Form 1045 is one of those tax forms that most people never hear about—until they need it. If your business had a rough year in 2016 and you suffered significant losses, this form could be your ticket to getting money back from Uncle Sam faster than you might think. Let's break down everything you need to know about Form 1045 for the 2016 tax year in plain English.

What the Form Is For

Form 1045, officially called the "Application for Tentative Refund," is a specialized IRS form that allows individuals, estates, and trusts to apply for a quick tax refund when certain tax-reducing events occur. Think of it as a fast-track option for getting money back from taxes you've already paid in previous years IRS.gov.

The Four Situations It Handles

• Net Operating Loss (NOL) Carryback: This is the most common use. If your business deductions for 2016 exceeded your income—creating a net operating loss—you can "carry back" this loss to offset income from previous years (typically 2014 and 2015). This reduces the tax you owed in those profitable years, triggering a refund.
• Unused General Business Credit: If you qualified for certain business tax credits in 2016 but couldn't use them all because you didn't owe enough tax, you can carry the unused portion back to previous years.
• Net Section 1256 Contracts Loss: This applies to certain commodity futures and options traders who experienced losses.
• Claim of Right Adjustment: If you had to repay income that you received and reported in a previous year, this provision helps you recover the taxes you paid on that income IRS.gov.

The real advantage of Form 1045 is speed: the IRS must process your application within 90 days, compared to the potentially much longer wait with an amended return.

When You'd Use It (Late/Amended Filing)

Timing is critical with Form 1045. You must file it within one year after the end of the tax year in which the loss or unused credit occurred. For calendar year 2016 taxpayers, this means you had until December 31, 2017, to file Form 1045. Additionally, you must file Form 1045 on or after the date you file your 2016 tax return IRS.gov.

Alternative Option—Form 1040X

If you missed the one-year deadline for Form 1045, all is not lost. You can file Form 1040X (Amended U.S. Individual Income Tax Return) instead. While this doesn't guarantee the 90-day processing time, you have up to three years from the original return's due date to file. For a 2016 NOL, that would typically mean filing by April 15, 2020 (or October 15, 2020, if you filed an extension).

Important Timing Notes

Important Note: Filing Form 1045 doesn't give you more time to carry back the loss—the carryback periods remain the same. It simply provides a faster refund process. Also, be sure to file your 2016 income tax return no later than the date you file Form 1045, and never include Form 1045 in the same envelope as your regular tax return IRS.gov.

Key Rules for 2016

Understanding the specific rules for 2016 is essential for successfully using Form 1045. Here are the most important guidelines:

Standard Carryback Period

For most NOLs arising in 2016, you must carry the loss back two years—first to 2014, then to 2015. Only after using up the loss in those years can you carry any remainder forward up to 20 years (through 2036) IRS.gov.

Special Extended Carryback Periods

Certain types of losses qualify for longer carryback periods:

• Eligible losses (casualty, theft, or federally declared disaster losses for qualified small businesses): 3-year carryback
• Farming losses: 5-year carryback
• Qualified disaster losses (federally declared disasters before January 1, 2010): 5-year carryback
• Specified liability losses (product liability, environmental remediation, etc.): 10-year carryback

Waiving the Carryback

You can elect to skip the carryback period entirely and only carry your NOL forward. This election must be made by attaching a statement to your timely filed 2016 return (including extensions). Once made, this election is irrevocable IRS.gov.

What Doesn't Count as an NOL

Not every financial loss creates an NOL. You cannot include personal exemptions, excess capital losses beyond capital gains, or Section 1202 exclusions when calculating your NOL IRS.gov.

Required Attachments

Your application must include copies of your 2016 return (pages 1 and 2 of Form 1040), all relevant schedules, Schedule A of Form 1045 showing your NOL computation, and any forms from which the carryback results (such as Schedule C for business losses).

Step-by-Step Process (High Level)

Here's how to navigate the Form 1045 process from start to finish:

Step 1: File Your 2016 Tax Return

Before you can file Form 1045, you must complete and file your regular 2016 tax return showing the loss year.

Step 2: Calculate Your NOL

Use Schedule A of Form 1045 to determine if you have a true NOL and its exact amount. Start with your taxable income (or loss) from line 41 of Form 1040, then make required adjustments—adding back personal exemptions, nonbusiness deductions exceeding nonbusiness income, and other disallowed items.

Step 3: Determine Carryback Years

Decide which years you'll carry the loss back to. For most 2016 NOLs, this means 2014 first, then 2015.

Step 4: Complete the Main Form

Fill out Form 1045, entering the "before carryback" amounts from your original returns for 2014 and 2015, then recalculate the "after carryback" amounts showing how the NOL reduces your income.

Step 5: Refigure Your Tax

Recalculate your adjusted gross income, deductions (some are percentage-based and will change), exemptions, and total tax liability for each carryback year. This shows the IRS exactly how much refund you're entitled to.

Step 6: File with Supporting Documents

Submit Form 1045 to the IRS Service Center where you live, with all required attachments. Do not mail it with your regular tax return.

