21.5.9  Carrybacks

Manual Transmittal

September 06, 2013

Purpose

(1) This transmits revised IRM 21.5.9, Account Resolution, Carrybacks.

Material Changes

(1) Various changes were made throughout the IRM. Also, cross references and hyperlinks were added, removed, or revised, as appropriate.

IRM Changes
IRM 21.5.9.2 Added “to” in the last sentence of (1), corrected the fourth bullet in (2) from processible to received. Added (3) and (4) which include definitions for an application (TENT) and a Claim (RINT) and renumbered the remaining paragraphs.
IRM 21.5.9.3.2(1)(b) Added "application" in conjunction with "Claim" as appropriate in this section. IPU 13U0131 issued 01-15-2013
IRM 21.5.9.3.2(1)(c) Added a caution after the IF/THEN box to ensure that the loss year and all gain years for tentative carryback applications and carryback claims are included on the Centralized Authorization File (CAF). IPU 13U0750 issued 04-17-2013. Also added that carryback claims and applications will be processed within the 45-day interest-free period to the fullest extent possible.
IRM 21.5.9.4.1(1) Added (b) to verify the carryback has been applied to the earliest available gain year and renumbered the remaining paragraphs. Added to (e) to determine if the statute for credit or refund is open. (f) clarified when working a case on the Correspondence Imaging System (CIS)
IRM 21.5.9.4.2(2) Added a bullet to state to check to verify that the NOL is applied to the earliest available gain year.
IRM 21.5.9.4.3(1) Listed the dates to consider when determining what date to utilize when the TCB became processible and added to not update the IRS received date when the missing information is faxed.
IRM 21.5.9.4.3(5) Added a bullet stating that if CFOL reflects the earliest gain year was not utilized to reject the application/claim.
IRM 21.5.9.4.3(6) Added caution to clarify that any carryback correspondence received issued by either Fresno or Andover is to be retained at the receiving site. Fresno and Andover no longer process carryback cases. IPU 12U1772 issued 10-26-2012
IRM 21.5.9.1(6) Updated second bullet to reflect Business Master File International work was transitioned to Cincinnati and Ogden Accounts Management as of Feb. 2013. IPU 13U0368 issued 02-19-2013
IRM 21.5.9.5.3(1) Updated the second sentence to state “The following types have special carryback-carryforward rules.” Replaced “cases use.”
IRM 21.5.9.5.10 Updated section due to Rev. Rul. 72–447 which provides guidance for a general tax increase up to the amount of a carryback claim/application input on a tax period with an expired ASED.(Assessment Statute Expiration Date) IPU 13U0750 issued 04-17-2013
IRM 21.5.9.5.10(2) Updated the first box of the IF/THEN chart in (2) to state that since the statute is open on the gain year, interest is not limited to the carryback allowance. Interest is assessed and collected only on the assessed amount of the general tax increase pursuant to sections 6601(a) and (g).
IRM 21.5.9.5.11(1) Added in (1) that interest is not paid on the refund of a carryback claim/application if the 45-day interest-free period is met and that if the 45-day interest-free period is missed to follow the IF/AND/THEN table.
IRM 21.5.9.5.12 Updated section to include guidance for tax credit reversals. IPU 13U0750 issued 04-17-2013.
IRM 21.5.9.5.12(1) Added a caution to consider previously assessed failure to file and failure to pay penalties affected by the carryback adjustment to be taken into consideration when issuing a manual refund. IPU 13U0131 issued 01-15-2013
IRM 21.5.9.5.12(1) Added guidance for the change in the carryback manual refund threshold to $25,000 when the 45-day interest-free period has expired. IPU 13U0926 issued 05-14-2013
IRM 21.5.9.5.12(1) Added in the IF/AND/THEN box guidance when processing carryback manual refunds to contact the Campus Accounting Function when the manual refund is over $50 million and to send a secure email to the Carryback Headquarters Analyst when the manual refund is over $500 million. IPU 13U1146 issued 06-25-2013. Deleted “The $1 million threshold for manual refunds is used to ensure as little interest payout as possible on carryback refunds.”
IRM 21.5.9.5.12.1(1) Updated (1) to include the corporate rate on corporate overpayments for the tax period is equal to or less than $10,000.
IRM 21.5.9.5.14(2) Added in (2) third bullet that the 1202 exclusion is 50 percent or more of the gain from small business stock and added the title to the IRM references.
IRM 21.5.9.5.14.3(1) Changed Iowa County Kansas to Kiowa County Kansas.
IRM 21.5.9.5.14.6 Updated the example in (9) from a superseding return to an amended return. In (11) updated paragraph for clarification of an eligible small business entity that does not want to elect the extended carryback period can elect the normal two-year carryback period.
IRM 21.5.9.5.14.6.1(4) Added to (4) the dates to consider for the beginning of the 45-day interest-free period.
IRM 21.5.9.5.14.6.9(9) Updated section to include that manual refunds of $5,000 or more are issued when the 45-day interest-free period is in jeopardy and manual refunds of $25,000 or more are issued when the 45-day interest-free period has expired.
IRM 21.5.9.5.14.7.7(1) Updated the title and removed references to Philadelphia International due to transition of Business Master File International Carryback work to Ogden. IPU 13U0368 issued 02-19-2013
IRM 21.5.9.5.14.7(1) Exception Removed reference to Philadelphia International. IPU 13U0368 issued 02-19-2013
IRM 21.5.9.5.28(6) Updated to reflect that when calculating the Failure to Pay (FTP) penalty, a carryback applied to an earlier gain year is to be deemed a payment available on the due date of the loss year return.
IRM 21.5.9.5.30 Updated section and provided clarification for processing tentative carrybacks within the 90-day statutory timeframe. IPU 13U1146 dated 06-25-2013.
IRM 21.5.9.5.30(1) Updated section to provide guidance for the beginning of the 90-day statutory processing period.
IRM 21.5.9.5.32 Added additional guidance in (1) that the credit availability date for purposes of computing debit interest is included as the IMT-CMTDT. Added (2) that when the 45-day interest-free period is missed the INT-CMPDT is used by the computer when determining the start date of credit interest on the overpayment.
IRM 21.5.9.5.32(2) Added clarification in a reminder for overpayment (credit) availability date for Form 1040NR filers whose wages are not subject to U.S. withholding. IPU 12U1772 issued 10-26-2012
IRM 21.5.9.5.33(4) Updated cross reference to Other Manual Refund Requirements. IPU 13U0750 issued 04-17-2013
IRM 21.5.9.5.33(5) Revised section to include information for Business Master File Underreporter (BUR) cases and BUR Coordinators contact information. IPU 13U0131 issued 01-15-2013
IRM 21.5.9.5.36(1) Added to see (4) for additional information on processing Personal Service Corp (PSC) cases carrying back Net Capital Losses (NCL)or unused general business credits. IPU 12U1772 issued 10-26-2012
IRM 21.5.9.5.36(2) Added TC 055 as identifier of Personal Service Corp filers. IPU 13U1146 issued 06-25-2013.
IRM 21.5.9.5.36(4) Updated paragraph to specifically address instances where a PSC is filing a carryback of NCL or unused general business credits. IPU 12U1772 issued 10-26-2012
IRM 21.5.9.5.40 Added additional guidance in (1) that the credit availability date for purposes of computing debit interest is included as the IMT-CMTDT. Added (2) that when the 45-day interest-free period is missed the INT-CMPDT is used by the computer when determining the start date of credit interest on the overpayment.
IRM 21.5.9.5.40(2) Added clarification for overpayment (credit) availability date for Form 1040NR filers whose wages are not subject to U.S. withholding. IPU 12U1772 issued 10-26-2012
IRM 21.5.9.5.41(4) Revised section to include information for Business Master File Underreporter (BUR) cases and BUR Coordinators contact information. IPU 13U0131 issued 01-15-2013
IRM 21.5.9.5.44 (6) & (7) Updating routing information for FTC (Foreign Tax Credit) carryback claims. IMF (Individual Master File )claims are worked at Philadelphia and BMF (Business Master File) claims are worked at Ogden. IPU 13U0368 issued 02-19-2013
IRM 21.5.9.5.45(8) Added guidelines for verification of an application/claim filed reporting a Section 1256 contact(s) loss. IPU 13U0131 issued 01-15-2013

Effect on Other Documents



This material supersedes IRM 21.5.9, dated August 14, 2012 (effective 10-01-2012.) This IRM also incorporates the following IRM Procedural Updates (IPUs) - 12U1772 dated 10/25/2012, 13U0131 dated 1/14/2013, 13U0262 dated 01/31/2013, 13U0368 dated 02/15/2013, 13U0750 dated 04/16/2013,13U0926 dated 05/13/2013 and IPU 13U1146 issued 06/24/2013.

Audience

The primary users of this IRM are Wage and Investment (W&I), Small Business/Self Employed (SB/SE), Large Business and International (LB&I), Tax Exempt/Government Entities (TE/GE) Business Operating Divisions, and Taxpayer Advocate Service (TAS).

Effective Date

(10-01-2013)

Ivy S. McChesney
Director, Accounts Management
Wage and Investment Division

21.5.9.1  (10-01-2013)
Carryback Overview

  1. This section provides carryback procedures for all personnel authorized to process carrybacks, regardless of their location. This section is divided into four major categories:

    • General carryback rules and procedures

    • Tentative (TENT) carryback refunds

    • Restricted Interest (RINT) claims

    • Follow-up

  2. Taxpayers eligible for carrybacks are:

    • Individuals

    • Estates

    • Trusts

    • Corporations (including certain insurance companies)

    • Charitable and Exempt Organizations

  3. Carrybacks are filed on:

    • Form 1045, Application for Tentative Refund (Individuals, Estates, and Trusts)

    • Form 1139, Corporation Application for Tentative Refund

    • Form 1040X, Amended U.S. Individual Income Tax Return

    • Form 1120X, Amended U.S. Corporation Income Tax Return

    • Form 1041, U.S. Income Tax Return for Estates and Trusts

    • Form 1120–C, U.S. Income Tax Return for Cooperative Associations.

    • Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T carrybacks are processed at the Ogden Campus. See IRM 21.7.7.4.17, Exempt Organization Carrybacks Overview, for 990-T carryback processing.

    Note:

    Applications filed on Form 1045 and Form 1139 are referred to as TENTS. Form 1040X, Form 1120X, Form 1041, and other amended returns requesting carryback adjustments are referred to as RINTS.

    Caution:

    Joint Committee Cases (JCC) must be expedited to Examination due to interest consideration, if the combined refund amount is $2,000,000 or more. See IRM 21.5.9.5.33, Carryback Form 1045 and Form 1139 with Examination Criteria or an Open Underreporter (AUR or BUR) issue (TC 922 or TC 925), for TENTS. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General, for RINTS.

  4. Corporations expecting to have a Net Operating Loss (NOL) in the current year can file Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback, to receive an extension of time to pay taxes owed for the year immediately preceding the NOL tax year. See IRM 21.5.9.5.28, Form 1139, Extension of Time for Payment of Taxes by a corporation Expecting a Net Operating Loss (NOL) Carryback, for processing instructions.

  5. Carryback instructions are in the following publications:

    • Publication 514, Foreign Tax Credit for Individuals

    • Publication 536, Net Operating Losses (Individuals, Estates, and Trusts)

    • Publication 542, Corporations

    • Publication 547, Disasters, Casualties, and Thefts

    • Publication 550, Investment Income and Expenses

    • Publication 925, Passive Activity and At-Risk Rules

  6. In addition to IRM 21.5.9, carryback processing is also located in the following IRMs:

    • IRM 21.8.1, IMF International Adjustments. Original processing of Form 1040NR is centralized at the Austin Campus (AUSC). However, the Philadelphia Accounts Management Campus (PAMC) continues to process IMF (Individual Master File) International Accounts Management work.

    • IRM 21.8.2, BMF International Adjustments. Original processing of Form 1120-F and Form 1120-FSC is centralized at the Ogden Campus (OSC). As of February 2013, Business Master File International Accounts Management work was moved to Cincinnati Accounts Management (CAMC) and Ogden Accounts Management (OAMC) from the Philadelphia Accounts Management (PAMC)..

    • IRM 21.7.7, Exempt Organizations and Tax Exempt Bonds. Form 990-T is filed at the Ogden Accounts Management Campus (OAMC).

  7. See IRM 25.6, Statute of Limitations, for statute procedures.

  8. See IRM 20.2.9, Interest on Carryback of Net Operating Loss, for interest procedures.

21.5.9.2  (10-01-2013)
What is a Carryback?

  1. A taxpayer who has an overpayment of tax as a result of a Net Operating Loss (NOL), Net Capital Loss (NCL), Unused Credits, or a Claim-of-Right adjustment can file an application or claim, also referred to as a TENT or RINT, for adjustment or refund. The tax year in which the loss occurred is the loss year. The tax year the loss is applied to is the gain year.

  2. Generally, IRS must pay interest if the carryback overpayment is not refunded within 45 days of the later of:

    • The due date of the loss year return

    • The received date of the delinquent loss year return

    • The date the loss year return is filed in processible form

    • The application or claim received date

    • The application or claim processible date

      Note:

      See IRM 20.2.9.2, Determining the Overpayment Interest Period.

  3. A tentative refund (TENT) can be filed on Form 1045, Application for Tentative Refund or Form 1139, Corporation Application for Tentative Refund. A Form 1045 can be filed by individuals, estates or trusts to apply for a quick tax refund resulting from;

    • the carryback of a Net Operating Loss (NOL),

    • the carryback of unused general business credits,

    • the carryback of a net section 1256 contract loss or

    • for an overpayment of tax due to a claim of right adjustment under section 1341(b)(1)

    A Form 1139 can be filed by businesses other than S corporations to apply for a quick tax refund resulting from;

    • the carryback of a NOL or a loss from operations of a life insurance company,

    • the carryback of a Net Capital Loss (NCL),

    • the carryback of unused general business credits or

    • an overpayment of tax due to a claim of right adjustment under section 1341(b)(1)

    TENTS must be filed within one year from the end of the loss year and include all necessary documentation to support the requested carryback loss. TENTS are subject to a 90-day statutory processing timeframe which begins when a complete and processible application was filed or the last day of the month that includes the due date (including extensions) for filing the income tax return for the year in which the loss or credit arose. For additional information on the processing of a TENT, see guidance in IRM 21.5.9.5.30, Carryback Form 1045 and Form 1139 Processing and Filing Requirements. through IRM 21.5.9.5.34, Reassessing Carryback Form 1045 and Form 1139.

  4. A restricted interest claim (RINT) for a carryback due to a NOL, NCL, unused general business credits, section 1256 contract losses or claim of right is filed on an amended return such as:

    • Form 1040X, Amended U.S. Individual Income Tax Return,

    • Form 1120X ,Amended U.S. Corporation Income Tax Return,

    • amended Form 1041, U.S. Income Tax Return for Estates and Trusts,

    • amended Form 1120-C, U.S. Income Tax Return for Cooperative Associations, or

    • Form 990-T, Exempt Organization Business Income Tax Return

    A RINT is not subject to the 90-day processing timeframe and must generally be filed within 3 years (10 years for carryback of foreign tax credit or deduction) after the due date of the return (including extensions) for the tax year of the NOL, NCL, or unused credit. For additional information on processing RINTS, see IRM 21.5.9.5.37, Carryback Form 1040X, Form 1120X, Form 1041, Form 1120-C and Form 990-T (RINTS) through IRM 21.5.9.5.43, Reassessing Carryback Form 1040X, Form 1120X, Form 1041, Form 1120-C, and Form 990-T, for additional information.

