21.5.9 Carrybacks

Manual Transmittal

August 22, 2019

Purpose

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

Material Changes

(1) Editorial changes were made throughout the IRM to correct references, update terms, and add links to resources.

IRM Changes
IRM 21.5.9.1 (1) removed “Restricted Interest“ and replaced with “Carryback Claims”, (5) removed SBSE and TEGE from the list of stakeholders and (6) updated Program Goals.
IRM 21.5.9.1.1 Removed (1), updated (2) for clarification and added a new (3) to include a listing of legislative acts pertinent to the carryback program.
IRM 21.5.9.1.2 Removed (1) and updated section to include an additional IRC pertaining to carrybacks.
IRM 21.5.9.1.6 Added a link to the Acronym Database. IPU 19U0882 issued 07-16-2019. Moved original (1) to (2) and added a list of common acronyms for the carryback program.
IRM 21.5.9.1.7(1) Updated Pub 536 title and added Pub 225 and Pub 542 as additional references. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.2 Added a note regarding changes to the carryback program per the Tax Cuts and Jobs Act of 2017. (4) added a reminder to see IRM 21.5.9.5.14.11 for changes due to TCJA. IPU 18U1423 issued 11-05-2018. Removed property and casualty insurance companies from note in (1) and in (4) removed or a loss from operations and added non-life insurance company. Added clarification for Section 13302. IPU 18U1543 issued 12-17-2018 Moved caution in (5) regarding Joint Committee Cases to (6) and moved original (6) information to (7). Per SERP Feedback 201900165. IPU 19U0374 issued 03-20-2019. Updated (3) for guidance clarification, removed “restricted interest claim” and added “carryback claim: in (5) and updated (6) for clarification to ensure Joint Committee cases are forwarded to Exam.
IRM 21.5.9.4.1(1)(e) Added a note regarding the RSED on carryback cases. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.4.2 Added a caution that TCJA will reduce the number of taxpayers eligible for the carryback of a net operating loss. IPU 18U1423 issued 11-05-2018. Removed property and casualty insurance companies from caution in (2) and added a caution on (3) to review CIS to determine if missing information has been previously provided. IPU 18U1543 issued 12-17-2018. Updated (2) to add a reminder Exempt Organization are only permitted to file claims.
21.5.9.4.3 (2) second bullet, removed “restricted interest claims” and added “carryback claims”.
IRM 21.5.9.4.7(7) In (7) added to the reminder to follow Joint Committee Case (JCC) guidance in IRM 21.5.9.5.33. IPU 19U0882 issued 07-16-2019. Updated the title my removing :TENT/RINT” and adding “Applcation/Claim”
IRM 21.5.9.5.1.2 Updated (2) to state IMF domestic Status 26 cases will continue to be processed in Philadelphia until the Status 26 SLA is revised. IPU 18U1423 issued 11-05-2018. Removed (3) until the Status 26 SLA is revised. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.5.2 Updated section to account for changes in the carryback of net operating losses per TCJA. IPU 18U1423 issued 11-05-2018. . Removed property and casualty insurance companies from verbiage. IPU 18U1543 issued 12-17-2018. Added guidance to see IRM 21.5.9.5.14.11.1 for additional information on TCJA carryback/carryforward elections. IPU 19U0882 issued 07-16-2019. Updated section to clarify procedures.
IRM 21.5.9.5.3 Updated section to account for changes in the carryback of net operating losses per TCJA. IPU 18U1423 issued 11-05-2018. Removed reminder to process carryforward cases in the carryback teams. Specific direction to work TCJA carryforward cases in the carryback teams is included in a separate section discussion TCJA case processing. IPU 18U1445 issued 11-13-2018. Removed property and casualty insurance companies in (1) note. Non-life insurance companies are the appropriate reference. Corrected the guidance for farming loss for tax periods ending after Dec. 31, 2017. Removed guidance for Qualified Disaster Loss (National Disaster Relief Act) per Counsel and removed property and casualty insurance companies in last box of table. IPU 18U1543 issued 12-17-2018.
IRM 21.5.9.5.4 Deleted (2) short year example for a TENT filed under ARRA.
IRM 21.5.9.5.6(4) Added a note stating Section 13516 of TCJA repealed the special estimated tax payment for insurance companies. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.5.7(4) Added a note stating Section 12001 of TCJA repealed the corporate alternative minimum tax (AMT). IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.5.9 Updated (3) to remove the statement regarding abatement of estimated tax penalties for reasonable cause.
IRM 21.5.9.5.10 Updated (2) to clarify procedures.
IRM 21.5.9.5.10.1 Added new section providing guidance for Shared Responsibility Payments filed with an IMF carryback application/claim. IPU 18U1543 issued 12-17-2018. Updated guidance to move Shared Responsibility Payment credit from MFT 35 to MFT 30 to allow for correct carryback interest calculation. IPU 19U0083 issued 01-29-2019. Additional clarification for processing IMF carryback cases with Shared Responsibility Payments. IPU 19U0374 issued 03-20-2019.
IRM 21.5.9.5.11 Updated (1) for clarification of the 45-day interest-free period.
IRM 21.5.9.5.12.1 Updated (1) to clarify GATT interest processing.
IRM 21.5.9.5.14 Added a note regarding changes to the carryback program due to TCJA Section 13302. New paragraph discussing changes to the carryback program due to TCJA Section 13302. Updated guidance to state farming losses arising in tax years beginning after August 5, 1997 and ending prior to January 1, 2018 the carryback period is five years. Also added a note after (9)(b) stating the five-year carryback period has been repealed but a two-year carryback period is in place for farmer. Updated guidance to state for tax periods ending on or prior to Dec. 31, 2017, NOLs qualifying as an “eligible loss” retain the three-year NOL carryback period. 18U1423 issued 11-05-2018. Updated section per Counsel. (1) updates to more accurately described when an NOL is created. Added qualified business income deduction to bullet list in (2). Updated note to (3) third bullet regarding Form 1120 Schedule C and added two new bullets to exclude any section 250 deduction and deduction for foreign-derived intangible income. Removed note in (8) and updated (9) to clarify when a taxpayer can revoke the five-year carryback election for a farm loss. Added (12) to provide guidance for timely elections to forgo a carryback period. IPU 18U1543 issued 12-17-2018.
IRM 21.5.9.5.14.8 Updated section to include current sequestration examples and guidance. IPU 18U1423 issued 11-05-2018. Updated the title to remove “RINTS” and add “Carryback Claims” and added a reminder in (1) regarding TCJA section 12002 modifying AMT credit for any tax year beginning after 2017 and before 2022. Throughout the section updates made regarding the appropriate line on the Form 8827 for refundable credit amount for a corporation electing to accelerate the minimum tax credit subject to sequestration.
IRM 21.5.9.5.14.8.1 Updated section to include current sequestration examples and guidance. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.5.14.8.1.1 Updated section to include current sequestration examples and guidance. IPU 18U1423 issued 11-05-2018. Updated the title to remove “RINT/TENT” and add “Carryback Applications/Claims” and updates made regarding the appropriate line on Form 8827 for the refundable credit for a corporation electing to accelerate the minimum tax credit subject to sequestration.
IRM 21.5.9.5.14.8.2 Updated section to include current sequestration examples and guidance. IPU 18U1423 issued 11-05-2018. Updates made regarding the appropriate line on Form 8827 for the refundable credit amount for a corporation electing to accelerate the minimum tax credit subject to sequestration and revised the examples to reflect the current sequestration rate.
IRM 21.5.9.5.14.8.3 New section providing guidance regarding the changes to the Corporate Alternative Minimum Tax changes per Section 12001 and effect on carrybacks. IPU 18U1423 issued 11-05-2018. Updates made regarding the appropriate line on Form 8827 for the refundable credit amount for a corporation electing to accelerate the minimum tax credit subject to sequestration and updated the title of the section to inlcude “Business”.
IRM 21.5.9.5.9 Updated the title to include “Individual”.
IRM 21.5.9.5.14.10 Added guidance to see IRM sections listed for processing Net Investment Income Tax cases affected by a carryback adjustment. IPU 18U1543 issued 12-17-2018. Added a new paragraph(4) to provide guidance regarding the inclusion of Form 8960 in the carryback package.
IRM 21.5.9.5.14.11 New section providing overview of sections of TCJA affecting the carryback program. IPU 18U1423 issued 11-05-2018. Added information regarding sections in the Tax Cuts and Jobs Act. Added new information regarding Section 11012. Deleted Section 11041 and updated Section 13302 information to include all changes made to the carryback program due to this section. Added additional information regarding Section 13511 and Section 13516. Deleted (2). IPU 18U1543 issued 12-17-2018. Updated (1)(d) for clarification of the effects of Section 13302 of TCJA to the carryback program.
IRM 21.5.9.5.14.11.1 New section providing guidance on NOL carryback and carryforward periods per TCJA. IPU 18U1423 issued 11-05-2018. Updated section title. Reworded (1), added clarification to (2) to clarify eligible farming losses and removed references to property and casualty insurance companies. IPU 18U1543 issued 12-17-2018. Added paragraph 3 to provide guidance for processing carryback requests from taxpayers no longer eligible to carry back a net operating loss per TCJA. IPU 19U0882 issued 07-16-2019. Updated the title of the section.
