in 2010 (for example, $15,000 general NOL plus $10,000 farming loss), they don't all go to the same years. The farming loss goes back five years (to 2005), while the general NOL goes back only two years (to 2008). Track each loss component separately. Also, if you're carrying back multiple years' worth of NOLs, they must be applied in chronological order—earliest loss year first.

Mistake 5: Ignoring Alternative Minimum Tax

Carrybacks can create or increase AMT liability in prior years, even if you had no AMT when you originally filed. This is especially true for taxpayers with significant itemized deductions, incentive stock option exercises, or private activity bond interest. Always complete Form 6251 for each carryback year using the "After carryback" figures. An unexpected AMT liability can significantly reduce your expected refund—or eliminate it entirely.

Mistake 6: Confusing Business and Nonbusiness Income/Deductions

Schedule A (lines 6 and 7) requires you to separate these categories. Business deductions include Schedule C/F expenses, rental losses, and employee business expenses. Nonbusiness deductions include most itemized deductions (except those just listed), IRA contributions, and the standard deduction. Misclassifying items can completely change your NOL amount. When in doubt, consult IRS Publication 536 for detailed examples.

Mistake 7: Not Keeping a Working Copy

Form 1045 contains complex calculations that the IRS may question. Keep a complete copy with all attachments and your calculation worksheets. If the IRS contacts you during the 90-day processing period or audits the application later, you'll need these documents to explain and defend your figures. Also keep copies of the original returns for all carryback years as filed, since you'll need to compare "before" and "after" amounts.

What Happens After You File

Processing Timeline

The IRS must process your Form 1045 within 90 days from the later of two dates: when you file the complete application, or the last day of the month that includes your 2010 return's due date (including extensions). For example, if you filed a calendar-year 2010 return with an extension until October 15, 2011, and submitted Form 1045 on September 1, 2011, the 90-day clock starts October 31, 2011, and ends around January 29, 2012.

Processing Doesn't Mean Acceptance

Processing doesn't mean acceptance. This is crucial to understand. When the IRS issues your tentative refund within 90 days, they're not saying your claim is correct—they're essentially giving you an advance subject to later verification. The IRS can and does audit Form 1045 applications after issuing refunds. If they later determine you overstated deductions, underreported income, or incorrectly calculated the loss, they'll bill you for the excess refund plus penalties and daily compounded interest.

Possible IRS Contact During Processing

The IRS may contact you during processing. Designate an authorized representative (like your accountant) by attaching Form 2848 (Power of Attorney) to your Form 1045. The IRS often needs clarification on calculations, additional documentation, or corrections to math errors. Quick responses prevent delays. They may also request verification that your 2010 return was filed, since this is a prerequisite for processing.

Refund Methods for Large Amounts

Refund methods matter for large amounts. If your tentative refund exceeds $1 million, you must attach Form 8302 (Electronic Deposit of Tax Refund of $1 Million or More) to request direct deposit. The IRS won't issue paper checks over this amount. For smaller refunds, direct deposit is faster but optional—you can receive a paper check if preferred.

Limited Appeal Rights

Your appeal rights are limited. If the IRS disallows your Form 1045 application in whole or in part within the 90-day period, you generally cannot sue to challenge the disallowance. This is a major difference from Form 1040X. Your remedy is to file Form 1040X as a formal claim for credit or refund before the statute of limitations expires. The IRS will process that claim under normal procedures, and if denied, you can then sue in court within two years of the denial.

Released Credits and Secondary Carrybacks

Released credits create domino effects. If your NOL carryback eliminates or reduces a general business credit from an earlier year, that released credit might be carried back even further. However, Form 1045 cannot process these secondary carrybacks. Similarly, if your carryback releases foreign tax credits, you cannot use Form 1045 to carry those back. You must file separate Form 1040X amended returns for earlier years to claim these additional refunds. This creates a multi-step process that's easy to overlook.