  5. For more detailed procedures on carrybacks, see:

    • Net Operating Loss (NOL) - See IRM 21.5.9.5.14, Carryback Net Operating Loss (NOL)

    • Unused credits - See IRM 21.5.9.5.6., Carryback Unused Credits

    • Net Capital Loss (NCL) - See IRM 21.5.9.5.25, Net Capital Loss (NCL) - Individuals - Carryback/Carryforward Limitations, and IRM 21.5.9.5.26., Net Capital Loss (NCL) - Corporations - Carryback/Carryforward Limitations

    • Claim of Right - See IRM 21.5.9.5.27, Carryback "Claim of Right"

21.5.9.3  (10-01-2005)
Carryback Inquiries

  1. This subsection provides procedures for answering taxpayer carryback inquiries.

  2. Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the taxpayer authentication guidelines in IRM 21.1.3.2, General Disclosure Guidelines. Also, before leaving any messages on a taxpayer's answering machine, review IRM 11.3.2.6, Methods for Communication of Confidential Information. Fax procedures contained in IRM 11.3.1.11, Facsimile Transmission of Tax Information, must be reviewed prior to faxing confidential information to the taxpayer.

21.5.9.3.1  (10-01-2005)
How to Claim a Carryback

  1. If the taxpayer asks how to file a carryback or needs additional information about carrybacks:

    1. Advise taxpayer to contact the tax help line. For individuals, contact 1-800-829-1040. For businesses, contact 1-800-829-4933.

    2. The toll-free area will forward the appropriate form(s) and publication(s) to the taxpayer, if requested.

21.5.9.3.2  (10-01-2013)
Status of a Carryback Application/Claim

  1. If the taxpayer asks about the status of a tentative carryback application or carryback claim:

    1. Ask for the date the application/claim was filed.

    2. Research the Integrated Data Retrieval System (IDRS) and the Correspondence Imaging System (CIS) for receipt of application/claim. Carryback cases are screened as priority work in Submission Processing and in the Accounts Management Image Control Teams (ICT), so the application/claim may be in CIS inventory within a few days of receipt. Advise the taxpayer that while IRS has 90 days to process a tentative carryback application (Form 1045 or Form 1139), every effort will be made to process the application and issue any refunds due within 45 days, faster if possible.

      Note:

      All IMF (Individual Master File) carrybacks and related correspondence are scanned into CIS and initially directed to the Brookhaven campus, which serves as a central distribution point in CIS for carryback processing. If a carryback case is showing in CIS inventory at Brookhaven the case will be systemically reassigned to one of the three IMF AM campuses that work carrybacks. Do not make any carryback referrals to Brookhaven as that campus does not actually work carryback cases.

      Reminder:

      Forms 4442 prepared as a response to a closed carryback case should be routed to the service center that last worked the case. Review CIS and IDRS to determine the appropriate routing.

    3. Carryback claims (Form 1040X, Form 1120X, Form 1041, Form 1120-C, or Form 990-T) are not subject to the 90-day processing timeframe. However, carryback claims are priority work, and will be processed within the same 45-day timeframe, to the fullest extent possible.

      Note:

      Due to the economic downturn in 2008 and 2009 and the resulting provisions in the American Recovery and Reinvestment Act of 2009 and the Worker, Homeownership, and Business Assistance Act of 2009 that allow an extended carryback period, the Service must make every effort to process carryback claims, TENTS in particular, as quickly as possible. Taxpayers may need these refunds to make payroll, pay the rent, or generally to stay in business.

    If Then
    Case has an open control base on IDRS/CIS Advise taxpayer the application/claim is being processed, and that every effort will be made to issue any refunds due within 45 days from the application/claim received date.
    No control base exists on IDRS/CIS and no information is on CFOL If more than four weeks have passed since the taxpayer filed the application/claim, advise taxpayer to submit signed duplicate application/claim, writing "duplicate" across the top, include all back-up documentation with the file, and to submit it to the campus where original was filed.
    Research shows the refund was issued Refer to applicable IRM for resolution (e.g., IRM 21.4.1.3, Refund Inquiry Response Procedures, IRM 21.5.6, Freeze Codes).

    Caution:

    If contact is made by a Power of Attorney (POA), ensure that the loss year and all gain years included in the tentative carryback application or carryback claim are included on the Centralized Authorization File (CAF). If a gain year is not included, request an updated power of attorney.

  2. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7, TAS Case Criteria) and you can’t resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer same day cases to TAS, unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

21.5.9.4  (10-01-2004)
Carryback Verification

  1. This subsection provides procedures for campuses to determine if an application/claim can be processed.

21.5.9.4.1  (10-01-2013)
Carryback Research

  1. If taxpayer files a carryback application/claim, follow these research procedures:

    1. Verify that all necessary information is on the forms completed and attached.

    2. Verify the carryback has been applied to the earliest available gain year.

    3. Review CFOL (Corporate Files Online)/IDRS to validate data on the form.

    4. Math verify the carryback amount (Net Operating Loss, Net Capital Loss, Unused Credits, Claim of Right).

    5. Determine if the statute for credit or refund is open. The adjusting year (gain year) does not necessarily have to be within the normal statute of limitations period. The statute for carryback purposes is generally determined by the loss year return. For more information on researching carryback statute processing, see IRM 25.6.1.10.2.8.1, Net Operating Loss (NOL) Carryback or Capital Loss Carryback, IRM 25.6.1.10.2.8.2, Business Credit Carryback, and IRM 25.6.1.10.2.8.3, Bad Debts and Worthless Securities.

    6. When working a carryback case via the Correspondence Imaging System (CIS), search prior claims, applications, or responses.

      Note:

      Refer to IDRS Command Codes Job Aid, Job Aid for IRM Part 21, Document 6209, IRM 2.3, IDRS Terminal Responses, or IRM 2.4, IDRS Terminal Input, for additional information.

21.5.9.4.2  (10-01-2013)
Identifying Processible and Unprocessible Carryback Applications/Claims

  1. To ensure carryback cases were prioritized accurately on the Correspondence Imaging System (CIS), refer to IRM 21.5.1.4.2.3, Clerical Function for the Image Control Team (ICT) Correspondence Imaging System (CIS).

  2. Processible applications/claims must include the following:

    • Posting of the loss and gain year returns for RINTS.

    • Filing of the loss year return for TENTS (the return may not have posted yet), and posting of the gain year return(s).

      Note:

      While it is not necessary for the loss year return to be posted to Master File at the time the TENT is processed, it must have been filed on or before the date the TENT was filed, per IRC 6411(a). First check to see if the loss year return has posted or there is evidence it is in-house. If the return is not found, check the date on Line 2b of Form 1139 or Form 1045. If Line 2b is blank or is a date in the future, reject the application and advise the taxpayer he can resubmit the TENT once the loss year return has been filed.

      Caution:

      Be aware that the original loss year return may have been scanned to CIS with the TENT and may need to be printed and sent for processing.

    • Authorized signature(s) - A faxed signature on a carryback claim/application is acceptable if this is the only missing information. Contact the taxpayer/authorized representative by phone, request that the first page of the signed Form 1139 or Form 1045 be faxed within 5 business days in order to continue processing the carryback application. Advise the taxpayer that the faxed signature will be treated as the taxpayer's signature and will become a permanent part of the application. Document CIS that the taxpayer/representative was advised. See IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Applications/Claims, (1) and (2) for additional information.

      Caution:

      See IRM 21.5.9.4.2.1, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F filed, if the carryback is filed by a financial institution, and the tax module (the loss year or any gain year) has a TC 971 with AC 076 (-W freeze).

    • Copies of pages 1 and 2 of the original and any amended or related return from the year creating the loss (loss year) and Schedules A, D, and J (Form 1040), if applicable, unless this information is available on CFOL/IDRS.

      Note:

      For 1120F (foreign) filers, pages 1 and 3 of the loss year. Also, since Taxable Income (TXI) is not shown on Command Code (CC) TXMOD for an 1120F, you can verify the income/loss from CC BRTVU.

    • All other forms and schedules from which a carryback results (loss year), such as Schedule C or F (Form 1040); Form 3800, General Business Credit; Form 6781, Gains and Losses From Section 1256 Contracts and Straddles, Schedule D (Form 1120) etc., unless this information is available on CC RTVUE/BRTVU.

    • All Schedules K-1 received from partnerships, S corporations, estates, or trusts (Form 1040) that contribute to the carryback (loss year), unless the amounts of income or loss are available on CC RTVUE or TRDBV.

    • The Net Operating Loss (NOL) computation or Net Capital Loss (NCL), and/or any forms supporting the credit computation for the loss year and the year to which the loss is applied (gain year), unless this information is available on CFOL/IDRS. See Form 1045/Form 1139 or Form 1040X/Form 1120X for instructions.

    • Any forms supporting the tax calculation for the gain years, including, but not limited to, Schedule D and Alternative Minimum Tax, unless this information is easily computed by the employee assigned to process the case.

      Note:

      A "loss" can be a net operating loss (NOL) or a net capital loss (NCL). Taxpayer can also claim unused credits in a gain year.

    • Correct name, address, and Taxpayer Identification Number (TIN), (check Command Code (CC) ENMOD).

      Caution:

      See IRM 21.5.9.4.2.1 if the carryback is filed by a financial institution, and the tax module (the loss year or any gain year) has a TC 971 with AC 076 (-W freeze).

    • Correct gain year (Check CFOL/IDRS).

    • The NOL is applied to the earliest available gain year, generally two years prior to the year of the loss.

    • Allocation Schedule if there is a filing status change between a gain year and a loss year. See Exhibit 21.5.9-2.

  3. All other applications/claims are unprocessible. See IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Applications/Claims.

21.5.9.4.2.1  (10-01-2013)
Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F Filed

  1. If a carryback application/claim is received from a financial institution, and the IDRS/Master File tax module (loss or gain years) has a TC 971 with AC 076 (-W freeze), this indicates that the Federal Deposit Insurance Corporation (FDIC) has been appointed as receiver/fiduciary for the financial institution. In most instances, the common parent is filing the carryback and the financial institution in receivership is a subsidiary of the consolidated return. Regardless, both the common parent and the subsidiary financial institution will have the TC 971 AC 076 posted to the relevant tax modules. Also note, the entity module of the financial institution (but not of the common parent) will include the FDIC on the secondary name line. The FDIC files Form 56-F, Notice Concerning Fiduciary Relationship of Financial Institution, with the IRS. Business Master File Entity processes Form 56-F. See IRM 3.13.2.18.4, Processing Form 56-F, Notice Concerning Fiduciary Relationship of Financial Institution, and IRM 3.13.2.18.5, Processing Form 56-F.

  2. Form 1139 - If a Form 1139, Corporation Application for Tentative Refund, is received and the conditions in Paragraph (1) apply, ensure there are two signatures present; one by the FDIC as receiver/fiduciary for the institution and one by the common parent of the carryback year consolidated group. If the Service has been notified via Form 56-F that the FDIC is a receiver/fiduciary, Treas. Reg. § 301.6402-7(e)(2) requires that any Form 1139 must be signed by both the common parent of the carryback year group and the fiduciary.

    1. If the required signatures are not present, reject the application and advise the taxpayer of the signature requirement per the regulation.

    2. If both signatures are present, process the application per normal procedures contained in this IRM. However, do not update any entity information (name lines or address) based on Form 1139.

    Note:

    Manual refunds will be required for any modules with the -W freeze present. If a request is made to issue a portion of the refund to the common parent and a portion to the FDIC, ensure that both the common parent and the FDIC have signed the request and process the payment per the request.

  3. Form 1120X - The regulations under Treas. Reg. § 301.6402-7(e)(1) do not have a similar dual signature requirement for a carryback refund claim filed on Form 1120X, Amended U.S. Corporation Income Tax Return. A carryback refund claim may be filed by either the FDIC as receiver/fiduciary for the institution or by the common parent for the consolidated carryback year under the regulation. Thus, two Forms 1120X may be filed regarding the same refund. A claim filed by the FDIC will have the following header: "Claim for refund under IRC 6402(k)." However, a claim filed by the common parent will not have any header. In addition, under Treas. Reg. 301.6402-7(e)(3) in conjunction with seeking a carryback refund, the FDIC as receiver/fiduciary might also file a loss year return with respect to the loss year consolidated group, if the common parent does not file one or the FDIC does not accept the loss year consolidated return filed by the common parent. Accordingly, refer all carryback refund claims (Forms 1120X) from financial institutions in receivership to Exam Classification as CAT-A. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

21.5.9.4.3  (10-01-2013)
Rejecting Unprocessible Carryback Applications/Claims

  1. Do not formally disallow an unprocessible/incomplete application or claim. If the issue can be resolved by having the taxpayer fax in missing information, attempt to contact the taxpayer/authorized representative by phone and request the missing information be faxed to you within 5 business days. Make two telephone attempts within 3 business days of each other and document CIS (Correspondence Imaging System) notes with the dates and times of these attempts. If leaving a message for the taxpayer/authorized representative, request a call back within 2 business days.

    Caution:

    Since the taxpayer only has 12 months to file a tentative carryback application, the instructions above must be followed before rejecting the application.

    • If contact is made by phone, and the taxpayer/Power Of Attorney (POA) faxes in the missing information, document the phone call and receipt of the missing information. When inputting the Net Operating Loss (NOL) adjustment, use the date the application/claim became processible as the TCB date (unless that date is earlier than: (1) the loss year return due date, (2) the received date of the delinquent loss year return, or (3) the date the loss year return is filed in processible form). See IRM 21.5.9.5.32, Carryback Form 1045 and Form 1139 Interest Computation Dates, for TENTS or see IRM 21.5.9.5.40, Carryback Form 1040X, Form 1120X, Form 1041, Form 1120-C and Form 990-T Interest Computation Dates, for RINTS. The TCB date is used by the IRS computer to start the 45-day count for issuing a refund without interest. Do not update the IRS Received Date when the missing information is faxed.

    • If contact is made by phone, and the taxpayer/POA states they can not fax, but will instead mail in the missing information, thoroughly document the call, explain to the taxpayer that you must close the case, and if the time has or will expire for filing a carryback application, the taxpayer will be required to submit a carryback claim. Close the case. Refer to the IRM references cited in Paragraph (5) below.

  2. If the issue is not one that can be resolved by having the taxpayer fax in information( e.g., incorrect number of years carried back, time expired for filing a carryback application, etc.) or you are unable to contact by telephone, reject/no consider the claim as follows:

    • Tentative Refunds (TENTS) - Letter 216C is used to reject the tentative carryback application and request missing information (copies of loss year return, revised gain year schedules or forms, signature, etc.). Letter 2364C is used to request a missing carryback allocation. Generally, one of these two letters will be used when corresponding with the taxpayer regarding a tentative carryback application.

    • Restricted Interest Claims (RINTS) - Unprocessible RINTS are rejected using Letter 4734C or Letter 2364.

      Caution:

      Do not reject an incomplete carryback claim if the loss year Refund Statute Expiration Date (RSED) is within 180 days of expiring. Follow the instructions in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, to request the missing information.

  3. Document CIS (Correspondence Imaging System) with the reason(s) the application or claim was rejected.

  4. Each carryback processing site will determine the type of contact information provided on letters to taxpayers. The decision depends on the hours of operation at the carryback site and the availability of the CSR/TE (Customer Service Representative/Tax Examiner) to accept taxpayer calls. If possible, provide specific employee contact information on taxpayer letters. Otherwise, provide the toll-free number for taxpayers to call when they require additional information and/or have questions.

  5. Review the entire case and request all information needed and/or provide instructions for completion the first time you return forms to the taxpayer. Circle out the received date and return the forms to the taxpayer and close the control base on CIS/IDRS. The following exceptions are to always be taken into consideration when rejecting a carryback claim/application for additional information:

    • When an application was not filed within 12 months of the end of the loss year

    • When the taxpayer does not have sufficient time to respond to a request for additional information to process an application

    • CFOL reflects that the application/claim did not utilize the earliest available gain year. This is generally the second year prior to the loss year.

    • Applications/claims filed for extended carryback periods under ARRA (American Recovery and Reinvestment Act) 2009, Section 1211, may require more than one contact with the taxpayer. See IRM 21.5.9.5.14.6.9, Processing ARRA 2009, Section 1211 Carryback Applications/Claims - Steps to Ensure Consistent Processing.

