What IRS Form 1139 (2021) Is For
IRS Form 1139 is the corporation application used to request a quick tax refund when losses or unused credits from a current tax year can reduce prior-year income tax. Corporations use this tax form to apply for a tentative refund by carrying back a net operating loss, a net capital loss, or an unused general business credit to earlier tax years. The Internal Revenue Service (IRS) processes these claims more quickly than standard amended returns, enabling corporations to recover overpayments within 90 days when filing is completed properly.
When You’d Use IRS Form 1139 (2021)
A corporation files IRS Form 1139 when it experiences a loss in a year and wants to offset income from prior years to recover a tax decrease. This form applies to corporations that have filed their corporation’s income tax return and qualify for a tentative refund based on an adjustment or unused credit. The form must be filed within 12 months after the end of the taxable year in which the losses occurred. S corporations cannot use this process, but C corporations, including life insurance companies, may file for eligible claims.
Key Rules or Details for 2021
- No general NOL carryback: For tax years beginning after December 31, 2020, most corporations can no longer carry back a net operating loss (NOL) to an earlier tax year. Losses must be carried forward instead.
- Special rules apply to certain industries: Farming losses and those incurred by insurance companies other than life insurance companies can still be carried back for two years.
- NOL deduction limitation: The NOL deduction cannot exceed 80 percent of taxable income, excluding NOL deductions from prior years.
- Capital loss carryback: A net capital loss may be carried back for up to three years, applied as a short-term capital loss for each carryback year.
- General Business Credit Carryback: An unused general business credit may be carried back one year or carried forward if not used.
- Claim of right adjustment: If an adjustment arose from repaying previously reported income, it may qualify for a refund under IRS Section 1341(b)(1).
- Consolidated group returns: If a consolidated group filed the corporate return, special rules determine how NOLs and credits are applied across the group’s members.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine Eligibility
Confirm that your corporation incurred a net operating loss, net capital loss, or unused general business credit. Verify that your tax year qualifies under the NOL carryback rules before filing.
Step 2: File the Corporate Return
Ensure your corporation’s income tax return for the loss year is filed before or on the same date as Form 1139. The IRS will not process your tentative refund without it.
Step 3: Gather Required Information
Prepare all schedules, election statements, and supporting tax forms as needed. Include details about the loss year, the prior year affected, and all adjustments or deductions that resulted in the tax decrease.
Step 4: Complete IRS Form 1139
Provide the corporation’s identification, taxable year, and reason for filing. Calculate the total income adjustment, tax decrease, and refund due. Attach additional information as required by the IRS.
Step 5: Submit to the IRS Service Center
Mail the completed form to the same Internal Revenue Service Center where your corporation files its regular income tax return. The filing date must be within 12 months after the end of the loss year.
Step 6: Await Processing and Refund
The IRS processes Form 1139 within 90 days of the date it is filed. If approved, you will receive a quick refund. Large overpayments can be issued by electronic deposit when Form 8302 is attached.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Filing Form 1139 before the tax return: Always submit the corporate return for the loss year first, as the IRS cannot process your tentative refund without it.
- Missing the 12-month deadline: Keep a clear record of your taxable year and file before the last day of the 12 months to avoid disqualification.
- Using nonqualifying losses: Confirm that the loss meets NOL carryback rules. For 2021, only farming losses or certain insurance company losses qualify.
- Submitting incomplete schedules: Verify that all schedules, calculations, and forms showing how the tax decrease was calculated are included to prevent rejection.
- Mathematical errors: Review all calculations carefully, as the IRS may disallow the claim if the required information is incomplete or incorrect.
- Confusing S corporation eligibility: Remember that an S corporation cannot file Form 1139; it must use alternative procedures for refunds.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once your corporation files IRS Form 1139, the IRS will review your application, verify the deductions, and check for any overpayment of tax. During the 90-day review period, the IRS may request additional information to confirm eligibility. If the claim is approved, the refund is treated as a tentative refund, meaning the IRS can later adjust it if errors or penalties are found. Refunds of $1 million or more may be issued by electronic deposit upon proper request. Keep a complete record of the filing date, loss year documentation, and all attachments for future reference.
FAQs
What is IRS Form 1139 (2021) used for when claiming a tentative refund?
Corporations use it to request a quick tax refund based on a net operating loss, net capital loss, or unused general business credit that can be carried back to earlier years.
How do net operating loss rules apply to the 2021 tax year?
For tax years beginning after December 31, 2020, NOL carrybacks are generally no longer allowed, except for farming losses and those of non-life insurance companies.
How does an S corporation file Form 1139 for an overpayment of tax?
An S corporation cannot file Form 1139. Only C corporations are eligible to use this form for tentative refunds or quick tax refunds.
What counts as a claim of right adjustment under IRS Form 1139?
A claim of right adjustment occurs when a corporation repays previously reported income and seeks a refund based on Section 1341(b)(1) of the Internal Revenue Code.
What are the NOL carryback rules for a corporation filing Form 1139?
Carrybacks apply only to eligible farming or insurance losses for 2021. Other corporations may only carry forward losses to offset future taxable income.
How should farming losses be reported when you file Form 1139?
Farming losses can be carried back for up to two years. The corporation must calculate its farming income and deductions separately before claiming the refund.
Can a corporation claim a capital loss on Form 1139?
Yes, a net capital loss may be carried back three years to reduce prior-year taxes, subject to limitations defined by the IRS for that taxable year.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Business Income Tax Forms.