Penalties Risk After Tentative Refund

Watch for penalties. The IRS can assess penalties if they later determine your loss resulted from overstating property values, negligence, disregarding rules and regulations, or substantially understating income tax. These penalties apply even though you received a tentative refund. Common penalty triggers include unsupported charitable deductions, aggressive business expense claims, and failing to report income from Schedule K-1s.

State Tax Considerations

State taxes need separate handling. Form 1045 is a federal form. If you're claiming a federal NOL carryback, check whether your state allows similar carrybacks. Many states don't automatically conform to federal NOL rules, or they have different carryback periods. You may need to file separate state amended returns to claim state refunds, and those follow completely different timelines and procedures.

FAQs

Q1: Can I file Form 1045 if I haven't filed my 2010 tax return yet?

No. The instructions explicitly require that you file your 2010 income tax return no later than the date you file Form 1045. You can file them simultaneously, but Form 1045 cannot be filed first. The IRS needs your 2010 return to verify the loss or unused credit you're claiming. If you try to file Form 1045 before your 2010 return, it will be rejected or held until the return is received.

Q2: What's the difference between Form 1045 and Form 1040X for claiming refunds?

Form 1045 offers speed—90-day processing—but less legal protection. It's treated as an application for tentative refund, not a formal claim for credit or refund. If denied, you generally can't sue. Form 1040X takes longer (six months or more) but gives you up to three years to file and full appeal rights, including the ability to sue in court if your claim is denied. For large refunds or complex situations, Form 1040X may be preferable despite the longer wait.

Q3: I have both a regular NOL and a farming loss in 2010. How do I allocate them?

You must track each component separately because they have different carryback periods. Calculate the farming loss as the smaller of (1) the NOL you'd have if only farming income/deductions were counted, or (2) your total NOL. That amount goes back five years. The remaining NOL goes back two years (or three years if it's an eligible loss, etc.). Both amounts are reported on Schedule A, line 25, but you'll need to attach a detailed computation showing the split and where each portion is applied on lines 10-27.

Q4: Can I waive the carryback and just carry my 2010 NOL forward?

Yes. This can be advantageous if you expect higher tax rates in future years or if carrying back would trigger AMT. To waive the carryback, attach a statement to your 2010 return (filed by the due date including extensions) saying you elect under section 172(b)(3) to "relinquish the entire carryback period" for your 2010 NOL. If you filed on time without making this election, you can still make it on an amended return filed within six months of the due date (excluding extensions). Write "Filed pursuant to section 301.9100-2" on the election. Once made, this election is permanent and irrevocable.

Q5: What happens if my 2010 NOL isn't fully used in the carryback years?

Any unused NOL carries forward for up to 20 years. Use Schedule B to calculate the NOL carryover to each subsequent year. Each carryback year can only absorb loss up to its "modified taxable income"—essentially taxable income with certain adjustments. If year one doesn't fully absorb the loss, the remainder goes to year two, and so on. Whatever isn't absorbed in all carryback years becomes an NOL deduction on your 2011 return, then 2012, and so forth until fully used or the 20-year period expires.

Q6: Do I need to file multiple Forms 1045 if my carryback covers several years?

Possibly. If you're carrying back to three or fewer consecutive prior years, one Form 1045 with multiple column pairs (lines 10-27) should suffice. However, if you're carrying back more than three years—for example, a five-year farming loss carryback—you may need multiple forms because space runs out. Complete Schedule A (lines 1-25) on only one form and sign only that one. Use additional forms just for the computation section (lines 10-27) to cover earlier years.

Q7: I received a tentative refund but now the IRS says I owe it back. What happened?

The tentative refund was essentially an advance payment subject to verification. During their examination, the IRS likely found errors, overstated deductions, unreported income, or calculation mistakes. They'll bill you for the "excessive allowance" as if it were a math or clerical error, plus interest compounded daily from when you received the refund. You have appeal rights at this point and can request an audit reconsideration if you have documentation supporting your original claim. This situation highlights why Form 1045 is called "tentative"—it's not final until the IRS completes their review, which can take years.