  6. Refer to IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, and IRM 21.5.1.5.6, Incomplete CIS Claims, for additional information on claim rejects.

  7. Responses to carryback Letter 216C, Letter 449C, Letter 662C, Letter 4734C and Letter 2364C will be scanned into CIS and assigned to the employee who originally worked the case. For all responses to other carryback letters (916C, 178C, etc.), the case should be routed/reassigned to the employee who originally worked the case. Remember that documented management approval is required prior to transferring/reassigning a case.

    Note:

    If you are unable to reassign a previously worked case due to the CSR no longer being available, retain and assign the case in the receiving office.

    Caution:

    Fresno and Andover no longer process carryback cases. Any responses to carryback letters issued by either Fresno or Andover and received in another office should be retained in that receiving office.

  8. The instructions in paragraph (6) are only applicable when the taxpayer includes a copy of the carryback letter with the response. Taxpayer responses that do not include a copy of the carryback letter will be worked in the receiving office. Do not research prior CIS cases searching for a prior case.

21.5.9.4.4  (10-01-2005)
Mixed Multiple processible/Unprocessible Carrybacks

  1. When RINTS and TENTS are filed simultaneously:

    If Then
    Both TENT and RINT are processible Process the TENT. Staple the RINT behind the TENT when working with a paper case. When working with a CIS case, link the RINT to the TENT and leave a case history that the TENT was processed, no action on the RINT.
    Only the RINT is processible Process the RINT. Staple the TENT behind the RINT when working with a paper case. When working with a CIS case, link the TENT to the RINT and leave a case history that the RINT was processed, no action on the TENT.
    Both TENT and RINT are incomplete Reject both. Request all the information needed to allow the carryback. Advise taxpayer only one of the forms can be processed for the loss and gain year. If TENT cannot be filed within 12 months of the end of the tax year that created the Net Operating Loss (NOL), Net Capital Loss (NCL), unused credit, or claim of right adjustment (Dec. 31 for a calendar year filer), ask taxpayer to file a RINT.
    The TENT is incorrect after post verification Reassess the TENT. Disallow the RINT with a Letter 105C. See IRM 21.5.9.5.34, Reassessing Carryback Form 1045 and Form 1139, for reassessment procedures.

    Note:

    Include appeal rights with letter 105C as appropriate.

21.5.9.4.5  (10-01-2013)
Master File Verification - Incorrectly Calculated Carryback Applications/Claims

  1. All carrybacks are subject to Master File verification to ensure the taxpayer's starting figures match IRS records. This applies to both the loss year and the gain years.

    Exception:

    The loss year, on a TENT, does not have to be posted to Master File before the application is processed. See IRM 21.5.9.4.7, Carryback Tolerances - Master File Verification, Math Verification, TENT/RINT Processing, Push Codes, for procedures on processing TENTs when the loss year return has not yet posted.

  2. If the beginning figures on the claim or application do not match posted Master File data (Adjusted Gross Income (AGI), Taxable Income (TXI), tax, refundable credits) see IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Applications/Claims, for procedures to reject the application/claim to the taxpayer. Inform the taxpayer what our figures show, and have the taxpayer explain the difference.

21.5.9.4.6  (10-01-2013)
Carryback Freeze Conditions

  1. Freeze conditions that require special processing are:

    Freeze Indicators/Instructions
    -A Indicates duplicate/amended return freeze on the loss or gain year. See IRM 21.5.6.4.2, -A Freeze. Duplicate/amended return must be secured and worked with the carryback case. See IRM 21.5.9.5.47, Carryback Claims (TENTS and RINTS) Filed in Conjunction with Amended Loss Year Returns .
    D- Indicates failed savings and loans, institutions and banks. Such an account is identified with a Large Corporation Indicator (LCI) – see CC TXMOD. Contact Examination Classification Specialist before taking any action. The specialist must approve any abatement of tax or refund. See IRM 21.5.6.4.7, D- Freeze .
    I- Indicates credit interest is restricted on the account. See IRM 21.5.6.4.17, I- Freeze for additional information.
    -I Indicates debit interest is restricted on the account. See IRM 21.5.6.4.18, -I Freeze for additional information.
    -L The -L Freeze, or Open Examination Indicator, is set when a TC 420 posts to an account that has been referred to Examination.
    • If the carryback is a TENT, See IRM 21.5.9.5.33, Carryback Form 1045 and Form 1139 with Examination Criteria.

    • If the carryback claim is a RINT, see IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

    V- Do not take action that results in the freeze being released. Follow instructions in IRM 21.5.6.4.43, V- Freeze.
    -V Indicates bankruptcy. Contact the local Insolvency Unit for processing instructions. See IRM 21.5.6.4.44, -V Freeze.
    -W Litigation - Set by TC (Transaction Code) 520 with specific closing codes. Follow the instructions in IRM 21.5.6.4.46, -W Freeze.

    Failed Banks - Set by TC 971 with AC (Action Code) 076. Indicates a bank has failed and the Federal Deposit Insurance Corporation (FDIC) has been assigned as receivership of the bank. See IRM 21.5.6.4.46, -W Freeze. Also see IRM 21.5.9.4.2.1, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F Filed, for processing of carryback applications/claims from financial institutions in receivership.
    -Y Transaction Code (TC) 480/TC 780 on any module indicates an Offer in Compromise (OIC). See IRM 21.5.6.4.50(3), -Y Freeze for procedures.
    -Z Indicates taxpayer’s account is assigned to the Criminal Investigation (CI) function. Contact CI before taking any action. See IRM 21.5.6.4.52, -Z Freeze .

21.5.9.4.7  (10-01-2013)
Carryback Tolerances - Master File Verification, Math Verification, TENT/RINT Processing, Push Codes

  1. There is no tolerance for Master File verification. Verify the loss, Net Operating Loss (NOL), Net Capital Loss (NCL), credit carryback and gain year returns against posted data on Master File for each tax period. See IRM 21.5.9.4.5, Masterfile Verification - Incorrectly Calculated Carryback Applications/Claims. Also see Paragraph (6) below for procedures when the loss year, on a TENT, has not posted to Master File.

    Caution:

    Be alert to taxpayers filing applications or claims for carryback that also include a general tax increase or decrease. Separate adjustments are required in these situations (TC 290/TC 291 for the general tax adjustment and TC 295/TC 299 for the carryback adjustment). See IRM 21.5.9.5.10, Multiple Adjustments, for instructions when multiple adjustments are required.

  2. Always math verify the taxpayer's NOL computation (e.g., Form 1045, Schedule A, or an equivalent worksheet).

  3. If the tax decrease is greater than tolerance, you must math verify every gain year. Review and math verify all revised gain year forms and schedules used to figure the tax and credits. This includes changes to the AGI (Adjusted Gross Income) (due to the NOL amount, revised taxable social security benefits, etc.) and TXI (Taxable Income) (based on changes to exemptions and itemized deductions). See IRM 21.5.9.5.23, Computing the IMF Carryback Net Operating Loss Deduction (NOLD) for instructions on computing the net operating loss deduction (NOLD) for IMF (Individual Master File) claims. See IRM 21.5.9.5.24, Computing the Carryback BMF Net Operating Loss Deduction (NOLD), for instructions on computing the NOLD for BMF (Business Master File) claims. See IRM 21.5.9.5.17, Carryback Net Operating Loss (NOL) Affecting Alternative Minimum Tax (AMT), for information on carrybacks and alternative minimum tax.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If there is a discrepancy with the taxpayer's figures, make corrections and notify the taxpayer of the change. In some cases, the claim will have to be rejected for the taxpayer to make the corrections, such as when several complex computations must be revised. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. A TENT can be processed, whether or not the loss year return has posted to Master File.

  6. While it is not necessary for the loss year return to be posted to Master File at the time the TENT is processed, it must have been filed on or before the date the TENT was filed, per IRC 6411(a). If the loss year return has not posted to Master File, do the following:

    1. Check all relevant command codes for evidence of a filed return, e.g., BMFOL (Business Master File), IMFOL (Individual Master File), FFINQ (IMF), TRDBV, ENMOD (for evidence of a rejected TC 150), etc. If evidence of a filed return is found, follow the instructions in the table below.

    2. If evidence of a filed loss year return isn't found, check the date on line 2b of the TENT (Form 1139 or Form 1045).
      a) If the date entered on line 2b indicates that a return has been filed, follow the instructions in the table below.
      b) If the TENT has a future date entered on line 2b or the date is blank, reject the application and advise the taxpayer the TENT can be resubmitted once the loss year return has been filed. See IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Applications/Claims, for additional information.

    If And Then
    Loss year has posted The combined tax decrease is under math verification tolerance Input TC 295, blocking series 91/ blocking series 92 on each applicable gain year.

    Input TC 290 for .00 on the loss year return:
    1. Use blocking series 05 for IMF (Individual Master File) tax class 2, and blocking series 15 for BMF, except Form 1041.

    2. Use blocking series 17 for Form 1041.

    3. Mark the application as "VERIFIED."

    Exception:

    If working a CIS case, update the loss year IDRS control base Activity to VERIFIED and close the base, input of a TC 290.00, since there is nothing to send to Files.

    Loss year has posted The combined tax decrease is over math verification tolerance and the carryback application can be math verified from attached forms Input TC 295, blocking series 91/ blocking series 92 on each application gain year.
    Input TC 290 for .00 on the loss year return.
    1. Use blocking series 05 for IMF tax class 2, and blocking series 15 for BMF, except Form 1041.

    2. Use blocking series 17 for Form 1041.

    3. Mark the application as" VERIFIED."

      Exception:

      If working a CIS case, update the loss year IDRS control base Activity to "VERIFIED and close the base, instead of inputting a TC 290 .00, since there is nothing to send to Files."

    Loss year has not posted The combined tax decrease is either under or over math verification tolerance, and the carryback application can be math verified from attached forms
    1. Input TC 295, blocking series 91/blocking series 92 on each applicable gain year.

    2. Input TC 930, Document Locator Number (DLN) Code 85 on the loss year return, have the push code document return to you for master file verification and attach the push code document to the return.

      Exception:

      If working a CIS case, input TC 930 push code without printing anything from CIS. Include in the push code remarks the CIS ID number and "NSD Image retained in CIS. " See IRM 21.5.1.5.7, CIS Push Codes for additional information.

    3. Verification that the loss year return has posted to master file is required in all cases.

    4. Upon receipt of the push code documentation follow procedures in Paragraph (7) below.

    5. If the loss year return does not post within 20 cycles of the TC 930 posting cycle, TC 932 generates along with a CP 98/CP 198 which is returned to the requesting employee for immediate follow-up with the taxpayer. See IRM 21.5.1.5.7, CIS Push Codes, if working a CIS case.

  7. When the TENT loss year push code documents are received from Files, follow the instructions in the table below to perform verification:

    Reminder:

    Verification must be completed prior to forwarding any TENT to Examination. See IRM 21.5.9.5.33, Carryback Form 1045 and Form 1139 with Examination Criteria or an Open Underreporter (AUR or BUR) Issue (TC 922 or TC 925).

    If And Then
    Push code documents are received with the original return The information supports the figures on the application (TC 150 posted) Refile the documents using TC 290 .00 blocking series 00.
    Push code documents are received without the original return The information can be verified from CFOL (TC 150 posted) Refile the application using TC 290 .00. Use blocking series 05 for IMF and blocking series 15 for BMF and blocking series 17 for Form 1041.

    Exception:

    If working a CIS case, open and close an IDRS control base indicating "VERIFIED," instead of inputting a TC 290 .00, since there is nothing to refile.

    Push code documents are received with or without the original return Information cannot be verified from CFOL (TC 150 posted, but figures don't match) See IRM 21.5.9.5.34, Reassessing Carryback Form 1045 and Form 1139, for reassessment procedures.
    Push code documents are received The loss year return has not been received (TC 150 not posted) See IRM 21.5.9.5.34, Reassessing Carryback Form 1045 and Form 1139, for reassessment procedures.

    Caution:

    Be aware that the original loss year return may have been scanned to CIS with the TENT and may need to be printed and sent for processing.

  8. To process a RINT, the loss year return must be posted on Master File or CFOL. Follow the instructions in the table below when processing a RINT:

    If Then
    Loss year has posted and the claim can be verified from posted data
    1. Input TC 299, blocking series, 91/blocking series 92 on each applicable gain year for which a claim is filed.

    2. Input one TC 971, Action Code 091 on the loss year. Use only the earliest gain year as (XREF-TX-PRD). Use the received date as the transaction date.

    Loss year has posted and the claim cannot be verified See IRM 21.5.9.4.5, Master File Verification - Incorrectly Calculated Carryback Applications/Claims, for instructions.

21.5.9.5  (10-01-2013)
Carryback Processing

  1. See IRM 21.5.9.4, Carryback Verification, for verification and certain general processing procedures.

  2. This Section provides specific processing procedures for both TENTS and RINTS, including:

    • Controlling and Monitoring Cases

    • Carryforward Election

    • Special Carryback/Carryforward

    • Rules concerning credits

    • Inputting adjustments on IDRS

    • Multiple Adjustments

    • Interest

    • Manual Refunds

    • Accounts on Retention Register

    • Net Operating Loss (NOL) and Net Operating Loss Deduction (NOLD)

    • Net Capital loss (NCL)

    • Claim of Right

    • Foreign Tax Credit

    • Net 1256 Contract Loss Carryback

  3. The IRS has 90 days to process a tentative carryback application (Form 1045 or Form 1139) when the application is filed within 12 months of the end of the year in which the NOL, NCL, unused credit, or claim of right adjustment arose. However, every effort will be made to ensure tentative applications are processed and refund(s) issued within 45 days. If the carryback application is filed after the 12-month time limit, the application must be rejected. Carryback applications are tentative. If the application is rejected because the 12 months has ended for filing a tentative, the taxpayer cannot pursue, but must file a standard refund claim (Form 1040X or Form 1120X).

    Note:

    Since the taxpayer only has 12 months to file a tentative carryback application, every effort should be made to timely contact the taxpayer/authorized representative by phone to request any missing information before rejecting the application.

    Caution:

    You must expedite Joint Committee Cases (JCC) to Examination as required. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General for RINTS, and IRM 21.5.9.5.33, Carryback Form 1045 and Form 1139 with Examination Criteria or an Open Underreporter (AUR or BUR) Issue (TC 922 or TC 925), for TENTS.

21.5.9.5.1  (10-01-2013)
Controlling and Monitoring Carryback Cases

  1. Monitor carryback cases to ensure the 45-day interest-free period is met. See the Carryback 45-Day Interest-Free Charts on SERP.

  2. On RINTS, control the gain year(s).

    Note:

    It is not necessary to open a control on the loss year at the time the case is assigned. When processing the RINT, input a closed control on the loss year. See third bullet below.

    • When a RINT case is created in ICT as part of the CIS case control process, transaction code (TC) 971 action code (AC) 010 is automatically generated on the tax period(s) for which the return(s) are filed. This eliminates the need for manual input of this transaction on each gain year and sets the -A freeze on each gain year tax module.

    • Input one TC 971, Action Code 091 on the loss year, using the earliest gain year as (XREF-TX-PRD). Use the IRS received date as the transaction date.

    • Input a closed IDRS control base using Command Code (CC) ACTON on the loss year when a TC 971 AC 091 is input.

      Example:

      ACTON
      C#,TC971AC091,C,RINT
      *,*

  3. On TENTS, control only the loss year. Input of CC ADJ54 automatically creates an IDRS control base on the gain year(s) for a TENT.

    Note:

    If the TENT is unprocessible, do not open and close IDRS control bases on any of the gain years.

  4. Control related TENTS and RINTS to the same tax examiner. If the case is a RINT, verify you have been assigned all of the related years by researching CIS/IDRS. If a RINT for a related year has been assigned to another examiner, all the cases must be reassigned to the examiner with the earliest tax year.

