What Form 1139 Is For

Form 1139 is a special IRS form that allows corporations (but not S corporations) to get a quick refund of taxes they've already paid. Think of it as a "fast-track" refund application. While a normal tax refund might take many months or even years to process, Form 1139 promises a response from the IRS within just 90 days.

The form is specifically designed for four situations: when a corporation has a net operating loss (NOL)—meaning the company lost money and wants to carry that loss back to profitable years to get taxes refunded; when there's a net capital loss from investments; when the company has unused general business credits; or when there's an overpayment due to a "claim of right" adjustment under special tax rules.

By far the most common use is for net operating losses. If your corporation had a bad year in 2010 and lost money, you can use Form 1139 to apply those losses to previous profitable years (typically going back 2 to 5 years, depending on the circumstances), recalculate what you would have owed in those earlier years, and get a refund for the difference. IRS.gov

When You’d Use Form 1139 (Late/Amended Filings)

You must file Form 1139 within 12 months of the end of the tax year in which the loss or credit arose. This is a strict deadline. For a calendar-year corporation with a 2010 loss, you'd need to file by December 31, 2011. One crucial requirement: you must file your actual corporate income tax return (Form 1120) for the loss year no later than the date you file Form 1139—the IRS won't process your quick refund application if your regular return isn't already on file.

If you initially filed your 2010 tax return without claiming the carryback, or if you elected to waive the carryback period and later changed your mind, you may have options. Under special 2010 rules enacted by the Worker, Homeownership, and Business Assistance Act (WHBAA), corporations could revoke a previous election to waive the carryback period, but only if they were making a new election to use the extended 3-, 4-, or 5-year carryback period. The deadline for making these special elections was generally the due date (including extensions) for filing the 2009 tax return, which for most calendar-year corporations was September 15, 2010.

If you miss the Form 1139 deadline or need to carry back certain types of credits that Form 1139 doesn't handle, you can instead file Form 1120X (Amended Corporate Tax Return). The trade-off is that Form 1120X doesn't guarantee the 90-day processing time, but it gives you up to three years from when your original return was due to file the claim. Additionally, if the IRS denies your Form 1120X claim, you have the right to sue in court—a right you don't have if Form 1139 is denied. IRS Instructions for Form 1139

Key Rules or Details for 2010

Extended Carryback Periods

Normally, a net operating loss can only be carried back 2 years. However, for losses arising in tax years ending after December 31, 2007, and beginning before January 1, 2010, Congress enacted the WHBAA, which allowed corporations to elect to carry back losses for 3, 4, or 5 years instead of just 2. This meant a 2010 calendar-year corporation with an NOL could potentially reach back to 2005 (a 5-year carryback) to get refunds from that profitable year.

The 50% Limitation

If you elected the 5-year carryback, there was an important catch. The amount of your NOL that could be applied to the fifth year back was limited to 50% of your taxable income in that year. Any excess would then carry forward to the next year (the fourth year back). This limitation was designed to prevent companies from completely wiping out a single year's income.

Alternative Minimum Tax (AMT) Relief

Under normal circumstances, NOL deductions are limited to 90% of alternative minimum taxable income. However, if you made the special extended carryback election under the WHBAA, this 90% limitation didn't apply. This was a significant benefit for corporations subject to AMT.

One-Time Election

The extended carryback election (3, 4, or 5 years) could generally only be made for one tax year. You had to choose strategically which year's loss would benefit most from the extended carryback. The election deadline was the due date for your last tax return beginning in 2009 (typically September 15, 2010, for calendar-year corporations). IRS Notice 2010-58

Step-by-Step (High Level)

Step 1 – Determine Your Loss

Calculate your net operating loss for 2010 by preparing your Form 1120. Your NOL is generally your deductions minus your income, with certain adjustments (for example, you can't include NOL carryovers from other years in this calculation).

Step 2 – Choose Your Carryback Period

Decide whether to use the standard 2-year carryback or elect the extended 3-, 4-, or 5-year carryback under the WHBAA. Consider where you had the most taxable income in prior years and whether the 50% limitation on the fifth year back would significantly impact your refund.

Step 3 – Make Your Election

If you're choosing the extended carryback, you must make an explicit election. Write "2010 NOL Carryback Election Pursuant to Rev. Proc. 2009-19" (or similar language) across the top of Form 1139 and attach a statement indicating your election for a 3-, 4-, or 5-year carryback.

Step 4 – Complete Form 1139

The form requires you to recalculate your tax for each carryback year, showing the "before" and "after" amounts. You'll list your original taxable income, then show how the NOL carryback reduces it, resulting in lower tax and ultimately a refund.

Step 5 – Gather Attachments

Attach copies of the first two pages of your 2010 Form 1120, any schedules that generated the loss (like Schedule D for capital losses), and recomputed pages for each carryback year showing your adjusted tax calculations.

Step 6 – File and Wait

Mail Form 1139 to the IRS Service Center where you normally file your corporate returns. Important: Do not attach Form 1139 to your regular tax return—it must be filed separately. The IRS has 90 days from the later of when you file the complete application or the due date of your 2010 return to process it.

Common Mistakes and How to Avoid Them

Mistake #1: Filing Form 1139 Before Filing the Tax Return for the Loss Year

The IRS explicitly requires that your Form 1120 for 2010 be filed no later than the date you file Form 1139. Many taxpayers rush to file Form 1139 first, hoping to get the refund sooner, but this will cause the IRS to reject or delay the application. Solution: Always file Form 1120 first, or file both on the same day.

