What Form 1045 Is For

Form 1045 is the IRS document individuals, estates, and trusts use to request a fast-track refund when specific tax situations allow them to reclaim taxes paid in previous years. Think of it as an express lane for getting money back from Uncle Sam when certain losses or unused credits can be applied to earlier tax years.

The form primarily handles four scenarios. First, it processes the carryback of a Net Operating Loss (NOL)—essentially when your business or investment deductions exceed your income for the year, creating a loss that can offset taxes paid in profitable years. Second, it handles unused general business credits that couldn't be used in the current year but can reduce taxes from prior years. Third, it applies net section 1256 contracts losses (typically from regulated futures or options contracts). Finally, it processes overpayments resulting from a "claim of right adjustment" under tax code section 1341(b)(1), a technical provision addressing situations where you had to repay income previously reported.

The key advantage of Form 1045 over the standard amended return (Form 1040-X) is speed. The IRS commits to processing Form 1045 applications within 90 days, while standard amended returns can take six months or longer. For businesses or individuals facing cash flow challenges, this accelerated timeline can make a significant difference. IRS.gov

When You’d Use Form 1045

You must file Form 1045 within one year after the end of the tax year in which your NOL, unused credit, or other qualifying situation arose. For a 2020 loss, this generally meant filing by December 31, 2021. If you experienced a federally declared disaster, additional time may be available through special IRS extensions.

An important requirement: you must file your 2020 income tax return no later than the date you file Form 1045. This means you can't use this form to claim a quick refund before filing your actual tax return. The two filings work in tandem, with Form 1045 mailed separately to the IRS service center for your location—never bundled with your regular return.

If you miss the one-year window for Form 1045, you're not out of options. You can instead file Form 1040-X (Amended U.S. Individual Income Tax Return) within three years of your original return's due date. While this route sacrifices the 90-day processing guarantee, it preserves your right to file suit in court if the IRS disallows your claim—a right you don't have with Form 1045. This trade-off between speed and legal recourse is something to discuss with your tax professional.

Additionally, if you originally filed a timely return without the proper statement to waive the NOL carryback period, you have a grace period. You can file an amended return within six months of the original due date with the required statement and the phrase "Filed pursuant to section 301.9100-2" at the top. However, once you make this choice, it's generally irrevocable. IRS.gov

The Alternative: Form 1040-X

If you miss the one-year deadline for Form 1045, you haven't lost your chance at a refund—you'll just need to use the slower route. File Form 1040-X (Amended U.S. Individual Income Tax Return) instead. With Form 1040-X, you have up to three years from the original return's due date to claim your refund. While this route sacrifices the 90-day processing guarantee, it preserves your right to file suit in court if the IRS disallows your claim—a right you don't have with Form 1045.

Late Filing Considerations

Once you've decided to file Form 1045, timing remains important. The IRS will begin its 90-day processing clock on the later of: (1) the date you file your complete application, or (2) the last day of the month that includes your 2020 return's due date (including extensions).

Key Rules or Details for 2020

The 2020 tax year was unique due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which fundamentally changed how NOLs work. Understanding these special rules is crucial for anyone filing Form 1045 for a 2020 loss.

The 5-Year Carryback: Normally, NOLs could only be carried back two years (or not at all for certain post-2017 losses). The CARES Act changed this dramatically for 2018, 2019, and 2020 NOLs, allowing a five-year carryback period. This means your 2020 loss can offset income all the way back to 2015, potentially generating substantial refunds from years when you paid significant taxes.

No 80% Limitation: Pre-CARES Act rules limited NOL deductions to 80% of taxable income in the carryback year. The CARES Act eliminated this cap for 2018-2020 NOLs, meaning you can use your entire loss to offset income in earlier years without restriction.

Excess Business Loss Repeal: The CARES Act temporarily repealed the limitation on excess business losses for noncorporate taxpayers for tax years 2018, 2019, and 2020. If you filed 2018 or 2019 returns with this limitation, you could file amended returns to claim additional refunds.

Section 965 Elections: If you carried back your 2020 NOL to a year when you had section 965(a) inclusions (related to the one-time transition tax on certain foreign earnings), special rules apply. You're deemed to have made an election under section 965(n), with specific implications for installment payment agreements. The IRS also permits an election to exclude section 965 years from your carryback period entirely—useful if carrying back to those years creates complications.