    • If you have the earliest year, contact the employee with the open base on the related year before taking any action. If you cannot locate or talk to the person that has control on the case, leave a message. If you receive no reply, then take over control of the base, and leave a CIS case message.

    • If the earliest year is assigned to another Customer Service Representative (CSR), reassign your base through CIS to the other CSR. Leave a case message citing this IRM reference.

  5. For IMF (Individual Master File) RINTS and TENTS, if you are able to determine (from the copy of the taxpayer's original loss year return or amended return) that the net operating loss is attributable to a theft loss due to a Ponzi scheme (Schedule A, Form 4684 theft loss due to a Ponzi scheme), input a TC 971 AC 651 on the loss year only (unless one has already been input). This transaction code is used for identification purposes only. Process the RINT/TENT as normal, following the applicable subsections in this IRM.

  6. For information on carrybacks received via the Modernized e-File (MeF) system, which are worked at the Ogden AM campus, see IRM 21.5.9.5.1.1, Carrybacks Filed via the Modernized e-File (MeF) System (Ogden AM Campus Only).

21.5.9.5.1.1  (10-01-2013)
Carrybacks Filed via the Modernized e-File (MeF) System (Ogden AM Campus Only)

  1. Beginning with tax year 2008, corporations can file carrybacks electronically using the Modernized e-File (MeF) system by filing Form 1120X and marking a "Y" in the carryback checkbox. The following paragraphs describe the unique procedures used to identify and route these MeF carryback cases to the Ogden Carryback Team(s) in a timely manner, so that the carrybacks can be processed, and refunds issued, within the 45-day interest-free period.

  2. MeF ad hoc reports, for all amended MeF returns received, are generated by the Ogden AM MeF Coordinator each Tuesday for the previous week's data (Sun - Sat). The report is sorted by the following categories:

    • 1120X carryback returns - "Y" in the Carryback checkbox column

    • 1120X returns - "N" in the Carryback checkbox column

    • Amended 1120S returns

    • Amended 1065 returns

  3. No special actions are taken for the amended 1120S and 1065 returns portion. These returns generate MeF DUPF cases and are worked following normal CIS processing procedures.

  4. A listing of all 1120X carrybacks (those with a "Y" in the carryback checkbox) is forwarded directly to a designated carryback manager to be worked by carryback employees.

  5. A listing of the 1120X amended returns is forwarded to a designated AM team to be worked. Any carryback amended returns identified by this team are forwarded directly to the designated carryback manager to be worked by carryback employees.

  6. MeF amended returns post 1-2 cycles prior to the posting of the CP/TRNS 193 and -A freeze on IDRS. Trained employees work the amended returns and carryback cases and input No Source Document (NSD) TC 29X adjustments or route, as appropriate, according to IRM requirements prior to the CP/TRNS 193 and -A freeze generation.

  7. When inputting the adjustment, employees input "MEFEUP193" as the adjustment activity and "MISC" as the IDRS category code. For carryback cases, use IDRS category code "TENT" or "RINT," as appropriate.

  8. MeF trained employees will create a CIS case with the following information:

    • Worktype: BMF (Business Master File)

    • Doc Type: Duplicate Filing - 1120

    • Function: ADJ-710

    • Program: 10050

    • Reason: Pending CIS TRNS193 Control


    Use the received date from the ad hoc report. Suspend the CIS case in Monitor status for 14 days or until the CIS TRNS193 case is created. CIS TRNS193 cases are created by IDRS CP/TRNS 193. CIS recognizes that a same TIN case is active and assigns the new case to the employee who created the case.

  9. Once the CIS TRNS193 case has been created and associated, the employee links the cases together on CIS and closes both CIS cases to complete processing. There may be instances when the CIS TRNS193 case does not correctly associate to the employee. A CIS TIN search may be necessary.

  10. For more information about Modernized e-File, see e-file for Large and Mid-Size Corporations, located on the IRS.gov Website.

21.5.9.5.1.2  (11-17-2011)
Notice Suppression on Carryback Applications for Tentative Refund (TENTS)

  1. TENTS received with a gain year reflecting a balance due must have the balance due notice suppressed. Input a STAUP on the gain year(s) as soon as a balance due is identified. A STAUP is not necessary if the timeframe remaining before the next scheduled notice allows time to complete the carryback request. See IRM 21.5.2.4.8.2, Suppressing Balance Due Notices, for specific direction for inputting Command Code STAUPS.

    Note:

    A STAUP is to be input as soon as a balance due is identified but Customer Service Representatives are not to review their inventories to locate these types of cases.

  2. TENTS that have a balance due remaining on a gain year after the carryback adjustment(s) has been input must have STAUPS released as per the direction in IRM 21.5.2.4.8.2, Suppressing Balance Due Notices.

21.5.9.5.2  (10-01-2013)
Carryback/Carryforward Election

  1. The taxpayer may elect to forgo the carryback period for any tax year and carry the entire Net Operating Loss (NOL) forward 20 years (15 years for NOLs arising in tax years beginning on or before August 5, 1997).

    1. The election must be made in writing and attached to the loss year return.

    2. The election must be made by the due date or extended due date of the loss year return.

      Note:

      Section 301.9100-2 of the regulations provides that an election may be made on an "amended" return if it is filed within six months of the due date of the original return (determined without regard to extensions) provided the taxpayer timely files the loss year return by its due date or extended due date. For example, a 2012 Form 1040 loss year return is filed (with extension) on July 15, 2013. An amended 1040 return claiming the election is timely if filed by October 15, 2013, but if filed on or after October 16, 2013, the election is not timely. For taxpayers affected by a federally declared disaster, the due date of the original return is the postponed due date allowed for the disaster (determined without regard to any other extensions).

    3. Generally, the election is irrevocable. An exception to this is when new legislation specifically allows taxpayers to revoke the election, such as the provision in ARRA 2009, Section 1211, which allowed taxpayers until April 17, 2009 to revoke a prior election to waive the carryback period. See IRM 21.5.9.5.14.6.5, Revocation of Prior Election to Waive the Carryback Period under Section 172(b)(3).

    4. An election made by a parent company in a consolidated return is binding for all members of the group.

    5. If an election statement is timely filed on an amended tax return, allow and process with a TC 290 .00. Use blocking series 18.

      Note:

      If a return is electronically filed, a blocking series 05 must be used. See IRM 21.6.6.3.25, Electronic Filing System (e-file), for further information.

    6. If an election statement is late filed on an amended tax return, disallow the election using Letter 105C.

    If And Then
    Carryforward claim is filed Taxpayer mentions the election and the loss year return was timely filed by its due date or extended due date Check CFOL to verify the loss and accept the NOL carryforward.
    Carryforward claim is filed Taxpayer does not mention the election and there is no modified taxable income in any of the applicable gain years and the loss year return was timely filed by its due date or extended due date Check CFOL to verify the loss and accept the NOL carryforward. If the original return was e-filed, then check CC TRDBV.
    Carryforward claim is filed Taxpayer does not mention the election and there is modified taxable income in any of the applicable gain years Request the original loss year return to verify the election and the loss. If the original return was e-filed, then check CC TRDBV. When the original return is received:
    • If there is no election, inform the taxpayer that the NOL must be carried back to any applicable gain year before it can be carried forward.

    • If the taxpayer filed an election, accept the carryforward.

    Carryforward claim is filed Taxpayer's loss year return was not filed by the due date (including extensions) and there is no modified taxable income in any of the applicable gain years Request CFOL information to verify the loss and accept the NOL carryforward.
    Carryforward claim is filed Taxpayer's loss year return was not filed by the due date (including extensions) and there is modified taxable income in any of the applicable gain years Disallow claim with 105C and inform the taxpayer that the election to waive the carryback period was not timely filed; therefore, the NOL must be carried back to any applicable gain year before it can be carried forward.

    Reminder:

    The election to forgo the carryback period is only for a NOL.

21.5.9.5.3  (10-01-2013)
Special Carryback/Carryforward Periods

  1. Types of taxpayer losses determine the carryback periods. The following types have special carryback-carryforward rules:

    Type of Loss Carryback or Carryforward Options Special Rules
    Foreign Expropriation Capital Losses Net Capital Loss (NCL) Carryforward 10 years
    Regulated Investment Company (RIC) NCL Carryforward eight years
    Real Estate Investment Trust (REIT) Net Operating Loss (NOL) sustained by a REIT Not Available for Carryback
    Commercial Banks Portion of NOL attributable to bad debt deduction Carryback 10 years, five years Carryforward (For taxable years beginning after December 31, 1986 and before January 1, 1994)
    Thrift Institutions NOLs Carryback 10 years, eight years Carryforward (For tax years beginning after December 31, 1981 and before January 1, 1986)
    Specified Liability Losses (Product Liability) NOLs Carryback 10 years
    Specified Liability Losses (Portion attributable to decommissioning of a nuclear powerplant) NOLs Carryback 10 years or carryback to each taxable year beginning with the taxable year in which such plant was placed in service
    Life Insurance Company Operations Loss Deduction Carryback three years
    Farming Loss Portion of NOL that consists of income and deductions attributable to a farming business Carryback five years (Taxpayer may make an irrevocable election to disregard the special five-year carryback rule and use the normal two-year carryback period.)
    Eligible Losses An "Eligible Loss" is any part of a NOL that:
    • For an individual - Is from a fire, storm, shipwreck, or other casualty, or from theft

    • For a qualified small business - Is attributable to a federally declared disaster

    • For a taxpayer engaged in the trade or business of farming – Is attributable to a federally declared disaster,

    Carryback three years

    Note:

    An Eligible Loss does not include:
    1) a farming loss,
    2) a qualified disaster loss (National Disaster Relief Act),
    3) a qualified Gulf Opportunity (GO) Zone loss,
    4) a qualified recovery assistance loss (Kansas Storms),
    5) a qualified disaster recovery assistance loss (Midwest Disasters),
    6) an "eligible small business" loss for which a taxpayer elects a three, four, or five-year carryback period (ARRA 2009, Section 1211), or
    7) a loss for which a taxpayer elects a three, four or five-year carryback period (WHBAA 2009, Section 13).

  2. In addition to the special rules in Paragraph (1) above, legislative provisions have been enacted for targeted events and time periods, such as the GO Zone Provisions - IRM 21.5.9.5.14.2, Kansas Storms - IRM 21.5.9.5.14.3, Midwest Disasters - IRM 21.5.9.5.14.4, National Disasters - IRM 21.5.9.5.14.5, and most recently, the extended carryback provisions contained in the American Recovery and Reinvestment Act of 2009, Section 1211, and the Worker, Homeownership, and Business Assistance Act of 2009, Section 13 - IRM 21.5.9.5.14.6 and IRM 21.5.9.5.14.7.

21.5.9.5.4  (10-01-2013)
BMF Carryback Short Year Returns

  1. Per Treas. Reg. 1.172-4 (a)(2), a short year return is treated as one carryback or carryforward year, just like a 12 month year. A preceding or succeeding year can have the same tax year ending date, but a different month. See the example below.

    Fiscal year March filer files a short period loss year return, August 2013
    Loss Year - 201308
    Gain Years 201203 201303

    Note:

    When making an adjustment for the year within that 12 month period, 201308 to 201303, you must use Override Codes "C" and "I" or the adjustment will not post.

  2. Below is another example.

    Loss year return is 200812. Taxpayer files a carryback application under ARRA 2009, Section 1211, electing a four carryback period. Taxpayer was previously a fiscal year filer and filed returns in 200309, 200409, 200509, 200609, 200612, and 200712.
    Loss Year - 200812
    Gain Years 200509 200609 200612 200712

21.5.9.5.5  (10-01-2009)
Carryback Credits Ordering Rule

  1. General business credits reported on Form 3800, General Business Credit, are treated as used on a first-in, first-out basis, by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is:

    1. Carryforwards to that year, the earliest ones first,

    2. The general business credit earned in that year, and

    3. The carryback to that year.

  2. For more information, see Instructions for Form 3800.

21.5.9.5.6  (10-01-2005)
Carryback Unused Credits

  1. Under the Taxpayer Relief Act (TPRA) of 1997, both business and individual credits can generally be carried back one year and forward 20 years (credits arising in taxable years beginning after December 31, 1997). Unused credits are the sum of certain credits exceeding tax liability in a year.

  2. For tax periods beginning prior to December 31, 1997, the carryback period was 3 years and the carryforward period was forward 15 years.

  3. In a community property state, there can only be a 50/50 split of unused credits, unless the taxpayer provides reasonable evidence of another division sanctioned by the state court. A return indicating a change to marital status in a non-community property state, or a consolidated corporation, requires an allocation schedule.

  4. When determining a credit carryback, consider the following items:

    • The availability of credits for carryback and carryover

    • Net Operating Loss (NOL) carrybacks that release credits

    • Recapture of Investment Tax and Low Income Housing Credits

    • Foreign Tax Credit

    • Alternative Minimum Tax (AMT)

  5. Certain insurance companies are allowed carryback credits per IRC 847(8). These credits are verified from the 4610 Account, maintained in the Accounting Function.

21.5.9.5.6.1  (10-01-2013)
Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five-Year Carryback of Eligible Small Business Credits

  1. Sections 2013 and 2012 of The Small Business Jobs Act (SBJA) of 2010 changed the treatment of most general business credits of "eligible small businesses" (ESB's) for the first tax year beginning in 2010 (tax years ending 201012 thru 201111). IRC §§ 38 and 39 (which govern general business credits and the carryback of such credits) were amended as follows:

    • SBJA Section 2013 amends IRC § 38(c)(5) to provided that most general business credits of an eligible small business will offset alternative minimum tax (AMT) for the taxpayer's first tax year beginning in 2010. Form 3800, General Business Credits, and the Instructions for Form 3800 have been revised for tax year 2010 to allow taxpayers that are eligible small businesses to correctly identify and calculate these credits. The Instructions for Form 3800 also provide eligible small business taxpayers with instructions for carrying back unused credits.

    • SBJA Section 2012 amended IRC § 39(a)(4) to provide that Eligible Small Business Credits (ESBC's) that are unused in the first tax year beginning in 2010 will be carried back for five years, rather than the usual one year. The credits will also offset AMT in the carryback years. The carryforward period for these credits remains at 20 years. The Instructions for Form 1045 and the Instructions for Form 1139 have been revised to provide eligible small business taxpayers with instructions for carrying back unused general business credits.

    Note:

    See IRM 21.5.9.5.6.1.1, Eligible Small Business - $50M Average Gross Receipts Test, (1) for the definition of an "eligible small business."

    Reminder:

    This is a one year initiative applicable only to tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning in tax year 2010) unless extended by further legislation.

  2. An election statement is not required. The Internal Revenue Code requires an ESB to carry the credits back for five years. The normal statutory periods for filing carryback applications and carryback claims applies.

    Note:

    If an ESB does not have income tax or AMT to offset in the 5th preceding year, then the loss is carried back to the 4th preceding year. If there is no income tax or AMT to offset in the 4th preceding year, then the loss is carried back to the 3rd preceding year and so forth. The credits must be carried back to the earliest of the five years in which there is income tax or AMT available to be offset by the ESBC's.

  3. General business credits that qualify as ESBC's (as long as the entity qualifies as an ESB) are those listed in IRC § 38(b).

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ESBC's can be carried back to offset tax in earlier years, even if a specific credit was not in effect in the earlier year.

    Example:

    The small employer health insurance credit (IRC § 45R) was not effective until 2010. If the taxpayer is an ESB and claims the credit in 2010, any unused credit can be carried back to 2005, even though the credit wasn't effective until 2010.

  5. Taxpayers that do not meet the requirements of an ESB, carry back their unused general business credits for one year and forward 20 years, per normal procedures.