IRM 21.5.9.5.14.11.2 New Section providing guidance for processing certain farming and non-life insurance NOLs filed with a tax year beginning in 2017 and ending in 2018. IPU 18U1423 issued 11-05-2018. Updated section title, removed references to property and casualty insurance companies throughout section. Updated section to provide guidance for processing carryback application/claims filed by farmers and net operating losses incurred by non-life insurance companies. Removed guidance to hold all Form 1138 2018 submissions and provided guidance for processing Form 1138 in IRM 21.5.9.5.14.11.3. IPU 18U1543 issued 12-17-2018. Guidance for 2018 fiscal year BMF carrybacks moved to IRM 21.5.9.5.14.11.4 and added new guidance for determining IMF and BMF farming net operating losses eligible for carryback. IPU 19U0580 issued 05-01-2019. Updated (3) to include NAICS codes can be found on TXMOD as PIA-BBA codes. Removed the letter paragraphs since these have been included in the appropriate carryback letters for use. IPU 19U0638 issued 05-14-2019. Spelled out the acronym PIA-PBA in (3) and added verbiage for an open paragraph in a carryback letter when requesting additional information for taxpayers with a NAICS of 113210 in (3)(b). IPU 19U0882 issued 07-16-2019. Updated the title of the section.
IRM 21.5.9.5.14.11.3 New section providing guidance for processing Form 1138 request for taxpayer expecting a 2018 NOL to be applied to a 2017 balance due. IPU 18U1543 issued 12-17-2018. Updated (6) to remove the letter paragraph since this has been included in the 2643C letter. IPU 19U0638 issued 05-14-2019. Updated the title of the section.
IRM 21.5.9.5.14.11.4 New section providing guidance for NOLs incurred in tax years beginning January 1, 2018 and subsequent. IPU 18U1543 issued 12-17-2018. Guidance for 2018 fiscal year BMF carryback applications and claims moved to this section and moved guidance originally included in this section and subsequent sections down one section. IPU 19U0580 issued 05-01-2019. Updated (3) to remove the letter paragraph since this is included in the appropriate carryback letters. IPU 19U0638 issued 05-14-2019. Removed (4) which included guidance to add TCJA to CIS notes. IPU 19U0783 issued 06-17-2019. Updated the title of the section.
IRM 21.5.9.5.14.11.5 New section providing guidance for responses to rejected applications/claims from farmers with NAICS code 113210. IPU 18U1543 issued 12-17-2018. Added specific IRM 21.5.9 references for clarification and additional guidance for identification of NAICS on Form 1040 Schedule E. IPU 19U0580 issued 05-01-2019. Updated (3) to add guidance regarding the NAICS code on TXMOD, (4) and (5) to remove the letter paragraphs since these have been included in the appropriate carryback letter for use. IPU 19U0638 issued 05-14-2019.. Added guidance to include a provided open paragraph in instances where the taxpayer is engaged in multiple trades or businesses. IPU 19U0882 issued 07-16-2019. Updated (3) for clarification of process.
IRM 21.5.9.5.14.11.6 New section providing guidance for the calculation of the 80 percent limitation applied to farming corporations. IPU 18U1543 issued 12-17-2018. Updated section title and updated information in examples for clarification. IPU 19U0083 issued 01-29-2019.
IRM 21.5.9.5.14.11.7 New section providing guidance for processing NOLD carryforward cases for non-corporate entities. IPU 19U0083 issued 01-29-2019. Updates to (2) and (3) per Counsel for clarification of Excess Business Losses. IPU 19U0374 issued 03-20-2019. Deleted this section and moved (1) and (2) to IRM 21.5.9.5.14.11.9. Subsequent subsections were renumbered.
IRM 21.5.9.5.14.11.8 Guidance included previously in IRM 21.5.9.5.14.11.7 moved to this section. IPU 19U0580 issued 05-01-2019. Removed (3)(c). The threshold amount is included on the Form 461. IPU 19U0638 issued 05-14-2019. Updated (7) reminder to clarify where the NOL Calculators can be accessed.
IRM 21.5.9.5.14.11.9 New section providing guidance for the TCJA Net Operating Loss Calculator. IPU 19U0580 issued 05-01-2019. Updated (2) to include non-corporate NOL Calculators since there will be two. Removed the specific guidance in (3) for the NOL Calculators. This information as well as the NOL Calculators have been moved to SERP under the IRM Supplements tab. IPU 19U0638 issued 05-14-2019. Updated (2) to add Corporate NOL Calculator has posted on SERP and a caution to not utilize the NOL calculators when there is a carryover or previously processed carryback involved. Added guidance for instances when the taxpayer’s NOL calculators differ from the NOL Calculator and guidance to attach the NOL Calculator computation to the CIS Case. IPU 19U0882 issued 07-16-2019. Updated the title of the section. Updated the title to this section to include “eligible farming net operating loss for tax years beginning in 2018 and subsequent and moved guidance originally included in IRM 21.5.9.5.14.11.7(1) and (2) to first two paragraphs of this section. Subsequent paragraphs were renumbered.
IRM 21.5.9.5.16(6)(d) Removed guidance to include a cover sheet with the manual refund requesting Accounting issue a Form 1099 at the end of the year to the non-NOL spouse. SERP Feedback 201900702. IPU 19U0374 issued 03-20-2019.
IRM 21.5.9.5.17(6) Added TCJA of 2017 to the list of legislative acts that have affected the carryback program. IPU 18U1423 issued 11-05-2018.
IRM 21.5.9.5.18.1 Updated the NMF IDRS number for fiduciary filed Form 1040-NR processing. IPU 18U1423 issued 11-05-2018. Updated the NMF IDRS number per request from site. IPU 18U1543 issued 12-17-2018. Updated the title of this section to include “Form” and removed “RINT/TENT” and add “Application/Claim”.
IRM 21.5.9.5.19 New paragraph providing guidance regarding changes to the carryback program due to TCJA Section 13302 and the effect on carrybacks filed by exempt and charitable organizations. Removed applications from the guidance in (3). Exempt organizations cannot file carryback applications. IPU 18U1423 issued 11-05-2018. Updated section to remove references to property and casualty insurance companies. IPU 18U1543 issued 12-17-2018.
IRM 21.5.9.5.20 Added guidance to (12) that TCJA Section 1302 repealed the two-year and all specified carryback provisions except for certain losses incurred in the trade or business of farming and non-life insurance companies. IPU 18U1423 issued 11-05-2018. Updated section to remove references to property and casualty insurance companies. IPU 18U1543 issued 12-17-2018.
IRM 21.5.9.5.21 Added guidance that TCJA Section 1302 repealed the two-year and all specified carryback provisions except for certain losses incurred in the trade or business of farming and non-life insurance companies. IPU 18U1423 issued 11-05-2018. Updated section to remove references to property and casualty insurance companies. IPU 18U1543 issued 12-17-2018.
IRM 21.5.9.5.23 Added a reminder that TCJA section 11041 suspended the deduction for personal exemptions in (1). IPU 18U1423 issued 11-05-2018. Updated the title to include “Individual” and (2)(d) to clarify section 199 deduction includes both the Domestic Production Activities Deductions and the Qualified Business Income Deduction.
IRM 21.5.9.5.24 Updated the title to include “Business”.
IRM 21.5.9.5.28(1) Added note to see IRM 21.5.9.5.14.11.3 for Forms 1138 for NOLs expected in 2018 and subsequent. IPU 18U1543 issued 12-17-2018. Updated link in (1) to Form 1138 affected by Tax Cuts and Jobs Act. IPU 19U0580 issued 05-01-2019.
IRM 21.5.9.5.30 Updated the statement in (4) to state the 90-day period has expired and removed the reference to the 12 month period.
IRM 21.5.9.5.32 Clarified overpayment interest determination. Per SERP Feedback 201804972. IPU 19U0374 issued 03-20-2019.
IRM 21.5.9.5.33 Added a reminder in (2) regarding section 13516 of TCJA repealed the special estimated tax payment of insurance companies. Deleted (8) and moved to new section, IRM 21.5.9.5.33.1.
IRM 21.5.9.5.33.1 New section with guidance for open AUR and BUR carryback applications originally included in IRM 21.5.9.5.33.1(8).
IRM 21.5.9.5.35.1 Updated (3) to clarify guidance for processing a carryback refund on a consolidated return.
IRM 21.5.9.5.40 Clarified overpayment interest determination. Per SERP Feedback 201804972. IPU 19U0374 issued 03-20-2019.
IRM 21.5.9.5.41 Added a reminder in (1) regarding section 13516 of TCJA repealed the special estimated tax payment of insurance companies. Deleted (5) and moved to new section, IRM 21.5.9.5.41.1.
IRM 21.5.9.5.41.1 New section with guidance for open AUR and BUR carryback applications originally included in IRM 21.5.9.5.41.1 (5).
IRM 21.5.9.5.47 Updated the title to remove “TENTS and RINTS” and add “Applications and Claims”.
IRM 21.5.9.5.48 Updated the title of the Identity Theft - Carryback Liaisons link in (1). IPU 18U1445 issued 11-13-2018. Added a caution to see IRM 21.5.1.4.4.1 for additional guidance on carryback applications and claims filed with an unposted loss year return held by TPP and updated the title to remove “RINTS and TENTS”.
IRM 21.5.9.5.49 New section providing guidance for processing BMF Carryback cases involving BMF RICS Filters. Renumbered subsequent sections. IPU 18U1445 issued 11-13-2018. Updated section to clarify verbiage in paragraphs for letters to taxpayers. IPU 19U0083 issued 01-29-2019. Added OUO restriction to the first sentence in (1).Updated the title to remove “RINTS and TENTS” and added “Applications and Claims”.
IRM 21.5.9.5.50 Updated the title to remove “RINTS and TENTS” and added “Applications and Claims”.
IRM 21.5.9.5.50.1 Updated the title to remove “RINTS and TENTS” and added “Applications and Claims”.
IRM 21.5.9.5.50.2 Updated the title to remove “RINTS and TENTS” and added “Applications and Claims”.
IRM 21.5.9.5.51 New section providing guidance for processing carryback applications and claims with Section 965 involvement. IPU issued 06-17-2019.
Exhibit 21.5.9-1 Updated Foreign Tax Credits in the Tax Credits table to add guidance stating taxpayers cannot carryover or carryback excess foreign tax credits deemed to pay or accrue under IRC 960(d) for post 2017 tax years. IPU 19U0083 issued 01-29-2019. Updated Foreign Tax Credit for Corporations to reflect a carryback period of one year and a carryforward of 10 years.
Exhibit 21.5.9-2 Corrected chart to reflect in the loss year on a joint return is the year of death and in the gain year the surviving spouse per SERP Feedback 201804086. IPU 18U1423 issued 11-05-2018.