Alternative Minimum Tax Considerations: Carrying back an NOL can trigger or increase Alternative Minimum Tax (AMT) liability in the carryback year, even if you had no AMT when you originally filed. This must be calculated as part of your Form 1045 application. IRS.gov

Step-by-Step (High Level)

Step 1: Calculate Your NOL

Use Schedule A of Form 1045 to determine your precise NOL amount. This involves taking your adjusted gross income, adding back certain items (like capital losses and nonbusiness deductions), and subtracting nonbusiness income. The calculation can be complex, requiring you to separate "business" from "nonbusiness" income and deductions.

Step 2: Identify Carryback Years

Determine which prior years you'll apply the loss to, starting with the earliest year (typically the fifth year back for a 2020 loss, which would be 2015). The loss gets applied sequentially—any amount not absorbed in 2015 moves to 2016, then 2017, and so on.

Step 3: Gather Documentation

Assemble copies of pages 1 and 2 of your 2020 Form 1040 or 1040-SR, plus all applicable schedules (Schedules 1-3, A, D, F, and J). Include any extension applications, Schedules K-1 from pass-through entities, Form 6251 for AMT calculations, and all forms relating to credits or losses being carried back (like Schedule C for business losses or Form 3800 for general business credits).

Step 4: Complete the Computation

On Form 1045's main page, you'll create "before" and "after" columns for each carryback year. The "before" column shows your original tax situation; the "after" column shows the revised situation with the carryback applied. You'll need to recalculate various items including adjusted gross income, itemized deductions, taxable income, and tax liability. Items dependent on your AGI (like medical expenses or certain credits) must be refigured using your new, lower AGI.

Step 5: Calculate the Refund

Determine the decrease in tax for each carryback year by comparing your original tax liability to your recalculated liability after applying the loss. The total decrease across all carryback years equals your tentative refund.

Step 6: File Form 1045

Mail the completed form with all attachments to the IRS service center indicated in your 2020 tax return instructions. File it separately from your actual 2020 return. Both you and your spouse (if filing jointly) must sign the form.

Common Mistakes and How to Avoid Them

Material Omissions or Math Errors

The most common reason for disallowance is incomplete applications or calculation mistakes that aren't corrected within the 90-day processing window. Double-check all arithmetic and verify you've completed every applicable line. Consider having a tax professional review your work before submitting.

Missing Required Attachments

Failing to include necessary documentation ranks as the second most frequent error. Create a checklist from the instruction booklet's "What to Attach" section. Missing even one Schedule K-1 or required statement can delay processing or lead to disallowance.

Mailing Form 1045 with Your Tax Return

The instructions explicitly state to mail Form 1045 separately, but many taxpayers overlook this. If you bundle them together, processing delays are likely as the documents route to different IRS departments.

Using Form 1045 for Ineligible Items

You cannot use Form 1045 to carry back foreign tax credits or general business credits released by an NOL carryback—those require Form 1040-X. Similarly, if you're carrying back items other than NOLs to a section 965 year, you must use the amended return route instead.

Incorrect Business vs. Nonbusiness Categorization

Misclassifying income or deductions as "business" when they're actually "nonbusiness" (or vice versa) throws off your NOL calculation. Salaries, self-employment income, rental income, and your share of partnership/S corporation business income are business items. Investment interest, dividends, and most itemized deductions are nonbusiness items. Review Publication 536 for detailed guidance.

Not Refiguring AGI-Dependent Items

When your NOL reduces your AGI in carryback years, certain deductions and credits that were based on the original AGI must be recalculated. Medical expenses, IRA deductions, student loan interest, and the qualified business income deduction (for 2018-2020 carryback years) all require refiguring. Forgetting this step understates your refund and may trigger IRS correspondence.