21.5.9.5.6.1.1  (10-01-2013)
Eligible Small Business - $50M Average Gross Receipts Test

  1. An eligible small business (ESB), for the purposes of The Small Business Jobs Act (SBJA), is defined as a corporation (whose stock is not publicly traded), a partnership, or a sole proprietorship, whose average annual gross receipts for the three tax years preceding the 2010 loss year do not exceed $50M.

    Note:

    A pass-through entity such as a partnership or S-Corp cannot carry back an eligible small business credit (ESBC). However, the individual partners or shareholders of the entity may claim an ESBC carryback, so long as both the entity and the individual partner or shareholder meet the $50M average annual gross receipts requirements.

    Note:

    Claims received for a SBJA carryback on a Form 1041 are subject to the same rules as any other flow through entity.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. The Gross Receipts Average Calculator (GRAC), which is used to perform the $15M average annual gross receipts test for ARRA Net Operating Loss (NOL) carrybacks, was modified to perform the $50M average annual gross receipts test for SBJA general business credit carrybacks.

    • Access the GRAC tool in the same manner as for the ARRA test.

    • The tool will perform either the ARRA test or the SBJA test based on the loss year entered by the CSR. In the case of an SBJA carryback (which is an unused general business credit of an eligible small business), this is actually the credit year.

      Reminder:

      ARRA NOLs are valid for tax years beginning or ending in 2008 (tax years ending 200801 thru 200911). SBJA general business credit carrybacks are valid for the first tax year beginning in 2010 (tax years ending 201012 thru 201111).

      Note:

      Functionality has been added to the SBJA GRAC tool to allow the test to be run for short-period returns beginning and ending in 2010. If a loss (credit) year is input between 201001 and 201011, the tool will prompt the CSR to answer whether the return is for a short period. If the CSR selects "yes," the tool will run the test. If the CSR selects "no," the tool will advise the CSR that the loss (credit) year is invalid for an SBJA carryback.

    • The tool will provide the same functionality for the SBJA test as for the ARRA test (the tool will provide "met" or "not met" results, provide a "results page" listing all the income, generate letters for "not met" or missing prior year returns, etc.)

      Exception:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      See IRM 21.5.9.5.14.6.1.1, Eligible Small Business - $50M Average Gross Receipts Test, for complete information on the GRAC functionality.

  3. Use the GRAC tool to run the $50M average annual gross receipts test on all 2010 general business credit carrybacks that are being carried back for more than one year. Capture the Results page in CIS on every case, as well as all letters generated by the GRAC tool.

21.5.9.5.6.1.2  (01-27-2011)
TC 971 Action Code 636

  1. Effective in January 2011, TC 971 Action Code (AC) 636 is available for input to tax modules when the taxpayer is an eligible small business (ESB) claiming a five-year carryback of unused general business credits from tax year 2010.

    Note:

    The actual number of carryback years may be 5, 4, 3, or 2 depending on whether there is income tax or alternative minimum tax (AMT) to be offset in the 5th year, 4th year, 3rd year, etc.

  2. If the eligible small business credit (ESBC) application/claim is processible, input a TC 971 AC 636 on each of the five tax years preceding the 2010 loss (credit) year immediately prior to inputting the carryback adjustment(s), (regardless of whether all five of the years will be adjusted).

    Caution:

    Do not input the transaction code on the loss (credit) year.

  3. There are only three valid fields. Data input in any other field will result in an error message.

    1. the transaction code (971)

    2. the transaction date (use the IRS Received Date of the carryback application/claim as the TC 971 transaction date)

    3. the TC 971 Action Code (636)

  4. If the taxpayer subsequently files an amended ESBC carryback application/claim (increase or decrease), follow the same instructions as above, and input a second TC 971 AC 636 on each of the 5 preceding years.

  5. If the Service is made aware that these transaction codes were input in error, reverse the transactions by input of TC 972 AC 636. Reinput the transactions to the correct TIN, if appropriate.

21.5.9.5.6.1.3  (10-01-2013)
Claiming the Five-Year ESBC Carryback - Requirement to use Form 6478, Credit for Alcohol Used as a Fuel, for ESBC AMT Calculation

  1. Per the Instructions for Form 3800, taxpayers filing a five-year carryback of unused Eligible Small Business Credits (ESBC's) are to notate "SBJA 2012" on the top of their carryback application/claim. This identifies the claim/application as a Small Business Jobs Act (SBJA) carryback. In addition to the carryback application/claim (Form 1045, Form 1139, Form 1040X, Form 1120X, etc.), taxpayers are instructed to use Form 6478, Credit for Alcohol Used as a Fuel, rather than Form 3800, General Business Credits, to claim the unused ESBC's in the carryback years. The use of Form 6478 allows the taxpayer the benefit of Alternative Minimum Tax (AMT) relief in the carryback years.

    Reminder:

    Per IRM 21.5.9.5.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five-Year Carryback of Eligible Small Business Credits, (4), ESBC's can be carried back to offset tax in tax years prior to the enactment of a credit.

  2. Unused ESBC's are to be reported on Form 6478, Credit for Alcohol Used as a Fuel, as follows:

    1. 2005 Form 6478, line 9

    2. 2006 Form 6478, line 10

    3. 2007 Form 6478, line 10

    4. 2008 Form 6478, line 14

    5. 2009 Form 6478, line 13

    6. 2010 Form 6478, line 14

  3. The taxpayer is instructed to enter "SBJA 2012" to the left of the entry space used to include the unused ESBC on each Form 6478.

  4. Taxpayers may file Form 3800, General Business Credit, to carry back ESBC's for five years, rather than Form 6478, if they are not liable for AMT in the prior years. Do not reject an application/claim for a missing Form 6478 unless AMT is an issue. If the taxpayer does have an AMT liability in any of the prior years, reject the carryback (using Letter 216C or Letter 4734C) and advise the taxpayer to refile the application or claim using Form 6478, per the Instructions for Form 3800.

21.5.9.5.6.1.4  (01-09-2012)
Taxpayers Filing a One-Year Carryback of 2010 General Business Credits

  1. If a taxpayer files a one-year carryback of general business credits from tax year 2010, run the entity through the GRAC tool (see IRM 21.5.9.5.6.1.1) to see if the taxpayer meets the $50M average annual gross receipts test, but do not issue a reject/disallowance letter if the taxpayer does not meet the test.

    • If the taxpayer meets the test, process the application/claim, and send the taxpayer Letter 662C with the following language: "Under the Small Business Jobs Act of 2010, certain general business credits for eligible small businesses for tax year 2010 must be carried back for five years, rather than the usual one year period. If you are an eligible small business, you may need to file an amended carryback application/claim. The instructions for the general business credit form (Form 3800, General Business Credit) have more information."

    • If the taxpayer does not meet the GRAC test, process the application/claim as filed. The taxpayer knows he is not an ESB and is filing a normal one-year carryback.

21.5.9.5.7  (02-09-2011)
Released Credits Available for Carryback/Carryforward

  1. A Net Operating Loss (NOL) or Net Capital Loss (NCL) carryback reduces taxable income and tax liability. Credits no longer needed after application of the carryback to reduce the liability for a tax year are "released." The released credits are now available to carryback one year/carryforward 20 years.

  2. The taxpayer can carryback the released credit on the same application showing the NOL or NCL which created the released credit, with one exception. That is, the taxpayer must use Form 1040X or Form 1120X when foreign tax credits are released. The taxpayer can also file a separate application or claim carrying back the released credits.

    Note:

    When inputting an adjustment for a credit that was released by the carryback of an NOL or NCL, use the same Interest Computation Date (INT-CMPDT) as was used with the NOL or NCL carryback adjustment.

  3. Correspond with the taxpayer concerning released credits not carried back. Letter 662C can be used. Advise taxpayer to file a separate claim or application to carry back the released credits, if statutory filing time permits. The statutory filing time is the same as for the NOL or NCL that released the credit.

    Note:

    The credit for prior year minimum tax is carried forward only. See Instructions for Form 8801 Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts and Form 8827,

    Credit for Prior Year Minimum Tax-Corporations.

  4. If the released credit is from a previous carryback or carryover, carry it forward according to the original credit year, since the statute is governed by the original carryback credit year.

21.5.9.5.8  (10-01-2004)
Carryback Related to Recaptured Investment Tax and Low Income Housing Credits

  1. Taxpayers claim the Investment Tax Credit (ITC) based on the useful life of the asset. Taxpayers claim the Low-Income Housing Credit based on the formula that includes the basis of the building and number of low income units occupied in the building. If taxpayer claimed more credit than the recomputed credit, the difference is "recaptured."

  2. Taxpayers compute the recapture tax on:

    • Form 4255, Recapture of Investment Credit

    • Form 8611, Recapture of Low-Income Housing Credit

  3. Taxpayers attach Form 4255 or Form 8611 to the original or amended return, claim, or application.

  4. The ITC recapture tax can only be offset by other credits when:

    1. A Net Operating Loss (NOL), Net Capital Loss (NCL), or unused credit carryback releases the original ITC used in the last year; or

    2. The recapture tax amount decreases the original ITC amount in the initial claim year.

21.5.9.5.9  (10-01-2013)
IDRS Input of a Carryback Adjustment - Information on Adjusting AGI, TXI, EITC, ACTC, and ES Penalty

  1. Follow the guidelines in the table below for your TC 295/TC 299 adjustment. Also, review the following IRM sections before making a carryback adjustment.

    • See IRM 21.5.9.5.39, Carryback Form 1040X, Form 1120X, Form 1041, Form 1120-C, and Form 990-T Processing and Filing Requirements, for information on transaction codes and blocking series for RINTs.

    • See IRM 21.5.9.5.31, Carryback Form 1045 and Form 1139 Transaction codes, Blocking Series, and CIS Requirements, for information on transaction codes and blocking series for TENTs.

    • See IRM 21.5.9.4.7, Carryback Tolerances - Master File Verification, Math Verification, TENT/RINT Processing, Push Codes, for information on tolerances, math verification, Master File verification, and loss year posting requirements for TENTs and RINTs.

    Caution:

    See IRM 21.5.9.5.11.1, Carryback Interest - Actions to Take on All Carryback Cases when Computer-Generated Refund will be Issued within 45 Days, before inputting a carryback adjustment.

    If Then
    Change to Adjusted Gross Income (AGI) is different from the change to Taxable Income (TXI) Input both Reference Numbers 888 (AGI) and 886 (TXI).

    Note:

    The AGI may be reduced below zero but the TXI is never reduced below zero.

    Change to the AGI and TXI are identical Input Reference Number 888 only. (886 will be automatically updated for the same amount.)
    Change only affects the AGI Input Reference Number 888, and if needed, Reference Number 886 for zero.
    Change to AGI will reduce the TXI to zero or less Input Reference Number 888 only. (886 will be automatically updated to reduce the TXI to zero.)

    Reminder:

    TC 888, AGI Item Reference Number, is only valid for IMF (Individual Master File) adjustments.

    If Then
    Net Operating Loss (NOL) is not fully absorbed
    • Taxpayers are instructed to reduce AGI by the entire amount of NOL available for that gain/carryback year, and recompute any income or deduction based on, or limited to, a percentage of the AGI. The appropriate amount should be shown on line one of the Form 1045, Schedule B, per IRC 172.

    • The recomputed AGI is further reduced by deductions and exemptions to determine the recomputed TXI.

    • AGI after carryback is shown on Form 1045, line 11. TXI after carryback is shown on Form 1045, line 15. The adjustment amounts are for the difference between the before and after carryback amounts.

    • Only the TXI is adjusted on BMF (Business Master File) Accounts. The TXI after carryback is shown on Form 1139 , line 15.

    • The portion of the NOL that is not absorbed in the earliest year is then carried to the next carryback year, the AGI and TXI are recomputed, and so forth until the NOL is fully absorbed. If any NOL remains, it can generally be carried forward for up to 20 years.

    Note:

    The AGI (TC 888 input) may be reduced below zero but an attempt to reduce the TXI (TC 886 input) below zero will result in an unpostable condition.

    NOL is fully absorbed Taxpayers are instructed to subtract the NOL deduction from the AGI and recompute any income or deduction based on, or limited to, a percentage of the AGI. Reduce the AGI and TXI by the total change. Do not reduce the TXI below zero.

    Caution:

    When using Reference Number 886, do not reduce taxable income to less than zero.

  2. If an increase or adjustment to a refundable credit is needed:

    1. Input credit reference number 764 to adjust Earned Income Tax Credit (EITC.)

    2. Input credit reference number 336 to adjust Additional Child Tax Credit (ACTC)

    3. With your TC 295/TC 299 adjustment, use Priority Code (PC) 8, if required.

    4. Compute the correct interest amount on the total credit amount, based on the loss year; use TC 770. See IRM 20.2.4,Overpayment Interest, for computing overpayment interest. If the refund is issued within the 45-day interest-free time frame, input TC 770 for .00.

    5. See IRM 21.5.9.5.15, Carryback Net Operating Loss (NOL) Effect on Refundable Credits, for specific instructions when adjusting EITC and ACTC with the NOL.

      Note:

      If the TC 770 and appropriate interest amount is not entered, interest on the additional EITC/ACTC erroneously computes using the gain year due date.

  3. Do not decrease estimated tax penalty due to a carryback. This is true even if the tax is reduced to zero. Also, estimated tax penalty cannot be abated for reasonable cause. See IRM 20.1.3.3.2, Adjustments after Penalty Assessment, for Corporations, and IRM 20.1.3.2.2, Adjustments after Penalty Assessment, for Individuals and Estates.

21.5.9.5.10  (10-01-2013)
Multiple Adjustments

  1. At times, a carryback may involve different loss years or may result in an assessment. Do not combine these adjustments. A general tax adjustment and a carryback adjustment to the same gain year must be input separately, using the appropriate transaction codes. Carryback adjustments to the same gain year from multiple loss years or to the same gain year and loss year but with different received dates must also be input separately, using the appropriate interest computation dates. Refer to the table below for processing multiple carryback adjustments.

    Caution:

    When inputting multiple adjustments to one tax module, remember that only one adjustment will post per cycle. If two adjustments are input, one will post in the normal time, but the second one will resequence to post in the next cycle. It is critical to keep this in mind when determining if the 45-day interest-free period will be met. Because of the resequencing, a manual refund may be required when, if one adjustment was input, a computer-generated refund could otherwise be allowed. This resequencing occurs regardless of the transaction codes or item references involved. Even a TC 290 .00 correcting the AGI or TXI will cause the second adjustment, TC 299/TC 295, to resequence for one cycle. Adjustments post in sequential order, so a TC 290 adjustment will post one cycle before a TC 295 adjustment.

    If Then
    The carryback(s) are from the same loss year
    1. Compute tax with the Net Operating Loss (NOL) and/or Net Capital Loss (NCL) first; then apply the carryback credits.

    2. Input TC (Transaction Code) 295/TC 299, blocking series 91/blocking series 92, to decrease tax.

    The carryback(s) are from different loss years
    1. Process adjustments separately, applying the earliest loss year first.

    2. Input TC 295/TC 299, blocking series 91/blocking series 92, to decrease tax. Use the applicable interest computation dates for each of the losses.

    A carryback recapture (tax increase) is input for one gain year, and a carryback allowance (tax decrease) is input for different gain year.
    1. Input TC 294/298 blocking series 91/92/95, to increase tax.

    2. Input TC 295/TC 299, blocking series 91/ blocking series 92, to decrease the tax.

    3. Post delay TC 295/TC 299 adjustment to allow offset to take place.

  2. If action results in a carryback allowance (tax decrease) and a general tax assessment (tax increase), process them as separate adjustments. See IRM 25.6 , Statute of Limitations, for statutes applicable to each adjustment.

    Reminder:

    For the regular adjustment portion of the claim, the Assessment Statute Expiration Date (ASED) is based on the gain year.