Effect on Other Documents



IRM 21.5.9, dated August 22, 2018 (effective 10-01-2018) is superseded. This IRM also incorporates the following IRM Procedural Updates (IPUs) - 18U1423 dated 11/5/2018, 18U1445 dated 11/13/2018, IPU 18U1543 dated 12/17/18, IPU 19U0083 dated 1/29/2019, IPU 19U0374 dated 3/20/19, IPU 19U0580 dated 5/1/19, IPU 19U0638 dated 5/14/19, IPU 19U0783 dated 6/17/19 and IPU 19U0882 issued 7/16/19.

Audience

The primary users of this IRM are Wage and Investment (W&I).

Effective Date

(10-01-2019)


Karen A. Michaels
Director, Accounts Management
Wage and Investment Division

Carryback Program Scope and Objectives

  1. Purpose: This IRM describes the process for 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

    • Carryback Claims (RINT)

    • Follow-up

  2. Audience: The primary users of this IRM are Accounts Management customer service representatives (CSR) and tax examiners (TE) who process Individual Domestic/International and Business Domestic/International Carryback cases.

  3. Policy Owner: The policy owner is the Director, Accounts Management, Wage and Investment Division.

  4. Program Owner: The program owner is Process and Program Management, Adjustments, Accounts Management, Wage and Investment Division.

  5. Primary Stakeholders: The primary stakeholders are Wage and Investment (W&I).

  6. Program Goals: Carryback Program goals are to accurately and expeditiously process carryback applications received from taxpayers and/or their representatives. The Carryback Program is a specialized program as stated in the Accounts Management Program Letter worked only by specifically identified Accounts Management employees.

Background

  1. Employees assigned to carryback teams are responsible for processing applications and claims requesting the carryback of net operating losses, net capital losses, Section 1341(b)(1) and carryback of unused general business credits.

  2. The following legislative acts are background information pertinent to the Carryback Program in Accounts Management.

    • Balanced Budget and Emergency Deficit Control Act of 1985

    • Tax Equity and Fiscal Responsibility Act (TEFRA)

    • Health Care and Education Reconciliation Act of 2010

    • Tax Cuts and Jobs Act if 2017

Authority

  1. The following list of Internal Revenue Code (IRC) sections specific for the Carryback Program:

    • IRC 172, Net Operating Loss Deduction

    • IRC 6411, Tentative Carryback and Refund Adjustments

    • IRC 39, Carryback and carryforward of unused credit

    Note:

    Additional IRC sections are cited in the IRM where they are applicable to the issue covered.

Roles and Responsibilities

  1. The Wage and Investment Commissioner has overall responsibility for the policy related to this IRM which is published on a yearly basis.

  2. Additional information can be found in IRM 1.1.13.9.4, Accounts Management, and IRM 21.1.1, Accounts Management and Compliance Services Overview, also provides various guidance for Accounts Management employees.

Program Management and Review

  1. IRM 1.4.16, Accounts Management Guide for Managers, provides guidance, for program management and review of programs assigned to Accounts Management.