Mistake #2: Missing the 12-Month Deadline

Form 1139 must be filed within 12 months of the end of the loss year. For a calendar-year 2010 loss, that's December 31, 2011. After that, your only option is Form 1120X. Solution: Calendar the deadline prominently and build in a cushion of several months.

Mistake #3: Incorrect NOL Calculation

Many corporations forget to make required adjustments when calculating their NOL, such as adding back dividends-received deductions, domestic production activities deductions, or NOL carryovers from other years. Solution: Carefully review the NOL computation rules in the instructions or consult a tax professional.

Mistake #4: Forgetting the 50% Limitation

When electing a 5-year carryback, taxpayers sometimes apply the full NOL to the fifth year back, forgetting that only 50% of that year's taxable income can be offset. Solution: Calculate the limitation carefully and carry the excess forward to the fourth year back.

Mistake #5: Incomplete Documentation

The IRS frequently delays processing when corporations don't attach all required forms and schedules. Solution: Use the checklist in the instructions: attach the first two pages of Form 1120, all relevant schedules, refigured computations for carryback years, and Form 8302 if requesting electronic deposit of a refund over $1 million.

Mistake #6: Treating Form 1139 as a Final Determination

Some taxpayers think that receiving a refund from Form 1139 means the IRS has fully accepted their position. Not true. Form 1139 is a "tentative" refund. The IRS can audit the return later and assess additional tax if they disagree with your calculations. Solution: Maintain thorough documentation and be prepared to defend your positions.

What Happens After You File

Once you submit Form 1139, the IRS will review your application and, in most cases, issue a refund within 90 days. The 90-day clock starts from the later of (1) the date you filed a complete application, or (2) the last day of the month that includes the due date for your 2010 corporate return.

If your application is approved, the IRS will send you a refund check or direct deposit. However, this payment does not mean the IRS agrees with your calculations or that the matter is closed. The IRS explicitly states that receiving a tentative refund doesn't mean they've accepted the application as correct. They can still audit your return later and, if they find errors or improper valuations, they can assess penalties and interest on any amounts that were erroneously refunded.

If the IRS determines your application is incomplete or contains math errors, they'll contact you or your authorized representative for more information. They may also disallow the application entirely if there are material omissions or errors that aren't corrected promptly. One significant limitation: if Form 1139 is denied, you cannot sue the IRS in court. Your only remedy is to file Form 1120X (amended return) instead, which preserves your right to judicial review if the claim is denied.

For corporations that filed Form 1138 (Extension of Time for Payment of Taxes by a Corporation Expecting an NOL Carryback), filing Form 1139 can extend your payment extension further, giving you more time to pay other tax liabilities. IRS Instructions

FAQs

Q1: Can I file Form 1139 electronically?

A: No, as of 2010, Form 1139 must be filed on paper. It should be mailed to the IRS Service Center where your corporation normally files its returns. Do not attach it to your regular Form 1120.

Q2: What if I already elected to waive my NOL carryback period—can I change my mind?

A: Possibly, but only under limited circumstances. For 2010, you could revoke a waiver election made for a loss year ending before November 6, 2009, but only if you were making a new election to use the extended 3-, 4-, or 5-year carryback under the WHBAA. The deadline was generally September 15, 2010, for calendar-year corporations. Once that deadline passed, waiver elections typically became irrevocable.

Q3: If I'm carrying back a loss to multiple years, in what order do I apply it?

A: You must apply losses to the earliest year first. For example, if you elect a 5-year carryback of your 2010 loss, you first apply it to 2005, then any remaining loss to 2006, then 2007, and so on. This is mandatory under the tax code—you can't skip around and cherry-pick the most favorable years.

Q4: What's the difference between Form 1139 and Form 1120X?

A: Form 1139 is an "application for tentative refund" that the IRS must process within 90 days, but it cannot be used for all types of carrybacks (for example, foreign tax credits released by an NOL). Form 1120X is a regular amended return with a 3-year filing deadline, no guaranteed processing time, but it preserves your right to sue if the IRS denies your claim. Many corporations file Form 1139 first for speed, then follow up with Form 1120X if needed.

Q5: Can I get interest on my refund from Form 1139?

A: Yes, the IRS generally pays interest on refunds from the date you overpaid the tax to the date the refund is issued, calculated at the federal overpayment rate. However, if the IRS later determines you weren't entitled to the refund, they'll charge interest back on the amount you have to repay.

Q6: What if my corporation dissolved in 2010—can I still file Form 1139?

A: Yes. Even if your corporation dissolved during 2010, you can still file Form 1139 to carry back the loss from the final short tax year. The deadlines are calculated as if the corporation remained in existence on a calendar year through the end of 2010, giving you until 12 months after the end of that deemed tax year to file.

Q7: Do special loss types (farming, disasters, etc.) get different treatment?

A: Yes. Farming losses typically get a 5-year carryback period automatically (without needing the special election). Losses from federally declared disasters, GO Zone losses from Hurricane Katrina, and certain other special losses had their own carryback rules in 2010. These special provisions could often be combined with the WHBAA extended carryback election, but required careful analysis to optimize the benefit.

Note: This guide provides general information based on IRS publications and is intended for educational purposes. Tax rules are complex and individual circumstances vary significantly. Corporations should consult with qualified tax professionals before filing Form 1139 to ensure compliance with all requirements and to optimize tax benefits. The 2010 WHBAA provisions discussed here were temporary and may not apply to losses in subsequent years.