    If Then
    The statute for assessment is open in the Gain Year
    1. The general tax increase can be input with no limitation. Input TC 29X with blocking series 05 for IMF (Individual Master File), blocking series 15 for BMF (Business Master file), and 17 for Form 1041. Interest on the general adjustment is assessed and collected pursuant to IRC §§ 6601(a) and (g).

      Caution:

      If the statute for assessment (ASED) for the regular adjustment is within 90 days of expiring, do not input a TC 290. You must route the case to the Statute Unit for assessment. See IRM 25.6.1.9.9, Procedures for Processing Amended Returns - in General.

    2. Input TC 295/TC 299 blocking series 91/blocking series 92 for the carryback adjustment. Use Hold Code "1" if money needs to be held, otherwise use Hold Code "0." The posting delay code is not necessary because the regular adjustment will post first and Master File won't post two adjustments in the same cycle.

      Note:

      Allow both adjustment notices to generate. The first adjustment notice will generate to Notice Review, due to the pending second adjustment. Notice Review will apply a label to the first notice advising the taxpayer that an adjustment is being made to the account and a separate notice will be sent. See IRM 3.14.1.6.18.1.4 , Pending (PN, RS, or UP) Doc Code 54 or 47 Transactions.

    Reminder:

    Issue a manual refund if the posting delay code will cause the carryback adjustment to post after the 45-day interest-free period, and the refund is above tolerance.

    The statute is NOT open on the Gain Year The general tax increase can only be assessed up to the amount of the carryback claim/application.

    Note:

    Interest on the general tax increase is not limited by the amount of the carryback claim/application.



    Follow the steps below to net the adjustments.
    1. Input the carryback adjustment for the full amount, using Hold Code 1 or 4.

    2. If the general tax increase is equal to or less than the carryback adjustment, input the general tax adjustment..

    3. If the general tax increase is more than the carryback adjustment, input the general tax increase for the amount equal to the carryback adjustment. Disallow the remaining general tax increase by following the procedures in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

      Example:

      On April 20, 2013, a taxpayer files an amended return which includes a general tax increase of $2,000 for 200812. The ASED (Assessment Statute Expiration Date) expired for 200812 on 04/15/2012. The taxpayer also files an amended return to claim a NOL carryback from 201012 to 200812 for $1,000. Input TC 299 for $1,000. Then input TC 290 for $1,000. Issue a 106C partial disallowance letter to provide an explanation to the taxpayer that the requested tax increase could only be input for an amount up to the amount of the carryback claim and the remaining amount could not be assessed due to the statute of limitations.

    4. Issue a manual refund for the remainder, if any.

      Example:

      On April 20, 2013, a taxpayer files an amended return which includes a general tax increase of $1,000 for 200812. The ASED expired for 200812 on 04/15/2012. The taxpayer also files an amended return to claim a NOL carryback from 201012 to 200812 for $2,000. Input TC 299 for $2,000. Then Input TC 290 for $1,000 for the general tax increase. Issue a manual refund .

    Caution:

    Netting/offsetting of tax increases and decreases can only be done on the same tax year. A tax increase on one tax year cannot be netted with a tax decrease on a different tax year.

21.5.9.5.11  (10-01-2013)
Carryback Interest

  1. Interest is not paid on the refund of a carryback claim/application if the 45-day interest-free period is met. To determine whether the 45-day period has been met, consider the following dates:

    • the due date of the loss year return

    • Received date of the delinquent loss year return

    • The date the loss year return is filed in processible form

    • the application or claim received date

    • the application or claim processible date, whichever is later

    If the 45-day interest-free period is missed, interest on the refund of a carryback overpayment will be paid as specified in the following table.

    If And Then
    An application (Form 1045 or Form 1139) is filed The resulting overpayment is not refunded within the 45-day period Pursuant to IRM 20.2.9.2(1), Determining the Overpayment Interest Period, interest is computed from the later of these dates:
    1. the loss year return due date (determined without regard to extensions)

    2. the received date of a delinquent loss year return

    3. the date the loss year return is filed in processible form,

    4. the date the overpayment arose

    The above FROM dates are applicable to manual and systemic refunds. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF, for information on interest TO dates.
    A claim (Form 1040X or Form 1120X) is filed The resulting overpayment is not refunded within the 45-day period Pursuant to IRM 20.2.9.2(1), Determining the Overpayment Interest Period, interest is computed from the later of these dates:
    1. the loss year return due date (determined without regard to extensions)

    2. the received date of a delinquent loss year return

    3. the date the loss year return is filed in processible form

    4. the date the overpayment arose

    The above FROM dates are applicable to manual and systemic refunds. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF , for information on interest TO dates.

  2. TC 294/TC 295/TC 298/TC 299 must contain an interest-start-date (INTCMP-DT) to post. The computer uses the interest start date as the credit availability date to begin the computation of credit interest, if applicable. The TCB-DT is the date Master File uses to determine if the 45-day interest-free period has been met. See IRM 21.5.9.5.32, Carryback Form 1045 and Form 1139 Interest Computation Dates, for TENT input requirements. See IRM 21.5.9.5.40, Carryback Form 1040X, Form 1120X, Form 1041, Form 1120-C and Form 990-T Interest Computation Dates, for RINT input requirements.

    Caution:

    Do not include an AMD-CLMS-DT on a TC 294/TC 295/TC 298/TC 299 adjustment.

  3. See the Carryback 45-Day Interest-Free Charts on SERP to review a current carryback interest-free chart that includes the following:

    • The IRS received date

    • Last date for IDRS Input

    • Martinsburg Computing Center (MCC) posting cycles

    • The 23-C date

    • Generated Refund Date

    • Last Day for Manual Refund

      Caution:

      Discontinue use of any local 45-day interest-free period chart. You must use the 45-day interest-free chart located on SERP under the IRM Supplements Tab as "Carryback 45-Day Interest-Free Charts." .

  4. Refer to IRM 20.2.9,Interest on Carryback of Net Operating Loss, for additional information.

21.5.9.5.11.1  (10-01-2013)
Carryback Interest - Actions to Take on All Carryback Cases when Computer-Generated Refund will be Issued within 45 Days

  1. The Office of Servicewide Interest has identified an issue with some IMF (Individual Master File) and BMF (Business Master File) computer-generated carryback refunds. In certain instances, credit interest is generating when the refund is issued within the 45-day interest-free period.

  2. Until further notice, follow the steps below prior to input of a carryback adjustment.

    Exception:

    Do not follow these procedures if you will be issuing a manual refund because the 45-day interest-free period is either in jeopardy or has expired, or because the refund is for $1M or more.

    1. Determine if a computer-generated refund will be issued within 45 days. See the Carryback 45-Day Interest-Free Charts on SERP. for IMF. If yes, go to Step 2. If no, a manual refund may be necessary. See IRM 21.5.9.5.12, Carryback Manual Refund.

    2. On the gain year tax module(s), look for any payments or credits with a date that is later than the Interest Computation Date of the carryback adjustment.

      Example:

      A 201012 Form 1040 Net Operating Loss (NOL) is being carried back to 200912. The Interest Computation Date of the 2010 NOL is 04/15/2011. An analysis of the 200912 module shows two TC 670 payments. One is dated 03/15/2011. One is dated 05/18/2011. In this case, the module contains one payment (TC 670 dated 05/18/2011) that is later than the Interest Computation Date of the NOL carryback (04/15/2011).

      Example:

      A 201012 Form 1120 NOL is being carried back to 200912. The Interest Computation Date of the 2010 NOL is 03/15/2011. An analysis of the 200912 module shows two TC 670 payments. One is dated 02/14/2011. One is dated 04/15/2011. In this case, the module contains one payment (TC 670 dated 04/15/2011) that is later than the Interest Computation Date of the NOL carryback (03/15/2011).

    3. If any payments are present on a gain year module that meet the condition in Step 2, and a computer-generated refund will be issued within 45 days, input a TC 770 for zero with the carryback adjustment.

    4. If no payments are present on a gain year module that meet the condition in Step 2, and a computer-generated refund will be issued within 45 days, a TC 770 is not necessary for this situation.

      Note:

      There are other conditions involving adjustments to Earned Income Tax Credit (EITC) and other refundable credits that require a TC 770 for zero to be input with the carryback adjustment. See IRM 21.5.9.5.9, IDRS Input of a Carryback Adjustment - Information on Adjusting AGI, TXI, EITC, ACTC, and ES Penalty, and IRM 21.5.9.5.15, Carryback Net Operating Loss (NOL) Effect on Refundable Credits, for information on those conditions.

21.5.9.5.12  (10-01-2013)
Carryback Manual Refund

  1. The following chart provides instructions for when a Carryback manual refund must be issued.

    If And Then Additional Information
    The refund amount is $5,000 or more The 45-day interest free period is in jeopardy Issue a manual refund If one module has a $6,000 refund, and the 45-day interest-free period is in jeopardy , issue a manual refund. If another module has a $4,500 refund, do not issue a manual refund for that module
    The refund amount is $25,000 or more The 45-day interest-free period has expired Issue a manual refund If one module has a $25,500 refund, and the 45-day interest-free period has expired, issue a manual refund. If another module has a $10,000 refund, do not issue a manual refund for that module
    An X- Freeze is present on the module, regardless of the amount of the carryback refund   Issue a manual refund The X- freeze is set when the module credit balance is ≡ ≡ ≡ ≡ ≡ ≡ . The freeze prevents any credits from systemically offsetting or refunding. Effective January 2010, the X- freeze is released once the credit available for refund or offset (including principal and any credit interest the taxpayer is entitled to) drops below ≡ ≡ ≡ ≡ ≡ .
    See IRM 21.5.6.4.47, X- Freeze, for additional information
    The 90-day TENT processing time is in jeopardy   Issue a manual refund if the TENT is 70 days or older See IRM 21.5.9.5.30, Carryback Form 1045 and Form 1139 Processing and Filing Requirements, for additional information
    The refund amount, including interest, exceeds $1 million. )   Issue a manual refund Prepare Form 5792 for manual refunds under $10 million, and Form 3753 for manual refunds $10 million and over.
    Manual refunds over $1 million that include credit interest must be reviewed by the Technical Unit. See IRM 21.4.4.5,Other Manual Refund Requirements, for review processing.
    Also see IRM 21.4.4.4, Preparation of Manual Refund Forms for additional information
    The name and/or address differs from Master File There is a filing Status change, or consolidated corporate return, etc. Issue a manual refund Attach an explanation to the manual refund. Input TC 971 Action Code 037, as needed. See IRM 21.4.4.5, Other Manual Refund Requirements, for additional information
    The taxpayer or spouse is deceased   Issue a manual refund See IRM 21.4.1.4.9.4, Deceased Taxpayers for additional information
    If an offset credit will be included in the carryback refund   Issue a manual refund Refer to IRM 21.4.6.4.1.1, Tax Offset Reversal, for guidance on determining when the tax credit offset must be reversed
    The refund is over $1 million dollars when the request is for a direct deposit   Issue a direct deposit manual refund Form 3753 must be used per IRM 21.4.4.4.2, Preparation of the Form 3753, Manual Refund Posting Voucher. Prepare Form 3753 when the taxpayer is requesting a wire transfer (Form 8302), see IRM 3.17.79.3.10.1, Form 8302, Electronic Deposit of Tax Refund of $1 Million or More Processing Requests for Refunds.
    Manual refunds over $1 million that include credit interest must be reviewed by the Technical Unit. See IRM 21.4.4.5,Other Manual Refund Requirements, for review processing
    The refund is authorized by the Insolvency Unit or Appeals on "-V" freeze accounts or "-W" freeze accounts   Issue a manual refund after obtaining approval from the Insolvency Unit or Appeals See IRM 21.5.6.4.44, -V Freeze, for additional information
    The refund is $50 million or more but less than $500 million   Contact the Campus Accounting Function using the information in IRM 21.4.4-3, Accounting Function - Manual Refund Team Contact Information prior to issuing a manual refund See IRM 21.4.4.5(3), Other Manual Refund Requirements for additional information
    Notate the contact with the Campus Accounting Function in CIS
    The refund is $500 million or more   Contact the Campus Accounting Function using the information in IRM 21.4.4-3, Accounting Function - Manual Refund Team Contact Information prior to issuing a manual refund
    Additionally, send a secure email to the Carryback Headquarters Analyst and include the following information:
    TIN
    Name Control
    IRS Received Date
    AM Received Date
    Claim/Application Amount
    Date Closed
    Amount of Tax Decrease
    See IRM 21.4.4.5(3), Other Manual Refund Requirements for additional information
    Notate the contact with the Campus Accounting Function and email to Headquarters in CIS

  2. When issuing a Carryback Manual Refund consider previously assessed failure to file, failure to pay penalties and interest that will be affected by the adjustment actions. Any decrease in penalties or interest already paid must be included in the overpayment amount. In addition, unassessed accruals of penalty and/or interest may reduce the overpayment amount.

  3. Follow manual refund procedures in IRM 21.4.4,Manual Refunds.

21.5.9.5.12.1  (10-01-2013)
General Agreement on Tariffs and Trade (GATT) Processing

  1. After its amendment by the General Agreement on Tariffs and Trade (GATT), IRC § 6621(a)(1) established two rates of interest for interest accruing after December 31, 1994: The corporate rate to be applied to the extent that a corporate overpayment for a tax period is less than or equal to $10,000 and the other, an even lower rate, to be applied to the extent that such an overpayment for a taxable period exceeds $10,000 (the GATT rate).

  2. If a CSR/TE (Customer Service Representative/Tax Examiner) is preparing a manual refund for a corporate account, such as Form 1120, the corporate and GATT rates must be considered in the computation of any overpayment interest. See IRM 20.2.4.9,Special Credit Interest Rules for Corporations, and subsequent subsections, for detailed instructions.

21.5.9.5.13  (10-01-2005)
Carrybacks on Retention Register

  1. Follow procedures in IRM 21.2.2.5.9, On Line Retention Register, for reinstating retention register accounts (IMFOLB/BMFOLB). See IRM 21.2.2.5.8, Microfilm Retention Register, for accounts that need reinstating via microfilm. Also see IRM 21.2.2.5.10, Requester Responsibilities.

  2. Prepare a manual refund (Form 5792) for the amount shown on the gain year if the interest-free period is in jeopardy.

21.5.9.5.14  (10-01-2013)
Carryback Net Operating Loss (NOL)

  1. A Net Operating Loss (NOL) is created when certain deductions exceed income from all sources. A NOL lowers taxes in an earlier year, allowing a refund for taxes already paid. These deductions must relate to a trade or business, work as an employee, or casualty or theft. Any loss remaining after applying the NOL to preceding years lowers taxes in a later year. The taxpayer must use the NOL before applying unused credit.

  2. For individual taxpayers, calculate NOL in the same manner as taxable income, excluding any:

    • NOL carryback or carryover from another year

    • Net Capital Loss that decreased the taxable income

    • 1202 exclusion (exclusion of 50 percent or more of gain from small business stock)

    • Deduction for exemptions

    • Non-Business deductions exceeding non-business income (see paragraphs 4 and 5 below)

    • Domestic production activities deduction

  3. For corporate taxpayers, calculate NOL in the same manner as taxable income with the following modifications:

    • exclude NOL carryback or carryover from another year

    • exclude domestic production activities deduction

    • disregard the aggregation limitations that apply to the dividends received deductions for dividends received from a domestic corporation, dividends received on certain preferred public utility stock, and dividends received from certain foreign corporations.

      Note:

      Schedule C from Form 1120 and a statement showing the recomputed dividend deduction must be attached to the loss year return.

  4. The following are examples of Non-Business Income:

    • Dividends and interest (SCH B)

    • Alimony received

    • Trust income (SCH E)

    • Non-business capital gains in excess of non-business capital losses (SCH D)

    • Social Security Benefits

  5. The following are examples of Non-Business Deductions:

    • Individual Retirement Arrangement (IRA) Keogh, or Simplified Employee Pension (SEP), Archer Medicare Advantage (MSA) Plans

    • Alimony paid

    • Medical Expenses

    • Charitable contributions

    • Standard Deduction

    • Education Expenses

    • Student Loan Interest

    • Tuition and Fees Deduction

    • Penalty on early withdrawal of savings

    • Personal Interest

    • Health Savings account deduction

  6. For any tax year that a homeowners association elects to file Form 1120-H, U.S. Income Tax Return for Homeowners Associations, a net operating loss deduction is not allowed in that year per IRC § 528(d)(2)(B).