Program Controls

  1. Goals, measures and operating guidelines are listed in the annual Program Letter.

  2. Quality data and guidelines for measurement can be found in IRM 21.10.1, Embedded Quality (EQ) Program for Accounts Management, Campus Compliance, Field Assistance, Tax Exempt/Government, Return Integrity and Compliance Services (RICS) and Electronic Products and Services Support.

Terms/Definitions/Acronyms

  1. The following table includes comment acronyms utilized in the carryback program.

    Acronym Definition
    AGI Adjusted Gross Income
    AM Accounts Management
    AMT Alternative Minimum Tax
    BMF Business Master File
    BMFOL Business Master File On-line
    BS Blocking Series
    CFOL Corporate File On-Line
    CFWD Carryforward
    CIS Correspondence Imagine System
    EIN Employer Identification Number
    FR Filing Requirement
    FTC Foreign Tax Credit
    ICFW International Carryforward
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    IMFOL Individual Master File On-Line
    IRNT International Carryback Claim
    ITCB International Carryback Tentative Application
    IVO Integrity & Verification Operation
    JCC Joint Committee Case
    MeF Modernized e-File
    MFT Master File Tax
    NCL Net Capital Loss
    NIIT Net Investment Income Tax
    NMF Non-Master File
    NOL Net Operating Loss
    NOLD Net Operating Loss Deduction
    PSC Personal Service Corporation
    RICS Return Integrity and Compliance Services
    RINT Carryback Claim
    SRP Shared Responsibility Payment
    SSN Social Security Number
    TC Transaction Code
    TXI Taxable Income
  2. For addtiional information see the ReferenceNet Legal and Tax Research Service page provides an Acronym Database to research acronyms found within this IRM.

Related Resources

  1. The following list of publications provides additional instructions:

    • Publication 514, Foreign Tax Credit for Individuals

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

    • Publication 225, Farmer’s Tax Guide

    • Publication 542, Corporations

      Note:

      Additional publications are cited in the IRM where they are applicable to the issue covered.

  2. The following list of IRM references provides additional instructions:

    • IRM 2.3, IDRS Terminal Responses

    • IRM 2.4, IDRS Terminal Input

    • IRM 3.13, Campus Documents Services

    • IRM 11.3, Disclosure of Official Information

    • IRM 13, Taxpayer Advocate Service

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 20.2.9, Interest on Carryback of Net Operating Loss

    • IRM 21, Customer Account Services

    • IRM 21.8.1, IMF International Adjustments

    • IRM 21.8.2, BMF International Adjustments

    • IRM 21.7.7, Exempt Organizations and Tax Exempt Bonds

    • IRM 25.6, Statute of Limitations

What is a Carryback?

  1. Taxpayers eligible for carrybacks are:

    • Individuals

    • Estates

    • Trusts

    • Corporations (including certain insurance companies)

    • Charitable and Exempt Organizations

      Note:

      The Tax Cuts and Jobs Act of 2017, Section 13302, generally repealed the carryback periods for net operating losses incurred in tax years ending after December 31, 2017 but allows for the carryback of certain net operating losses incurred in the trade or business of farming and for non-life insurance companies only. All other entity types can carry net operating losses forward only. See IRM 21.5.9.5.14.11 for additional information.

  2. 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.

  3. 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 (whether or not delinquent) is filed in processible form

    • The received date of an application for tentative carryback adjustment under section 6411(a) or a claim for overpayment or

    • The application or claim processible date

      Note:

      See IRM 20.2.9.2, Determining the Overpayment Interest Period.

  4. A tentative refund (TENT) is claimed 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

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

    A 1139 can be filed by C corporations to apply for a quick tax refund resulting from:

    • the carryback of a net operating loss (NOL) of a non-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)

      Note:

      Corporations expecting to have a Net Operating Loss (NOL) in the current year that can be carried back 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 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss (NOL) Carryback, for processing instructions.

      Reminder:

      See IRM 21.5.9.5.14.11 for changes to who is eligible to file an NOL carryback due to the Tax Cuts and Jobs Act of 2017.

    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 time-frame 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.

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

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

    • Form 1120-X, 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 Form 990-T carrybacks are processed at the Ogden Campus. See IRM 21.7.7.4.17, Exempt Organization Carrybacks Overview, for Form 990-T carryback processing.

      Reminder:

      Section 2006(a)(2) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the return due date for C corporations and is effective for taxable years beginning after December 31, 2015. The federal income tax return for the Form 1120 family of returns (except Form 1120-C, Form 1120-S and Form 1120-IC-DISC) are due on or before the 15th day of the fourth month following the close of the C corporation’s tax year. For additional information see IRM 21.7.4.4.4.2.1, Form 1120 Corporate Series Return Due Dates – Tax Years Beginning after December 31, 2015.

    A RINT is not subject to the 90-day processing time-frame and must generally be filed within 3 years (10 years for carryback of foreign tax credit) after the due date of the return (including extensions, except in the case of foreign tax credits) 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 1040-X, Form 1120-X, From 1041, Form 1120-C and Form 990-T (RINTS) through IRM 21.5.9.5.43, Reassessing Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C, and Form 990-T, for additional information.

  6. Expedite Joint Committee Cases (JCC) to Examination due to interest consideration, if the combined refund amount for IMF or any BMF non-C Corp is ≡ ≡ ≡ ≡ ≡ ≡ ≡ or more or the combined refund amount for a C Corp is ≡ ≡ ≡ ≡ ≡ ≡ 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 carryback applications. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General, for carryback claims.

  7. 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

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 11.3.2.7, Methods for Communication of Confidential Information. Fax procedures contained in IRM 11.3.1.14, Facsimile (FAX), Electronic Facsimile (E-FAX), and IRS Internal Enterprise Electronic Facsimile (EEFAX) Transmission of Tax Information, must be reviewed prior to faxing confidential information to the taxpayer.

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 800-829-1040. For businesses, contact 800-829-4933.

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

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 to the Brookhaven Accounts Management (BAMC) unassigned inventory (UA). Beginning December 4, 2017, cases in the BAMC UA will be systemically assigned to employees with Carryback skills via the Consolidated Work Distribution (CWD) process. Cases subsequently identified as IMF Carryback cases assigned to assistors not trained to process carryback cases are to be reassigned to the Carryback Centralized Distribution Number per the AM Site Specialization Temporary Holding Numbers on SERP under the Who/Where tab. These cases will be reassigned to the specialized sites on a daily basis. Brookhaven Accounts Management does not process carryback cases. Therefore, carryback referrals to Brookhaven are incorrect.

      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 1040-X, Form 1120-X, 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.

    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 21.4.1.4, 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.

    Reminder:

    See IRM 21.5.9.2(2), What is a Carryback, and IRM 21.5.9.5.11, Carryback Interest, for the dates utilized to calculate the 45-day interest-free period.

  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, Taxpayer Advocate Service (TAS) Case Criteria) and a resolution of the taxpayer's issue cannot be completed in 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.

Carryback Verification

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

  2. Any carryback cases assigned to Philadelphia as ITCB/IRNT (IMF International Carryback), which are later determined to be domestic must have the CIS category code updated and the case processed in Philadelphia.

    Note:

    Cases where international forms not required to be attached due to amounts claimed being below threshold are still considered international carryback cases and are to be coded in CIS as international. Cases incorrectly identified as an international carryback will be updated in CIS and worked in Philadelphia. See IRM 21.8.1.2.1, Campus Consolidation and Program Centralization, for a listing of IMF International Issues and, IRM 21.8.2.2.1, Campus Consolidation and Program Centralization, for BMF International issues.

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.

