What Form 1139 (2017) Is For
IRS Form 1139 (2017) allows corporations to apply for a quick refund from the Internal Revenue Service when taxable income decreases due to a financial loss or adjustment. It provides a faster alternative to filing an amended tax return, helping corporations recover overpaid taxes within 90 days. This form is used to carry back net operating losses, capital losses, or unused business credits to prior tax years, allowing corporations to offset capital gains and lower their overall tax liability.
Corporations use this form when capital losses exceed capital gains or when they need to carry forward an unused loss to future years. It encompasses capital assets, including investments, mutual funds, or bonds, held for business or investment purposes. Taxpayers must calculate capital gain or loss using Schedule D and the capital loss carryover worksheet to ensure accuracy. The form helps apply deductible capital losses correctly and secure tax benefits allowed under the 2017 tax law.
When You’d Use Form 1139
Corporations use Form 1139 when they need to recover taxes paid in prior years due to a financial loss or adjustment that reduces taxable income. This form is used when claiming a tentative refund within 12 months after the end of the tax year in which the loss occurred. For example, a corporation with a 2017 net operating loss may carry that loss back to offset prior taxable income and receive a faster refund. The Internal Revenue Service requires the original tax return for the preceding year to be filed before submitting Form 1139. If the filing deadline is missed, the corporation must file Form 1120X instead to initiate a standard refund process.
Key Rules or Details for 2017
The 2017 tax year followed pre–Tax Cuts and Jobs Act rules, allowing corporations to carry back net operating losses for two years and carry them forward for up to twenty years. Capital losses could be taken back three years and carried forward five years, but only to offset capital gains. If capital losses exceeded capital gains, the unused portion could be applied to subsequent years. For this tax year, the entire amount of taxable income could be offset without the 80 percent limitation imposed by a later law. Corporations with Section 965 inclusions could not use Form 1139 and had to file Form 1120X instead.
Step-by-Step (High Level)
Step 1: Verify Eligibility.
Ensure the corporation is not an S corporation, the 2017 return has been filed, and the claim does not involve a Section 965 inclusion year.
Step 2: Gather Required Documents.
Include a copy of the 2017 Form 1120, supporting schedules such as Schedule D for capital transactions, and any worksheets used to calculate net capital gains and losses.
Step 3: Complete the Form Header.
Provide the corporation’s name, address, employer identification number, and tax year of the loss or credit.
Step 4: Identify the Carryback Type.
Use Line 1a for net operating loss carrybacks, Line 1b for net capital loss carrybacks, Line 1c for unused general business credits, and Line 1d for claim of proper adjustments.
Step 5: Recalculate Prior Year Taxes.
For each affected year, calculate taxable income before and after the carryback to determine the amount of overpayment. Use the capital loss carryover worksheet or a spreadsheet to confirm that capital gains and losses offset correctly.
Step 6: Indicate Refund Method.
Choose whether to apply the refund to future estimated taxes or request a direct payment. Refunds exceeding one million dollars per carryback year require Form 8302 for electronic deposit.
Step 7: File with the Correct IRS Service Center.
Mail the completed form separately from the tax return to the appropriate Internal Revenue Service address. The 90-day processing period begins when the IRS receives a complete and eligible filing.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
Corporations often make errors when filing Form 1139 that can delay or disqualify refund claims. Understanding these common issues and addressing them early ensures faster and smoother IRS processing.
- Filing Form 1139 before Form 1120: The IRS rejects applications submitted before the original return is filed, so corporations must complete or have filed Form 1120 first.
- Missing the 12-month filing window: Many taxpayers mistakenly assume they have three years to file their taxes. Mark the 12-month deadline after year-end to protect refund eligibility.
- Submitting for Section 965 inclusion years: Forms covering tax years affected by Section 965 are invalid; review 2017 and carryback-year returns before filing.
- Omitting attachments or schedules: Missing copies of prior-year returns or supporting schedules cause processing delays. Include complete documentation with each submission.
- Math or transposition errors: Mistakes in carryback computations delay approval. Verify and double-check all figures before filing.
- Improperly claiming released foreign tax credits: Released credits cannot be claimed on Form 1139 and must instead be reported using Form 1120X.
Thorough review, accurate calculations, and complete documentation help corporations avoid delays, disallowances, and unnecessary IRS correspondence.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service reviews the corporation’s Form 1139 application within 90 days of receiving a complete filing. During this time, the IRS verifies the accuracy of taxable income, losses, and credits. Approved claims result in either a refund check or a credit toward future estimated taxes, while disallowed claims can later be pursued through an amended tax return.
FAQs
What is IRS Form 1139 (2017) used for?
IRS Form 1139 (2017) allows corporations to apply for a tentative refund when losses or credits reduce previously reported taxable income. It helps recover overpaid taxes faster than filing an amended tax return with the Internal Revenue Service.
How does Form 1139 relate to capital gains and losses?
Corporations can use Form 1139 to offset capital gains with capital losses from the same or previous tax years. When capital losses exceed capital gains, the unused loss may be carried forward to reduce future taxable income.
What happens if capital losses exceed the allowable limit?
When capital losses exceed the total capital gains, the excess becomes a net capital loss. This unused amount can be carried forward to subsequent years under special rules, often providing ongoing tax benefits to the corporation.
How do capital loss carryovers work under the 2017 tax year rules?
Under the 2017 tax law, corporations could carry back capital losses up to three years or carry forward unused losses up to five years. Each capital loss carryover must be reported correctly on the capital loss carryover worksheet.
Are deductible capital losses different for personal or investment purposes?
Yes, deductible capital losses apply only to assets held for business or investment purposes. Personal use property, including household furnishings or a primary residence, generally does not qualify as a capital asset for capital loss deductions.
How can a corporation calculate capital gain or loss correctly?
To calculate capital gain or loss, the filer subtracts the asset's cost basis from its selling price. The resulting amount is classified as either ordinary income, short-term gain, or long-term gain, depending on the holding period.