  7. The Taxpayer Relief Act (TPRA) of 1997, Sec. 1082, limits the NOL carryback period to two years and extends the NOL carryforward period to 20 years. This applies to NOLs arising in taxable years beginning after August 5, 1997 (date of enactment). For tax years beginning on or before August 5, 1997, the carryback period for a NOL was three years and the carryforward period was 15 years.

  8. For a farming loss arising in tax years beginning after August 5, 1997, the carryback period is five years. For a farming loss arising in tax years beginning after December 31, 1997, the taxpayer may make an irrevocable election to:

    1. Waive the special five-year carryback period for the farming loss, or

    2. Forgo the entire carryback period.

    If Then
    Electing a) above Carryback the NOL two years, then forward 20 years.
    Electing b) above Carryforward the NOL 20 years.

    Note:

    For more about the election, see IRM 21.5.9.5.2, Carryback/Carryforward Election.

  9. NOLs qualifying as "eligible losses" retain the three-year carryback period. (The losses cannot be carried back two years.) These eligible losses (besides certain farming losses) are:

    • IMF (Individual Master File) - Losses of property arising from fire, storm, shipwreck, other casualty, or theft

    • BMF (Business Master File) - (Small business) - NOL attributable to federally declared disasters

    Reminder:

    An "eligible" loss also includes a farming business loss incurred in a federally declared disaster area.

  10. Verify an individual taxpayer's NOL computation using Form 1045, Schedule A. Any corrections or changes made to taxpayer figures must be either directly edited in CIS or by attaching a "dummied" form to the CIS case.

21.5.9.5.14.1  (10-01-2012)
Net Operating Loss (NOL) Carrybacks/Job Creation and Worker Assistance Act of 2002

  1. The Job Creation and Worker Assistance Act of 2002 provided a five-year carryback period (from two years, or three years in certain cases) for net operating losses for any taxable year ending during 2001 and 2002. For additional information on the Job Creation and Worker Assistance Act of 2002 see archived revisions of IRM 21.5.9.

21.5.9.5.14.2  (12-30-2008)
Gulf Opportunity Zone Act of 2005 (GO Zone) - Net Operating Losses

  1. Refer to Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, for GO Zone carryback net operating loss information for taxpayers who were affected by those disasters.

  2. IRC § 1400N(k) allows a five-year carryback for Net Operating Losses (NOLs) that are qualified GO Zone losses, and is effective for taxable years ending on or after 8-28-05. A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone, except for certain property described in Section 1400N(p)(3), if the loss was caused by Hurricane Katrina. Section 1231 property is property used in a trade or business.

  3. The five-year GO Zone net operating loss carryback does not apply to personal casualty losses. Individuals with a personal casualty loss sustained in a presidentially declared disaster area are subject to a three-year carryback period for eligible losses.

  4. If a taxpayer has a GO Zone loss in 2005 or a subsequent taxable year that includes a casualty loss, and the taxpayer elects to forgo the five-year carryback for GO ZONE losses, then the casualty loss portion of the NOL is not treated as an eligible loss that the taxpayer can carry back three years under IRC § 172 (b)(i)(F). The normal two-year NOL carryback period will apply instead, unless the taxpayer elects to forgo all carryback periods under IRC § 172 (b)(3).

  5. When there is a situation where the taxpayer has no NOL in 2005 or a subsequent taxable year, but has a casualty loss attributable to Hurricane Katrina, the taxpayer can elect, under IRC 165(i), to treat the loss as occurring in the preceding taxable year. If a Hurricane Katrina casualty loss offsets positive taxable income in part and in part contributes to the generation of a NOL, the taxpayer can also elect, under IRC 165(i) to treat the casualty loss as occurring in the preceding taxable year. The taxpayer cannot make an IRC 165(i) election for a Hurricane Katrina 2005 casualty loss if the entire amount of that loss is used to generate a GO Zone loss. Should the taxpayer elect to take the casualty loss in 2004 and the loss is part of a NOL for 2004, the casualty loss portion of the 2004 NOL is treated as an eligible loss, and the three-year NOL carryback would then apply.

21.5.9.5.14.2.1  (12-30-2008)
Housing and Economic Recovery Act of 2008 - Hurricane Housing Grant Guidelines for Individual Taxpayers

  1. The Internal Revenue Service released News Release IR-2008-115 to help eligible homeowners who received housing grants stemming from Hurricanes Katrina, Rita, or Wilma, take advantage of a new tax provision. Before this change, homeowners who claimed a personal primary home casualty loss and then received a housing grant in a later year were required, by law, to pay tax on all or part of the grant to compensate for the tax benefit of the casualty loss. While individual circumstances varied, this meant some taxpayers ended up paying more tax on the grant than they saved by claiming a casualty loss. Notice 2008-95, available on IRS.gov, provides guidelines to homeowners who claimed a personal primary home casualty loss on a prior year return and then received a housing grant in a later year.

  2. Under Section 3082(a) of the Housing and Economic Recovery Act of 2008, Public Law 110-289, these taxpayers have the option of amending prior year returns to reduce the personal primary home casualty loss by the amount of the grant and paying back any resulting tax due, penalty and interest-free (as long as the additional tax is paid within one year of the amended return received date), rather than reporting the grant as income in the year it is received.

  3. Taxpayers are instructed to file Form 1040X, Amended U.S. Individual Income Tax Return, to adjust a previously taken casualty loss and mail it to the Austin Campus. The amended returns may consist of a variety of adjustments such as:

    • An assessment for 2004 or 2005 reducing a previously claimed personal primary home casualty loss

    • An assessment for 2005, 2006, and/or 2007 reducing a Net Operating Loss (NOL) carryover due to the reduction of a previously claimed personal primary home casualty loss

    • An assessment for 2000 through 2004 reducing a NOL carryback due to the reduction of a previously claimed personal primary home casualty loss

    • A decrease for 2006 or 2007 reducing or eliminating housing grant income received as a result of a hurricane loss.

  4. These amended returns are worked at the Austin Accounts Management (AM) campus. If one of these returns is received in a different location, route to the Austin AM ICT team at M/S 6567. If a case has already been scanned into CIS, reassign to the Austin Campus IDRS number 0638126186 and change the category code to XHRG. Keep all cases together and route/reassign all tax years at the same time.

    Caution:

    Do not send CAT-A as "taxable to non-taxable" prior to reassigning/routing to the Austin campus. These returns do not meet CAT-A criteria.

    Caution:

    These amended returns are not restricted by normal assessment statute (ASED) rules. Do not route to the Statute function prior to reassigning/routing to Austin AM.

  5. Procedures for Austin AM employees working these claims are located in IRM 21.6.6.3.49, Section 3082(a) of the Housing and Economic Recovery Act of 2008 - Disaster Primary Housing Grant Relief.

21.5.9.5.14.3  (10-01-2013)
Kansas Disaster Area (PL 110-234) - Net Operating Losses

  1. The Food, Conservation, and Energy Act of 2008 provides tax relief for taxpayers in Kiowa County, Kansas, and surrounding areas, who were affected by the storms and tornadoes that began on May 4, 2007. Generally, taxpayers can carry a net operating loss (NOL) back to the two tax years before the NOL year. However, the portion of a NOL that is a "qualified recovery assistance loss" can be carried back to the five tax years before the NOL year.

    Note:

    A qualified recovery assistance casualty loss is any deductible section 1231 loss of property located in the Kansas disaster area, if the loss was caused by the storms and tornadoes. Section 1231 property is property used in a trade or business.

  2. In addition, the 90 percent limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Taxpayers in the affected areas who previously filed their 2007 tax returns and carried back the loss for two years can file an amended return to carry back for five years a NOL attributable to a qualified recovery assistance loss. See Publication 4492–A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes, for detailed information.

21.5.9.5.14.4  (10-01-2013)
Midwestern Disaster Area (PL 110-343, Section 702) - Net Operating Losses

  1. HR 1424 (Public Law 110-343), Section 702, provides tax relief for victims of the Midwestern Disaster Area. The Midwestern disaster area is restricted to the states of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin for areas that have been presidentially declared as eligible for federal relief on or after May 20, 2008, and before August 1, 2008, by reason of severe storms, tornadoes, or flooding occurring in those states.

  2. The legislative acts are similar to those provided by GO Zone. See IRM 21.5.9.5.14.2, Gulf Opportunity Zone Act of 2005 (GO Zone) - Net Operating Losses. The portion of a Net Operating Loss (NOL) that is a "qualified disaster recovery assistance loss" can be carried back to the 5 tax years before the NOL year.

  3. A qualified disaster recovery assistance casualty loss is any deductible section 1231 loss of property located in a Midwestern disaster area if the loss was caused by the severe storms, tornadoes, or flooding. Section 1231 property is property used in a trade or business. In addition, the 90 percent limit on alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. See Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Area, for detailed information.

21.5.9.5.14.5  (03-31-2009)
National Disaster Relief Act (PL 110-343, Section 708) - Net Operating Losses

  1. The National Disaster Relief Act of 2008, Subtitle B of Title VII of the Emergency Economic Stabilization Act of 2008, signed into law on Oct. 3, 2008, as Public Law 110-343, provides tax relief for victims of federally declared disasters occurring after Dec. 31, 2007 and before Jan. 1, 2010. Areas declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act qualify as federally declared disasters.

  2. Section 708 of the National Disaster Relief Act allows taxpayers to carry back a "qualified disaster loss" five years. A qualified disaster loss is the lesser of the taxpayer’s net operating loss for the taxable year or the sum of the following:

    • The taxpayer’s losses allowable under IRC § 165 for the taxable year attributable to a federally declared disaster occurring before Jan. 1, 2010, and occurring in a disaster area; and

    • The taxpayer’s deduction for the taxable year for qualified disaster expenses allowable under IRC § 198A(a) (or the amount that would have been allowable under that section if the taxpayer had not deducted such expenses under another section of the Internal Revenue Code).

  3. Section 708 provides that the 90 percent limit does not apply to the portion of the AMT net operating loss deduction attributable to a qualified disaster loss.

  4. Section 712 provides that these changes to the law do not apply to the Midwestern disaster areas declared during the period beginning on May 20, 2008, and ending on July 31, 2008. See Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Area, for information on specific relief provided to these taxpayers.

  5. Taxpayers may elect, by attaching a statement to their timely filed income tax return, to figure a qualified disaster carryback without regard to the special five-year carryback rule. The election must be made by the due date, extended due date, or within six months after the due date (per Section 301.9100-2 of the regulations) of a timely filed loss year return. Once made, the election is irrevocable.

  6. See Declared Disasters by Year or State on the Federal Emergency Management Agency (FEMA) Website for a listing of federally declared disaster areas.

21.5.9.5.14.6  (10-01-2013)
American Recovery and Reinvestment Act of 2009 (PL 111-5, Section 1211) - Net Operating Losses

  1. The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law on February 17, 2009 as Public Law 111-5. Section 1211 provides an extended carryback period for "eligible small businesses" sustaining a net operating loss in tax year 2008. See IRM 21.5.9.5.14.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five-Year Carryback of Eligible Small Business Credits, for the definition of an eligible small business.

  2. The provision allows taxpayers that are "eligible small businesses" to elect a three, four, or five-year carryback period for a 2008 Net Operating Loss (NOL). If an eligible small business is a pass-through entity such as a partnership or S-Corp, partners or shareholders are allowed to elect an extended carryback period for a 2008 NOL that stems from the loss generated by such eligible small business. Pass-through entities are not taxable entities, cannot have a NOL, and cannot make the election. See IRM 21.5.9.5.14.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five-Year Carryback of Eligible Small Business Credits, for the definition of an eligible small business.

  3. The provision applies to net operating losses arising in taxable years ending after December 31, 2007.

  4. Calendar year filers can only make this election for their 200812 tax year. See IRM 21.5.9.5.14.6.2, Calendar Year Filers - Late Filed 200812 Elections, for information on late filed elections for calendar year filers.

  5. Fiscal year filers may elect the extended carryback period for one tax year that either begins in 2008 or ends in 2008. See IRM 21.5.9.5.14.6.3, Fiscal Year Filers - Election for One Tax Year that Begins or Ends in 2008, for additional information on fiscal year filers.

  6. Taxpayers make the election in one of two ways. The first method is with the loss year return or the amended loss year return. The second method is with the appropriate form (1045, 1139, 1040X, 1120X, etc.).

  7. Method 1 - Taxpayers make the election by attaching a statement to their timely filed 2008 return. Per Revenue Procedures (Rev. Proc.) 2009-19 and -26, the statement must clearly state that the taxpayer is electing to apply §172(b)(1)(H) and include the carryback period they are electing (three, four, or five-years).

    Note:

    Rev. Proc. 2009-26, which supersedes Rev. Proc. 2009-19, was published on April 24, 2009 to provide modified guidance to taxpayers on how to make the election. See Paragraph (12) below.

  8. The election must be made by the due date (or extended due date) of the loss year return, or, if the taxpayer files a timely loss year return without making the election, the taxpayer may make the election on an amended loss year return filed within six months of the normal due date (excluding extensions). See Section 301.9100-2 of the regulations. In the case of a taxable year ending after December 31, 2007, but before February 17, 2009, the election will be treated as timely made if filed on or before April 17, 2009, even if the loss year return due date has passed.

    Example:

    A sole proprietor who filed a timely calendar year return for 200812 may make the election on an amended 2008 return by October 15, 2009. (October 15, 2009 is 6 months from the normal due date of April 15, 2009.)

    Example:

    A corporation with a fiscal year ending 200801 must make the election by April 17, 2009. The due date for the return is April 15, 2008 and six months from the normal due date is October 15, 2008. If both of those dates have passed, the taxpayer can still make the election, if filed by April 17, 2009.

  9. Once the election is made, it is irrevocable.

    Example:

    A corporation files its 200812 return timely on 3/15/2009. An extension to 9/15/2009 is also filed. On 3/15/2009 the corporation makes an election as an eligible small business to claim a four-year carryback period and files Form 1139 carrying back losses to years 200412, 200512, 200612, and 200712. On 9/15/2009, the corporation files an amended return (Form 1120X) which generates additional losses available for carryback. The corporation must use the four-year carryback period that was previously elected. No change to the previously elected carryback period is permitted. While the taxpayer cannot change the previously elected period, additional amounts can be carried back using the four-year carryback period that was previously elected.

  10. Method 2 - If the taxpayer does not make the election on the loss year return or amended return, the second way the taxpayer may make the election is by filing the appropriate form (Form 1045, Form 1139, Form 1040X, Form 1120X, etc.) applying the NOL carryback period the taxpayer chooses (three, four, or five years) for the earliest taxable year to which the NOL may be carried pursuant to the election. Under Rev. Proc. 2009-26, no statement or label is required on the form to make the election. To make the election, the taxpayer must file the appropriate form on or before the later of the date that is six months after the due date (excluding extensions) for filing the taxpayer's return for the taxable year of the applicable 2008 NOL or April 17, 2009.

  11. An eligible small business entity (or a taxpayer who has a pass-through loss from eligible small business entities) that does not wish to elect the extended carryback period, can claim the normal two-year carryback period. There is no requirement to waive the extended period. Process carryback applications claiming the normal two-year carryback period in the normal manner.

  12. Rev. Proc. 2009-26 provides taxpayers with instructions on when and how to file for the extended carryback loss under ARRA 2009, Section 1211. The IRS also posted Questions and Answers for ARRA - Section 1211 5-year Net Operating Loss Carryback Election for Small Businesses which provides answers to common questions taxpayers may have and may also be useful when answering taxpayer calls. A News Release, IR-2009-26, March 16, 2009, was also issued to the public.