      Note:

      The RSED does not necessarily need to be open on the loss year in order for a claim for refund or credit based on an NOL carryback to be timely filed. The claim may also be considered timely filed if the RSED is open on the adjusting year (gain year). See IRM 25.6.1.10.2.8.1, Net Operating Loss (NOL) Carryback or Capital Loss Carryback, for additional information.

    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.

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:

    Caution:

    The Tax Cuts and Jobs Act of 2017 restricted the carryback of net operating losses (NOLs) to NOLs of non-life insurance companies and to the portion of an NOL attributable to a farming loss. These restrictions apply to NOLs incurred in taxable years ending after December 31. 2017. Reject Carryback applications and/or claims filed by entities other than farmers or non-life insurance companies back to the taxpayer using the appropriate carryback letter. Carryback application and/or claims from farmers must be analyzed to make sure the NOL being carried back is attributable to a farming loss.

    • 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 forwarded for processing.

      Reminder:

      Exempt Organizations (Form 990-T) are only permitted to file a claim for a carryback.

    • 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 ( 1040), if applicable, unless this information is available on CFOL/IDRS.

      Note:

      For Form 1120-F (foreign) filers, pages 1 and 3 of the loss year are to be included. Also, since Taxable Income (TXI) is not shown on Command Code (CC) TXMOD for a Form 1120-F, 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 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 the instructions for Form 1045/Form 1139 or for Form 1040-X/Form 1120-X.

    • 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, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F, 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, Allocation Requirements for Non Community Property States.

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

    Caution:

    Review CIS to verify the missing information has not been previously provided.

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 the Form 56-F. See IRM 3.13.2.18.4, 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 1120-X - 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 1120-X, 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 1120-X 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 1120-X) from financial institutions in receivership to Exam Classification as CAT-A and use reason HQ Reserved 5. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Rejecting Unprocessible Carryback Applications/Claims

  1. Do not formally disallow an unprocessible/incomplete application or claim. Determine if the issue can be resolved by having the taxpayer fax the missing information. Attempt to contact the taxpayer/authorized representative by phone and request the missing information be faxed to you within 5 business days. Before initiating an outgoing phone call, see IRM 21.1.3.2.3, Required Taxpayer Authentication, and see IRM 21.1.1.4, Communication Skills. The following is required for all outgoing calls:

    1. Make two telephone attempts to reach the taxpayer/authorized representative within three business days of each other.

    2. All phone attempts must be fully documented on Correspondence Imaging System (CIS), including the time and phone number attempted.

    3. Use the most current number provided by the taxpayer/authorized representative from ENMOD/IMFOLE or correspondence.

    4. Call attempts will normally be made between the hours of 8 AM and 9 PM in the taxpayer’s time zone.

    5. Make the phone attempts during the specific time-frames provided by the taxpayer whenever possible.

    6. If the contact is being made with a business, make the attempt during the normal business hours in the taxpayer’s time zone.

    7. Weekend attempts are appropriate.

    8. If leaving a message for the taxpayer/authorized representative, request a call back within two business days.

    9. If the attempts are unsuccessful, send the appropriate letter and document on CIS.

    Note:

    If the taxpayer is reluctant to speak on the phone, inform them the IRS will send a letter regarding the matter. Provide the taxpayer the Toll-Free number to call and refer them to the IRS web site. Document CIS regarding contact.

    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 1040-X, Form 1120-X, 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 cannot 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 expires for filing a carryback application before the missing information is provided in mail, the taxpayer will be required to submit a carryback claim on an amended return for the gain year. 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 s, 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.

    • Carryback claims (RINTS) - Unprocessible RINTS are rejected using Letter 4734C or Letter 2364C.

      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.

    Reminder:

    When requesting additional information from the taxpayer in order for the application/claim to be processible, return the entire unprocessible application/claim to the taxpayer.

  3. Document CIS with a Case Note describing 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 archived revisions of IRM 21.5.9.5.14.6.9, Processing ARRA 2009, Section 1211 Carryback Applications/Claims - Steps to Ensure Consistent Processing.

    Reminder:

    When requesting additional information from the taxpayer in order for the application to be processible, return the entire unprocessible application to the taxpayer.

  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.

  8. The instructions in paragraph (7) 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.

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.

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.

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 overpayment interest is restricted on the account. See IRM 21.5.6.4.17, I- Freeze, IRM 20.2.1.5.2, Manual Calculation of Interest, and IRM 20.2.4, Overpayment Interest, for additional information.
    -I Indicates underpayment interest is restricted on the account. See IRM 21.5.6.4.18, -I Freeze, IRM 20.2.1.5.2, Manual Calculation of Interest, and IRM 20.2.5, Interest on Underpayments, 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.

Carryback Tolerances - Master File Verification, Math Verification, Application/Claim 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 On-line), IMFOL (Individual Master File On-line), 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).

      1) If the date entered on line 2b indicates that a return has been filed, follow the instructions in the table below.

      2) 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, instead of inputting 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.

    6. If a push code cannot be utilized as outlined in IRM 21.5.1.4.4.3, Inappropriate Use of TC 930 Push Code, update the category on the Carryback CIS case to category code IRRQ and document CIS that the case is being monitored for the posting of the original loss year return. Once the case is updated with the revised category code, the following actions are to be taken:

      • Update the case history status code to "M" on IDRS.

      • Monitor the account weekly for up to 20 cycles for posting of the loss year return.

      • If the loss year return posts within the 20 cycles, notate CIS that the loss year return has posted, verify the application and close the case.

      • If the loss year return does not post within 20 cycles, follow the guidelines in IRM 21.5.9.5.34, Reassessing Carryback Form 1045 and Form 1139.

  7. When the TENT loss year push code documents are received from Files, follow the instructions in the table below to per 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) Once verification has been completed, follow guidance in IRM 21.5.9.5.33(2) for referral of Joint Committee Cases (JCC).

    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.

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 1040-X or Form 1120-X).

    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. See IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Applications/Claims, for additional information.

    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.

Controlling and Monitoring Carryback Cases

  1. Monitor carryback cases to ensure the 45-day interest-free period is met whenever possible. See the Carryback 45-Day Interest-Free Charts, under the IRM Supplements tab 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 all of the related years have been assigned to one employee 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 an open control on the earliest tax year.

    • The employee with the earliest year should contact the employee with the open base on the related year before taking any action. If unable to locate or talk to the person that has control on the case, leave a message. If no reply received, 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.

    Note:

    Contact the Taxpayer Advocate Service (TAS) when the case has an open Taxpayer Advocate control prior to take any case actions (i.e., IDRS controls beginning with “63”).

  5. For IMF (Individual Master File) RINTS and TENTS, if a determination can be made based on 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).

  7. Carryback RINTS and TENTS are assigned a priority code when scanned into CIS by the ICT teams as required in IRM 3.13.6-8, Appendix H - Scanning Carryback Applications/Claims - IMF/IMF International, and IRM 3.13.6-9, Appendix I - Scanning of Carryback Applications/Claims - BMF/BMF International. As of January 2014, CIS programming was updated to allow the post scanning addition of a missing priority code or the update of an incorrectly-assigned priority code. CSRs are required to ensure the correct priority code has been assigned to the case prior to closing the case.

Carrybacks Filed via the Modernized e-File (MeF) System (Ogden AM Campus Only)
  1. In tax year 2008 corporations began filing carrybacks electronically using the Modernized e-File (MeF) system by filing Form 1120-X and marking a "Y" in the carryback checkbox. The following paragraphs describe the unique procedures used to promptly identify and route these MeF carryback cases to the Ogden Carryback Teams, thereby increasing the probability of meeting 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:

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

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

    • Amended Form 1120-S returns

    • Amended Form 1065 returns

  3. See IRM 21.7.9.4.1.2.2.1, MeF Amended Returns Requiring Expedite Handling, for additional guidance on the special handling of any other MeF amended returns.