Assuming Payment Equals Acceptance

The IRS might process your Form 1045 and send the refund within 90 days, but this doesn't mean they've accepted your application as finally correct. The agency can later review your claim and assess additional taxes, interest, and penalties if they discover overstatements, negligence, or substantial understatements. Keep detailed records supporting your calculations for at least three years after filing. IRS.gov

What Happens After You File

The 90-Day Clock

Once the IRS receives your complete application, they have 90 days to process it—or 90 days from the last day of the month that includes your tax return's due date (including extensions), whichever is later.

Tentative Refund Payment

If approved, the IRS will issue your refund during the 90-day window. However—and this is critical—receiving the money doesn't mean your application has been fully accepted. The "tentative" label is literal. The IRS can subsequently audit your claim and demand repayment if they find errors, plus interest compounded daily and potential penalties for substantial mistakes.

Disallowance Procedures

If your application contains material omissions or uncorrected math errors, the IRS may disallow it in whole or in part. Unlike with Form 1040-X, you cannot file suit challenging the disallowance. Your recourse is to file Form 1040-X (regular amended return) before the statute of limitations expires—generally within three years of your original return's due date.

Excessive Allowances

If the IRS later determines they paid you too much, they'll bill you as if the overpayment were a math or clerical error on your original return. This means potentially rapid collection action without the usual appeals process, so accuracy is paramount.

IRS Contact

During processing, the IRS may contact you or your authorized representative for clarification or additional information. To designate someone to handle these communications on your behalf (like an accountant or tax attorney), attach Form 2848 (Power of Attorney and Declaration of Representative) to your Form 1045.

Switching to Form 1040-X

If you prefer more legal protections, you can always file Form 1040-X instead of or after Form 1045. While Form 1040-X takes longer to process (typically six months minimum), it gives you the right to file suit in court if the IRS doesn't act within six months or if they disallow your claim and you disagree. You must file any lawsuit within two years of disallowance. IRS.gov

FAQs

Q: Can I file Form 1045 electronically?

A: No. Form 1045 must be filed on paper and mailed to the IRS service center that handles returns for your location. Electronic filing is not currently available for this form.

Q: What's the difference between Form 1045 and Form 1040-X for carrying back losses?

A: Form 1045 offers faster processing (90 days vs. six months or more) but doesn't give you the right to sue if your claim is disallowed. Form 1040-X takes longer but preserves your judicial appeal rights. Form 1045 is best when you need cash quickly and are confident in your calculations. Form 1040-X is preferable when your claim is complex or potentially controversial.

Q: Do I need to file Form 1045 if I have a 2020 NOL but don't want to carry it back?

A: No. You can elect to waive the carryback period and carry your NOL forward indefinitely. To make this election, attach a statement to your original 2020 return (or to an amended return filed within six months of the due date) stating you're waiving the carryback period under section 172(b)(3). Once made, this election is generally irrevocable.

Q: Can I use Form 1045 if I'm carrying back a loss to a year where I filed jointly with a different spouse?

A: Yes, but special rules apply when filing status changes between the loss year and carryback years, or when different spouses are involved. You'll need to attach detailed allocation schedules. See IRS Publication 536 for guidance on these complex situations.

Q: What happens if I make a mistake on Form 1045 and the IRS has already paid the refund?

A: The IRS can assess additional tax on amounts they determine were excessive, plus interest and potential penalties. You'll receive a bill, and if you disagree with the assessment, you can request an appeal. This is why thorough review before filing is crucial.

Q: My 2020 loss is very large. Can I skip some carryback years and apply it to years where I had higher income?

A: No. You must apply the NOL to carryback years in order, starting with the earliest year (5th year back) and working forward. You cannot skip years to cherry-pick the most advantageous ones. However, you can elect to exclude section 965 years from the carryback period, effectively skipping those years.

Q: I received Notice 2020-26 extending the Form 1045 filing deadline. Does this still apply to 2020 losses?

A: Notice 2020-26 granted a six-month extension for filing Form 1045 with respect to carrybacks of 2018, 2019, and 2020 NOLs. If you qualified for this relief, you had additional time beyond the normal one-year deadline. However, always verify current guidance at IRS.gov/Form1045, as rules can change.

This guide provides general information based on IRS publications and instructions current as of the 2020 tax year. Tax law is complex and subject to change. For your specific situation, consult a qualified tax professional or visit IRS.gov/Form1045 for the latest official guidance.