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  14. When sending any letter, remember to capture the "request completed" screen for CC LETER. See IRM 21.5.1.5.1(7), CIS General Guidelines.

  15. To ensure consistent processing of ARRA 2009, Section 1211 claims, follow the processing steps, in the order shown, in IRM 21.5.9.5.14.6.9, Processing ARRA 2009, Section 1211 Carryback Applications/Claims - Steps to Ensure Consistent Processing.

  16. See IRM 21.5.9.5.14.6.6.1, ARRA 2009, Section 1211 - Applications/Claims Received After the Statutory Period for Making the Election (Understanding the Difference between Making a Timely Election and Filing the Extended Carryback Application/Claim, before rejecting or disallowing any Section 1211 carryback application or claim due to timeliness of the election.

  17. The Worker, Homeownership, and Business Assistance Act (WHBAA) of 2009, signed into law on November 6, 2009, amended IRC § 56(d)(1)(A)(ii)(I), removing the 90 percent limitation of Alternative Tax Net Operating Loss Deduction (ATNOLD) for periods ending after Dec. 31, 2002 for Alternative Tax Net Operating Loss (ATNOL) for which taxpayers make an election under IRC § 172(b)(1)(H). This affects both ARRA and WHBAA carrybacks. See IRM 21.5.9.5.14.6.10., ARRA 2009, Section 1211 - 90 Percent Limitation of Alternative Tax Net Operating Loss Deduction (ATNOLD) Does Not Apply.

21.5.9.5.14.6.1  (10-01-2013)
Eligible Small Business - $15M Gross Receipts Test

  1. An "eligible small business" (ESB) is a small business as defined in IRC § 172(b)(1)(F)(iii), except that a business qualifies under the gross receipts test of IRC § 448(c) if the business' three -year average annual gross receipts are not more than $15 million. An eligible small business may be a corporation, sole proprietorship, partnership, S-Corp, trust, etc. All eligible small businesses claiming an extended carryback period under ARRA 2009, Section 1211, are subject to the $15M gross receipts test. The aggregation rules of IRC 448(c)(2) may require combining the gross receipts of more than one business in applying this test.

    Caution:

    Because a pass-through entity such as a partnership or S-Corp cannot have a Net Operating Loss (NOL), the entity cannot elect to apply an extended carryback period. However, partners or shareholders of the entity may elect an extended carryback period for their NOLs stemming from the entity. In this case, the $15M gross receipts test applies to the pass-through entity and not to the partners or shareholders.

    Caution:

    Extended carryback applications and claims that were prepared and signed on or after Nov. 6, 2009 may not be ARRA carrybacks. Taxpayers may be filing a three, four, or five-year carryback under the Worker, Homeownership, and Business Assistance Act (WHBAA) of 2009, which allows almost all businesses to carryback losses incurred in 2008 or 2009 for up to five years. These taxpayers are not subject to the $15M gross receipts test. Before rejecting or disallowing an extended carryback that was prepared and signed on or after Nov. 6, 2009, follow the procedures in IRM 21.5.9.5.14.7.4., Distinguishing Between an ARRA 2009, section 1211 Carryback and a WHBAA 2009, Section 13 Carryback When no Election Statement is Attached.

  2. AM assistors use the Gross Receipts Average Calculator (GRAC) tool to perform the $15M gross receipts test. See IRM 21.5.9.5.14.6.1.1, Using the Gross Receipts Average Calculator (GRAC) - Required $15M Gross Receipts Test, for information on using GRAC to perform the $15M gross receipts test.

    Caution:

    You must follow the steps for processing an ARRA 2009, Section 1211 claim in the order shown. See IRM 21.5.9.5.14.6.9, Processing ARRA 2009, Section 1211 Carryback Applications/Claims - Steps to Ensure consistent Processing.

    Note:

    Prior to the GRAC tool deployment in late May 2009, AM received on-site assistance from Compliance personnel (Revenue Agents) in performing this test. Interim procedures were distributed to the designated points of contact at the Carryback sites. If the Revenue Agent determined the taxpayer did not meet the $15M gross receipts test, the application/claim was rejected/disallowed using the appropriate C letter.

  3. Forward all responses received from taxpayers disagreeing with a "not met" gross receipts determination to Examination as a Technical Assistance Request. See IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

    Caution:

    If the taxpayer resubmits the same tentative carryback, and the only change is that he is providing an explanation of why the GRAC is incorrect (why he does qualify as an ESB), and the 12 month period for filing a TENT has expired, per Counsel, do not reject the TENT for timeliness. Forward the case to Examination as stated above. Otherwise, if the taxpayer submits a revised TENT, and the 12 month period for filing a TENT has expired, reject the TENT for timeliness, following normal procedures.

  4. If a case is returned from Examination with instructions to accept the application/claim as filed, the start date for the 45-day interest-free period is determined based on whether the taxpayer submitted new information that allowed the Service to process the case, or whether the taxpayer resubmitted the same information a second time. The 45-day interest-free period begins with the later of:

    • Due date of the loss year return

    • Received date of the delinquent loss year return,

    • Date the loss year return is filed in processible form,

    • The application or claim received date, or

    • The application or claim processible date

21.5.9.5.14.6.1.1  (10-01-2013)
Using the Gross Receipts Average Calculator (GRAC) - Required $15M Gross Receipts Test

  1. On May 21, 2009, Integrated Automation Technologies (IAT) released a new tool, called the Gross Receipts Average Calculator (GRAC). The GRAC tool is accessed via the IAT Task Manager, located on the IAT Web site, and is used to run the $15M gross receipts test on every ARRA 2009, Section 1211 carryback application/claim.

    Note:

    The GRAC tool is not appropriate for any other use.

  2. Listed below is some information on GRAC functionality.

    Note:

    A GRAC Job Aid is located on the GRAC tool, under the Help tab, and can also be downloaded/printed from the IAT-SWFT website. See Gross Receipts Average Calculator (GRAC).

    1. The CSR/TE will input the TIN, MFT, and Tax Period of the loss year return into GRAC.

      Caution:

      The tool will gather specific posted return information on the loss year and two prior tax years. For IMF (Individual Master File) returns, the tool will default the loss year to 200812, but this can be changed, if appropriate. For a fiscal year filer, the loss year can be between 200801 and 200911. The loss year cannot be 200712 or prior.

    2. GRAC will perform the $15M gross receipts test.

      Exception:

      If the case is a TENT, and the TC 150 for the loss year has not posted, the tool will prompt the CSR/TE to enter specific line items, if present, from the copy of the loss year return the taxpayer was required to submit.

      Note:

      For IMF claims, if the tool finds Schedule E income on the loss year return, and the return was not filed electronically (the Employer Identification Numbers (EINs) of the partnership or S-Corp are not transcribed for paper-filed returns), the tool will prompt the CSR/TE to input all EINs from the taxpayer submitted copies of Schedule E or Schedule K-1. If the EINs are not available from the documentation submitted by the taxpayer, the CSR/TE will click on the "No TINS" button. Do not contact the taxpayer for this information.

    3. A Results page will display which provides a detailed list of all income items calculated.

    4. A conclusion is displayed at the bottom of the Results page, i.e. "Criteria met," "Criteria not met," "unable to compute." The CSR/TE will use this conclusion to determine how to proceed with the claim.

    5. The CSR/TE will be prompted to capture the Results screen in CIS.

    6. If the conclusion is "met," the CSR/TE will work the case. See IRM 21.5.9.5.14.6.9., Processing ARRA 2009, Section 1211 Carryback Applications/Claims - Steps to Ensure Consistent Processing.

    7. If the conclusion is "not met," because the taxpayer's gross receipts exceed $15M, GRAC will generate the appropriate letter to be sent to the taxpayer. The CSR/TE will be prompted to capture the LPAGE screen in CIS and click "OK." The letter and Form 5703, IDRS Letter Enclosure, will then auto-print. The CSR/TE will then be prompted to capture the Results page in CIS, and will also print the Results page to attach to the Form 5703 and close the case.

    8. In some instances (IMF only), GRAC cannot perform the $15M gross receipts test. When this occurs, the Conclusion on the Results Page will advise the CSR/TE to process the claim and either apply CAT-A criteria before paying the application (in the case of a RINT) or after paying the claim (in the case of a TENT).

      Note:

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    9. In the rare event one of the taxpayer's primary prior year tax returns is missing, the tool will generate a letter (216C or 916C) to the taxpayer advising him that the missing return must be filed before the application/claim can be processed. The CSR/TE will attach a copy of the Results page to the letter, which will show the taxpayer which return is missing, and close the case.

      Example:

      Form 1040 taxpayer files Form 1045. Loss year is 200812. Taxpayer is carrying back Net Operating Loss (NOL) 5 years. GRAC performs $15M test and finds the taxpayer did not file Form 1040 for 200612. Taxpayer must file the 200612 return. GRAC will generate Letter 216C , and CSR/TE will attach the Results page. CSR/TE will close case.

  3. See IRM 21.5.9.5.14.6.1, Eligible Small Business - $15M Gross Receipts Test, (3) for instructions when responses are received from taxpayers disagreeing with a "not met" gross receipts determination.

21.5.9.5.14.6.2  (10-01-2013)
Calendar Year Filers - Late Filed 200812 Elections

  1. Calendar year filers can make this election for their 200812 return only. The election must be made by the later of:

    • April 17, 2009, or

    • the due date (including extensions) if made on the loss year return or on an amended loss year return, or within six months after the due date (excluding extensions) if made on the appropriate form (Form 1045, Form 1139, Form 1040X, Form 1120X, etc.).

    Example:

    A 200812 Form 1040 filer must make the election by October 15, 2009 (normal due date of April 15, 2009 plus six months). A 200812 Form 1120 filer must make the election by September 15, 2009 (normal due date of March 15, 2009 plus six months).

    Caution:

    See IRM 21.5.9.5.14.6.6.1, Using the Gross Receipts Average Calculator (GRAC) - Required $15M Gross Receipts Test, before rejecting or disallowing a Section 1211 carryback application or claim due to timeliness of the election.

  2. If the election is not made timely, reject/disallow the claim using the Letter 216C for TENTS and Letter 105C with appeal rights for RINTS. Provide the following language in the Letter 105C in an open paragraph: "Your application requesting an extended carryback period under the American Recovery and Reinvestment Act (ARRA) was too late. You must elect to take a three, four, or five year carryback loss (for a tax year ending after December 31, 2007) by the later of April 17, 2009, the due date (or extended due date) of the original return or within six months from the normal due date of the loss year return if a timely extension was not filed. This is the deadline to make an election for a five year carryback on a return or an amended return for the loss year based on the ARRA legislation. You can file an application to claim a normal two year carryback loss. You must file it, however, within 12 months of the year the loss occurred. If you prefer, you can file an amended return on Form ____. You should complete a separate tax adjustment form for each tax year if you file an amended return."

21.5.9.5.14.6.3  (10-01-2013)
Fiscal Year Filers - Election for One Tax Year that Begins or Ends in 2008

  1. Fiscal year filers may elect to take the extended carryback period for one tax year that either begins in 2008 or ends in 2008 pursuant to Rev. Proc. 2009-26. The election may be made for only one year. Under Rev. Proc. 2009-26, no statement or label is required to make this election.

    Example:

    A taxpayer whose tax year ends in January can elect to take the extended carryback period for either the 200801 year (because the tax year ends in 2008) or the 200901 year (because the tax year begins in 2008) pursuant to Rev. Proc. 2009-26. The election can be made for only one of those periods.

    Caution:

    A taxpayer may be able to elect to take an extended carryback period for two taxable years by using Rev. Proc. 2009-26 and Rev. Proc. 2009-52. See IRM 21.5.9.5.14.7.3, Special Rules for Eligible Small Businesses (Elections under ARRA 2009, Section 1211 and WHBAA 2009, Section 13.

  2. When processing an application for a fiscal year filer electing the extended carryback period for tax years 200901 thru 200911, research IDRS/CIS to ensure the taxpayer did not previously make the extended carryback election for the preceding tax year (200801 thru 200811).

    Note:

    See IRM 21.5.9.5.14.6.7, TC 971 Actions Codes 633, 634, and 635, for information on TC 971 Action Codes which will provide a clear indication that the taxpayer has already made the election for the preceding tax year.

  3. If a fiscal year taxpayer files a carryback application/claim for more than one tax year under Rev. Proc. 2009-26, reject/disallow the second application/claim using the Letter 216C for TENTS and Letter 105C with appeals rights for RINTS. Provide the following language in the Letter 105C in an open paragraph: "Our records indicate you elected a three, four, or five-year carryback period for your tax year ending ____ under the American Recovery and Reinvestment Act (ARRA). You can't make another election because your prior election was for a tax year ending in 2008. You can file an application to claim a normal two year carryback loss. You must file it, however, within 12 months of the year the loss occurred. If you prefer, you can file an amended return on Form ____. You should complete a separate tax adjustment request form for each period if you file an amended return."

21.5.9.5.14.6.4  (10-01-2013)
Taxpayers who Previously Filed a Carryback Claim and Now Wish to Elect the Extended Carryback Period

  1. Taxpayers who previously filed a tentative carryback application (Form 1045 or Form 1139) or amended return for a Net Operating Loss (NOL) arising in a tax year ending on or before February 17, 2009 (tax years ending 200801 and later), and who want to elect to use a three, four, or five-year carryback period, must file an amended application (Form 1045/Form 1139) or amended return (Form 1040X/Form 1120X). Rev. Proc. 2009-19 instructed taxpayers to enter "Amended refund claim filed pursuant to Rev. Proc. 2009-19" across the top of the application/amended return. The amended application/return must be filed by the later of:

    • Six months from the normal due date of the loss year return (excluding extensions), or

    • April 17, 2009.

    Caution:

    See IRM 21.5.9.5.14.6.6.1, ARRA 2009, Section 1211 - Applications/Claims Received After the Statutory Period for Making the Election (Understanding the Difference between Making a Timely Election and Filing the Extended Carryback Application/Claim, before rejecting or disallowing a Section 1211 carryback application or claim due to timeliness of the election.

  2. Use the Letter 216C for TENTS and Letter 105C with appeal rights for RINTS to reject/disallow applications/claims that are not received by the later of these dates. Provide the following language in an open paragraph: "You filed your claim requesting a carryback under the American Recovery and Reinvestment Act (ARRA) too late. Eligible small businesses can't make an election to claim a three, four, or five-year carryback loss for the tax year ending after December 31, 2007 unless they are filed by: April 17, 2009, the due date (or extended due date) of the original return, six months from the normal due date of the loss year return if a timely extension was not filed. You can file an application to claim a normal two-year carryback loss. You must file it, however, within 12 months of the year the loss occurred. If you prefer, you can file an amended return on Form ____. You should complete a separate tax adjustment request form for each period if you file an amended return. You also maybe eligible to claim a three, four, or five year carryback loss for your fiscal tax year that began in 2008 and ended in 2009."

  3. If the taxpayer already filed a carryback application/claim for a taxable year ending in 2008, and the application/claim has been processed, and later files a timely amended application/return (as indicated in paragraph 1 above), reverse the original adjustment and process per the amended application/claim. Use posting delay codes/hold codes to prevent any erroneous notices/refunds from being issued to the taxpayer. Use overpayment(s) from carryback year(s) three, four, or five to pay off any balance due(s) that may be created on carryback years one and two prior to allowing money to refund or offset to other debts.

    Example:

    Use TC 294 with blocking series 91/ 92 to reassess a previously allowed TC 295 adjustment. If the year to be assessed is statute imminent/expired, use blocking series 95.

    Example:

    Use TC 298 with blocking series 91/92 to reassess a previously allowed TC 299 adjustment. If the year to be assessed is statute imminent/expired, use blocking series 95.


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