  4. A listing of all Form 1120-X 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 Form 1120-X 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, 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 - Form 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.

Carryback Cases Received from Centralized Case Processing (CCP) - Status 26
  1. Field Collection forwards carryback cases to Collections Centralized Case Processing (CCP) located in Philadelphia for input. CCP will forward carryback cases to a designated point of contact (POC) in Philadelphia for scanning into the Correspondence Imaging System (CIS) and processing. Any unprocessible carryback cases will be returned to CCP. See IRM 21.5.9.4.2 for guidance on determining an unprocessible carryback.

  2. Domestic and International IMF Status 26 carryback cases received from CCP will be processed by the Philadelphia Accounts Management Carryback team.

  3. Domestic and international BMF Status 26 carryback cases received from CCP will be processed by the Ogden Accounts Management Carryback team.

  4. CCP is responsible for ensuring carryback cases received from Field Collection include a completed Form 3870, Request for Adjustment, as well as all required documentation for a processible carryback case.

  5. Accounts Management will not accept any Form 3870/Status 26 requests directly from the Field Collection. All such requests are to be returned to the originator stating the case needs to be forwarded to the manager of the General Case Processing (GCP) unit.

  6. Accounts Management will not respond to telephone, e-mail, fax or direct inquiries from the Field Collection requesting assistance with carryback cases. All such contacts are to be referred to the General Case Processing team for assistance.

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.

Carryback/Carryforward Election

  1. For net operating losses (NOLs) arising in tax periods ending before January 1, 2018, taxpayers may elect to forgo the carryback period 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). For NOLs arising in tax periods ending after December 31, 2017, the option to forgo a carryback period only applies to a limited class of NOLs that still qualify to be carried back. See IRM IRM 21.5.9.5.14.11.1 for additional information.

    Reminder:

    Carryback teams work carryforward cases and elections to forgo the carryback period. Do not reassign these case types to a non-carryback team.

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

      Exception:

      Certain Form 1120 series returns include an option to elect to forgo the carryback period and carryforward an NOL by checking a box on a schedule. By checking this box, the taxpayer is not required to include a statement to forgo the carryback period per Temporary Regulations Section 301.9100-12T. The chart below provides the Form 1120 series return and the location of the box the taxpayer can check to elect a carryforward of the NOL.

      1120 Series Location of Election to Forgo the Carryback Period
      Form 1120 Schedule K, Line 11
      Form 1120-C Schedule K, Line 12
      Form 1120-F Additional Information, Line R
      Form 1120-FSC Schedule A, Additional Information, Line 6
      Form 1120-L Schedule M, Line 12
      Form 1120-PC Schedule I, Line 11

      Note:

      A corporation filing a consolidated return must include the required election statement per Regulations Section 1.1502–21(b)(3). Consolidated returns do not have the option of checking a box on a Form 1120 series return to indicate an election to forgo the carryback period to carryforward an NOL.

    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 2017 Form 1040 loss year return is filed (with extension) on July 15, 2018. An amended Form 1040 return claiming the election is timely if filed by October 15, 2018, but if filed on or after October 16, 2018, 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. Listed below are exceptions:
      • 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 the archived revision of IRM 21.5.9.5.14.6.5,Revocation of Prior Election to Waive the Carryback Period under Section 172(b)(3).
      • A Bankruptcy Trustee can revoke a valid election to forgo the carryback period.

    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 21.6.6.4.26, Electronic Filing System (e-file), for further information.

    6. The Tax Cuts and Jobs Act of 2017, Section 13302, limited the option to carryback a net operating loss to certain farming losses and to NOLs of non-life insurance companies. Therefore, only taxpayers reporting NOLs from a farming loss or non-life insurance companies are eligible to elect to forgo a carryback period. See IRM 21.5.9.5.14.11.1 for additional information.

    7. If an election statement is late filed on an amended tax return, follow the direction outlined in the IF/AND/THEN guidance below.

    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. Any Modernized e-Filed (MeF) returns will be displayed in the Return Request Display (RDD) by accessing the Employee User Portal (EUP).
    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. Any Modernized e-Filed (MeF) returns will be displayed in the Return Request Display (RDD) by accessing the Employee User Portal (EUP). 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 applicable for a Net Operating Loss. Taxpayers cannot elect to forgo the Carryback period for a Net Capital Loss or unused general business credits.

Special Carryback/Carryforward Periods

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

    Note:

    The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the two-year and other specified carryback provisions. (The exceptions are certain NOLs that are farming losses and NOLs of non-life insurance companies.) Additionally, Section 13302 allows for an indefinite carryforward of NOLs for all entities with the exception of non-life insurance companies who are restricted to a 20 year NOL carryforward.

    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 indefinitely for tax years beginning on or after December 23, 2010. (For tax years beginning on or before December 22, 2010, carryforward eight years.)
    Biofuel Producer Credit (Form 6478) Unused general business credits Not available for Carryback, Carryforward limited to 3 years from the tax year when the credit component terminates
    Credit for Oil and Gas Production From Marginal Wells (Form8904) Unused general business credits Unused credit for oil and gas production from marginal wells are carried back 5 years and forward 20 years applicable for tax years beginning in 2016.
    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)
    For tax periods ending after December 31, 2017, a Commercial Bank is not eligible for a carryback of NOL but can be carried forward indefinitely.
    Thrift Institutions NOLs Carryback 10 years, eight years Carryforward (For tax years beginning after December 31, 1981, and before January 1, 1986)
    For tax periods ending after December 31, 2017 a Thrift Institution is not eligible for a carryback of NOL but can be carried forward indefinitely.
    Specified Liability Losses (Product Liability) NOLs For tax periods ending prior to January 1, 2018 - Carryback 10 years
    For tax periods ending after December 31, 2017, a specified liability loss is not eligible for a carryback but can be carried forward indefinitely.
    Specified Liability Losses (Portion attributable to decommissioning of a nuclear power plant) NOLs For tax periods ending prior to January 1, 2018 - Carryback 10 years or carryback to each taxable year beginning with the taxable year in which such plant was placed in service (but not to a taxable year beginning before January 1, 1984)
    For tax periods ending after December 31, 2017, a specified liability loss attributable to the decommissioning of a nuclear power plant is not eligible for a carryback but can be carried forward indefinitely.
    Life Insurance Company For tax periods beginning prior to January 1, 2018 - Operations Loss Deduction
    For tax periods beginning after December 31, 2017 - NOLs
    For tax periods ending prior to January 1, 2018 - Carryback three years
    For tax periods ending after December 31, 2017, a Life Insurance Company is not eligible for a carryback of NOL but can be carried forward indefinitely.
    Farming Loss Portion of NOL that consists of income and deductions attributable to a farming business For tax periods ending prior to January 1, 2018 - 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.)
    For tax periods ending after December 31, 2017 - Carryback two years, for the portion of an NOL that arose from a trade or business of farming.
    Eligible Losses An "Eligible Loss" is any part of an 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,

    For tax periods ending prior to January 1, 2018 - 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).


    For tax periods ending after December 31, 2017, these eligible losses are not eligible for an NOL carryback and must be carried forward indefinitely, except to the extent the losses qualify as farming losses.
    Non-life insurance companies NOL The Tax Cuts and Jobs Act of 2017 (P.L. 115-97), Section 13302, requires a two-year carryback of net operating losses and a 20 year carryforward.

    Reminder:

    A carryback is mandatory unless the taxpayer timely elects to forgo the carryback period. See IRM 21.5.9.5.2 for additional information.

  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 - , Kansas Storms - , Midwest Disasters - , National Disasters - , the extended carryback provisions contained in the American Recovery and Reinvestment Act of 2009, Section 1211, the Worker, Homeownership, and Business Assistance Act of 2009, Section 13 and most recently the Tax Cuts and Jobs Act of 2017, Section 13302.