Step 7: Wait for Processing

The IRS has 90 days from the later of (a) when you file the complete application, or (b) the due date of your 2016 return (including extensions) to process your application and issue a refund IRS.gov.

Common Mistakes and How to Avoid Them

Mistake #1: Missing the One-Year Deadline

Many taxpayers discover Form 1045 too late. Mark your calendar: you must file within one year after the end of the NOL year. If you miss this deadline, you'll have to use Form 1040X, which takes much longer to process.

Mistake #2: Including Disallowed Deductions

The NOL calculation has strict rules. Personal exemptions, the standard deduction exceeding nonbusiness income, capital losses exceeding capital gains, and NOL deductions from other years cannot be included. Use Schedule A of Form 1045 carefully, following the line-by-line instructions to avoid inflating your NOL IRS.gov.

Mistake #3: Incomplete Documentation

Form 1045 applications are frequently delayed or rejected due to missing attachments. The IRS specifically warns that your application "may be delayed or disallowed" without complete documentation. Create a checklist of required forms before mailing.

Mistake #4: Failing to Refigure Income-Based Deductions

When you reduce your adjusted gross income with an NOL carryback, many deductions that are based on AGI percentages must be recalculated—including medical expenses, miscellaneous itemized deductions, and IRA deductions. Forgetting to refigure these items understates your actual refund IRS.gov.

Mistake #5: Mailing Form 1045 with Your Tax Return

The IRS instructions explicitly state: "Don't include Form 1045 in the same envelope as your 2016 income tax return." These forms go to different processing departments.

Mistake #6: Not Understanding the Tentative Nature

Form 1045 results in a "tentative" refund. The IRS can (and does) later audit these claims. If they determine you overstated your NOL, they can immediately assess and collect the excess amount without the normal restrictions that apply to regular refund claims.

What Happens After You File

Once your Form 1045 is submitted, here's what to expect:

90-Day Processing Clock

The IRS must act on your application within 90 days from the later of your filing date or the due date (with extensions) of your 2016 return. This is significantly faster than the six-month-or-longer timeframe for amended returns IRS.gov.

Tentative Adjustment

If approved, the IRS will issue a "tentative" refund. This means they're giving you the money now, but they reserve the right to examine your claim later. Think of it as an advance payment subject to verification.

No Legal Appeal Rights

Here's a critical difference from Form 1040X: if the IRS disallows your Form 1045 application (in whole or in part), you cannot challenge that decision in court. However, you can still file a regular refund claim (Form 1040X) before the statute of limitations expires.

Potential Audit

The IRS may contact you or your tax preparer for additional information. If they determine your refund was excessive due to property overvaluation, negligence, or substantial understatement of income, penalties and daily compounded interest may apply.

Preserved Rights

Even after filing Form 1045, you retain the right to file Form 1040X within the three-year statute of limitations. Some taxpayers use Form 1045 for speed, then file Form 1040X for a more thorough claim with legal appeal rights IRS.gov.

FAQs

1. Can I carry back an NOL even if I didn't have a business loss?

Not really. While an NOL can result from various sources, it must generally stem from deductions related to a trade or business, employment (W-2 wages), casualty/theft losses, moving expenses, or rental property. Pure investment losses or personal expenses won't create a carryback-eligible NOL IRS.gov.

2. What's the difference between Form 1045 and Form 1040X for claiming an NOL?

Form 1045 offers speed (90-day processing) but has a shorter filing deadline (one year after the NOL year) and provides no right to sue if disallowed. Form 1040X takes longer to process but gives you three years to file and full legal appeal rights if your claim is denied. Many tax professionals recommend Form 1045 for straightforward cases and Form 1040X for complex situations or when the Form 1045 deadline has passed.

3. My spouse and I filed jointly in 2016 but separately in the carryback years. How do we handle this?

Special rules apply when filing status changes. You must figure each spouse's separate share of the joint NOL and modified taxable income. Generally, only the spouse who actually had the loss can take the NOL deduction in separate return years. Publication 536 provides detailed worksheets for these calculations IRS.gov.

4. Can I skip carrying the NOL back to 2014 and just apply it to 2015?

No. The IRS requires you to apply NOLs in chronological order. You must first carry back to the earliest eligible year (2014 for most 2016 NOLs), then to the next year (2015), and so on. However, you can elect to waive the entire carryback period and only carry the NOL forward.

5. What if my NOL exceeds the income in all carryback years?

Any NOL not absorbed in the carryback years can be carried forward for up to 20 years. For a 2016 NOL, that means through 2036. Use Schedule B of Form 1045 to calculate your NOL carryover to each subsequent year IRS.gov.

6. Does carrying back an NOL trigger Alternative Minimum Tax (AMT)?

Possibly. The instructions warn that "an alternative minimum tax liability may be created" for a carryback year even if no AMT applied when you originally filed that return. You must refigure AMT for each carryback year using Form 6251 IRS.gov.

7. Can partnerships or S corporations file Form 1045?

No. Form 1045 is only for individuals, estates, and trusts. However, partners and S corporation shareholders can use their distributive share of the partnership's or S corporation's income and deductions to calculate their personal NOL IRS.gov.

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