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 2017
    Loss Year - 201708
    Gain Years 201603 201703

    Note:

    When making an adjustment for the year within that 12 month period, 201708 to 201703, Override Codes "C" and "I" must be used or the adjustment will not post.

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, General Business Credit

Carryback Unused Credits

  1. For general business credits arising in taxable years beginning after December 31, 1997, the carryback period is one year and the carryforward period is 20 years

  2. 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.

  3. 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 Credits and Low Income Housing Credits

    • Foreign Tax Credit

    • Alternative Minimum Tax (AMT)

  4. Certain insurance companies are allowed carryback credits per IRC 847(8). These credits are verified from the 4615 Account, maintained in the Accounting Function. Use the below table to assist with identifying BMF TENT/RINT cases with IRC § 847 “special estimated tax payments.”

    If Then Look for Section 847 “special estimated tax payments (SETPs)” on
    Form 1120 Schedule J, Part II, Line 13 (Page 1, Line 32b for 2010 and prior revisions) may include remarks from taxpayers indicating SETPs.
    Form 1120-PC Page 1, Lines 14b and/or 14d
    Page 2, Schedule A, Lines 12 and/or 27
    Form 1120-L Page 1, Lines 6 and/or 17
    Lines 29b and/or 29d
    Form 8816 There can be one or multiple Forms 8816

    Note:

    The Tax Cuts and Jobs Act of 2017, Section 13516, repealed the special estimated tax payment for insurance companies. The information in the chart above is applicable to tax years beginning prior to January 1, 2018.

  5. A Form 1139 with Section 847 SETPs will reflect amounts from the originally filed returns where Section 847 amounts are included. However, the maximum refund available to the taxpayer based on the reduction of the tax liability would be tax after NOL Carryback "without Section 847." See example below:

    1139 Without Section 847 SETPs With Section 847 SETPs
    Tax payments before Carryback NOL $6,947,300 $12,416,100
    Tax payments after Carryback NOL $601,870 $1,148,750
    Regular Tax Decreased $6,345,430 $11,267,350
    SETP to Credit (Debit)   $4,921,920
    Amount due (Refund)   $(6,345,430)

    Note:

    In the above example, the maximum refund the taxpayer could receive from Form 1139 is $6,345,430. The $12,416,100 should match the TC150 on the tax module. After the carryback, the total tax on the module should now be $1,148,750. This would be a reduction in tax of $11,267,350. If the taxpayer’s maximum refund is $6,345,430, the difference of $4,921,920 would have to be credited to the 4615 account.

Creating Small Business Jobs Act of 2010 (PL 111-240, Section 2012 and 2013) - Five-Year Carryback of Eligible Small Business Credits
  1. Sections 2013 and 2012 of the Creating Small Business Jobs Act (SBJA) of 2010 changed the treatment of most general business credits of "eligible small businesses" 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). This was 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). For additional information on the Creating Small Business Jobs Act of 2010 (PL 111-, Section 2012 and 2013) see archived revisions of IRM 21.5.9.

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 two exceptions.

    • The taxpayer must use Form 1040-X or Form 1120-X when foreign tax credits are released

    • The taxpayer must use Form 1120-X when the refundable portion of the Form 8827, Credit For Prior Year Minimum Tax - Corporations, 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, interest must be manually computed. Use the same Interest Computation Date (INT-CMP-DT) 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. For additional information regarding the statutory requirements for released credits see IRM 25.6.1.7, Credits and Payments, or IRM 25.6.1.10.2.8.4, Foreign Tax Credit.

  4. 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.

    Note:

    The Tax Cuts and Jobs Act of 2017, Section 12001, repealed the corporate alternative minimum tax (AMT). Additionally, Section 12002, modifies the AMT credit (Form 8827 Line 8c) for corporations. See IRM 21.7.4.4.9.3, Sequestration of Form 8827 Credit - General Information, and the subsequent subsections for additional information.

  5. 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.

Carryback/Carryforward Restrictions on Biofuel Producer Credit, Form 6478
  1. The Biofuel Producer Credit (Form 6478) is a component of the general business credit included on Form 3800, General Business Credit.

  2. Any unused credit remaining is not available for carryback to prior years.

  3. IRC 40(e)(2) limits the number of years to carry forward the credit to three years starting in the tax year when the credit component terminates. See IRM 21.7.4.4.8.3.4, Form 6478, Biofuel Producer Credit, for additional information.

Carryback Related to Recaptured Investment Credits and Low Income Housing Credits

  1. Recapture of the investment credit occurs when there is an increase in non-qualified non-recourse financing, a disposition of investment credit property, or a cessation of use as investment credit property. Recapture of the low-income housing credit occurs when there is a decrease in qualified basis from one year to the next or a disposition of a qualified low-income building (or an interest therein). If the taxpayer claimed more investment credit or low-income housing 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 Investment Credit 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 Investment Credit used in the last year; or

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

IDRS Input of a Carryback Adjustment - Information on Adjusting Adjusted Gross Income (AGI), Taxable Income (TXI), Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), and Estimated Tax (ES) Penalty

  1. Follow the guidelines in the table below for input of 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 1040-X, Form 1120-X, 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:

    For IMF Accounts, 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.
    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:

    For IMF accounts, 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, and/or IRM 20.1.2.2.5 (5) & (6), Carrybacks and Carryovers, 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. See IRM 20.1.3.4.2, Adjustments after Penalty Assessment, for Corporations, and IRM 20.1.3.3.2, Adjustments after Penalty Assessment, for Individuals and Estates for additional information.

  4. Carryback adjustments do not affect the Failure to File penalty. See IRM 20.1.2.2.5, Carrybacks and Carryovers for additional information.

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:

    The Assessment Statute Expiration date (ASED) for the general tax assessment 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 cannot be input as a Transaction Code (TC) 290 because the ASED has expired. However, the Service can offset the carryback overpayment against both the unassessed statute barred tax and the accrued unassessed interest on that tax.

    Note:

    A taxpayer is not entitled to a refund of tax for a particular taxable year unless the taxpayer has actually overpaid their taxes for that year. If a carryback results in a claim for refund of income tax, the Service may offset that claim against other income taxes that the taxpayer owes for that same taxable year, even if those taxes can no longer be assessed because of the statute of limitations. IRC 6601(e)(1) states that interest is to be treated in the same manner as tax, and IRC 6601(g) provides that interest may be assessed and collected at any time during which the related tax may be collected. Accordingly, the Service is also permitted to offset against a carryback refund unassessed interest that accrued on a tax underpayment and the assessment of which is barred.


    Follow the steps below to net the adjustments. See IRM 25.6.1.10.2.5.7, Offsetting the Amount of a Refund With a Time-barred Adjustment, for additional information.
    1. Input the carryback adjustment for the full amount, using Hold Code (HC) 1 or 4.
    2. Manually compute (but do not assess) the interest on the unassessed general tax increase. (associate the interest computation with the carryback adjustment document once posted)
    3. Prepare Form 8758, Excess Collections File Addition, to send the overpayment amount that is equal to the statute-expired general tax increase and the manually-computed interest to Excess Collections. See IRM 21.2.4.3.10.1, Excess Collection file (XSF) for AMRH, for instructions.
    4. Issue a manual refund for the remainder, if any.
    5. Document CIS with the statute barred tax increase amount and manually computed interest.

    Example:

    On April 20, 2018 a taxpayer files an amended individual return which includes a general tax increase of $1,000 for 201312. The ASED expired for 2013 on 4/15/2017. The taxpayer also files an amended individual return to claim an NOL carryback from 201512 to 201312 for $2,000. Input TC 299 for $2,000. Compute interest on the $1,000 general tax increase from 04/15/2014 to 04/15/2016. Send $1,000 plus the amount of interest computed to Excess Collections via 8758. Issue a manual refund for any remaining overpayment on the 201312 tax account.

    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.

Shared Responsibility Payments Filed in Conjunction with an IMF Carryback Application/Claim
  1. Taxpayers may file a carryback application/claim and include a change to their Shared Responsibility Payment (SRP). The SRP is posted to MFT 35 as a TC 240 with penalty reference number (PRN) 692.

  2. An adjustment to an SRP included with a carryback application/claim is processed as per guidance in IRM 21.6.4.4.21.3.1, Shared Responsibility Payment Adjustments, and is not included in the carryback adjustment.

  3. Before processing the carryback application/claim on MFT 30, input the adjustment to the SRP on MFT 35. Include the appropriate hold code on the adjustment to hold the credit and/or prevent the issuance of an adjustment notice if a carryback letter will be issued.

  4. Once the SRP has been adjusted on MFT 35, move the resulting overpayment to MFT 30. Follow guidance in Exhibit 21.5.8-1, Transaction Codes and Reversals, for the appropriate transaction codes to move the overpayment. Include TC 570 on both sides of the credit transfer to hold the credit.

  5. Overpayment Interest Considerations:

    An SRP overpayment resulting from a net operating loss carryback is subject to the overpayment interest rules applicable to carrybacks, including the 45-day interest-free provision. See IRM 20.2.9.2(6), Determining the Overpayment Interest Periods, and the Carryback 45-Day Interest Free Charts.

    When the 45-day interest-free period is missed, manually compute interest on the entire overpayment (SRP, plus carryback, as well as any underpayment interest and/or penalty re-calculations resulting from the carryback) from the later of the following dates, entering the interest amount in your adjustment with TC 770.

    • Loss year return due date (determined without regard to any extension of time for filing)

    • Received date of the delinquent loss year return

    • Date the loss year return is filed in processible form (provided the processible date is after the due date, including any extension of time for filing)

    • Date the overpayment on the gain year arose

      Note:

      If the TC 770 with the appropriate interest amount is not entered, interest on the additional SRP component is erroneously calculated by the IRS computer with information from the gain year return only. Input TC 770 for zero when no interest is permitted (e.g., 45-day period met).

      Exception:

      If issuing a manual refund per IRM 21.5.9.5.12, it is not necessary to input TC 770 with the adjustment. The interest will instead be entered on the manual refund document, whether for zero or a money amount. Remember that the manual refund will be for the entire overpayment (i.e., SRP, carryback, penalty/interest recalculations). Enter the appropriate adjustment hold code (HC 1, 2, or 4) to prevent a systemically generated refund.

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 refund is issued within the 45-day period has been met count the number of days from the following dates, whichever occurs the last:

    • The due date of the loss year return

    • Received date of the delinquent loss year return

    • The date the loss year return (whether processible or not delinquent) is filed in processible form

    • The received date of an application for tentative carryback adjustment under section 6411(a) or a claim for overpayment or

    • The application or claim processible date

    Reminder:

    If a request for missing information is deemed necessary, the date the missing information is received by fax or mail is the processible date of an application or claim.

    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 any extension of time for filing)

    2. the received date of a delinquent loss year return

    3. the date the loss year return is filed in processible form (provided the processible date is after the due date, including any extension of time for filing)

    4. the date the overpayment on the gain year 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 1040-X orForm 1120-X) 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 any extension of time for filing)

    2. the received date of a delinquent loss year return

    3. the date the loss year return is filed in processible (provided the processible date is after the due date, including any extension of time for filing)

    4. the date the overpayment on the gain year 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.

    Reminder:

    If a carryback claim/application is filed by a nonresident alien and is not processed within 45-days thus allowing interest on the refund the Service is required to withhold tax on the interest. See IRM 21.8.2.9.14, Refunds on Form 1120-F/FSC That Include Interest, or IRM 21.8.1.14, Manual Refunds to Nonresident Aliens That Include Interest, for additional information.

  2. TC 294/TC 295/TC 298/TC 299 must contain an interest-start-date (INT-CMP-DT) to post. The computer uses the interest start date as the credit availability date to begin the computation of overpayment 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 1040-X, Form 1120-X, 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. The Carryback 45-day interest-free charts located on SERP under the IRM Supplements Tab is required to be utilized when processing carryback cases.

  4. Refer to IRM 20.2.9,Interest on Carryback of Net Operating Loss, for additional information regarding questions concerning interest on carryback cases.

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, overpayment 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 inputing 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 appropriate Carryback 45-Day Interest-Free Chart on SERP. If yes, go to Step b. If no, a manual refund may be necessary. See IRM 21.5.9.5.12, Carryback Manual Refund, for additional information on the issuance of carryback manual refunds.

    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 201712 Form 1040 Net Operating Loss (NOL) is being carried back to 201612. The Interest Computation Date of the 2017 NOL is 04/15/2018. An analysis of the 201612 module shows two TC 670 payments. One is dated 03/15/2018. One is dated 05/18/2018. In this case, the module contains one payment (TC 670 dated 05/18/2018) that is later than the Interest Computation Date of the NOL carryback (04/15/2018).

      Example:

      A 201712 Form 1120 NOL is being carried back to 201612. The Interest Computation Date of the 2017 NOL is 04/15/2018. An analysis of the 201612 module shows two TC 670 payments. One is dated 02/14/2018. One is dated 05/15/2018. In this case, the module contains one payment (TC 670 dated 05/15/2018) that is later than the Interest Computation Date of the NOL carryback (04/15/2018).

    3. If any payments are present on a gain year module that meet the condition in Step b, 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 b, 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.

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 $25,000 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 overpayment 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 overpayment interest must be reviewed by the Technical Unit. See IRM 21.4.4.6,Other Manual Refund Requirements, for review processing.
    Also see IRM 21.4.4.5, Preparation of Manual Refunds, 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 21.4.4.6, Other Manual Refund Requirements, for additional information
    The taxpayer or spouse is deceased   Issue a manual refund See IRM 21.4.1.5.9.4, Deceased Taxpayers, for additional information
    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 21.4.4.5.2, 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, 8302, Electronic Deposit of Tax Refund of $1 Million or More Processing Requests for Refunds.
    Manual refunds over $1 million that include overpayment interest must be reviewed by the Technical Unit. See IRM 21.4.4.6,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 21.4.4.6(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 21.4.4.6(3), Other Manual Refund Requirements, for additional information
    Notate the contact with the Campus Accounting Function and email to Headquarters in CIS

    Caution:

    If a credit transfer is required before issuing a manual refund use the IAT tools, as mandated IRM 21.2.2-2, Accounts Management Mandated IAT Tools, for the input of the credit transfer and input a TC 570 or a credit freeze code as part of the transfer. This will prevent systemic and erroneous refunds.

  2. If a carryback claim/application is filed by a nonresident alien and is not processed within 45-days, thus allowing interest on the refund, the Service is required to withhold tax on the interest. See IRM 21.8.2.9.14, Refunds on Form 1120-F/FSC That Include Interest, or IRM 21.8.1.14, Manual Refunds to Nonresident Aliens that Include Interest, for additional information.

  3. 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. See IRM 21.5.9.5.15(5) and (6) for additional information.

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

    Note:

    Monitor account after submitting Form 3753 for Accounting to input a TC 971 AC 664. If the TC 971 does not post within 7 days, contact Accounting.

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 interest rates t 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.

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.

Carryback Net Operating Loss (NOL)

  1. A net operating loss (NOL) is created when certain deductions exceed income from all sources. These deductions must be relate to a trade or business, work as an employee, or casualty or theft losses. Any loss remaining after applying the NOL to preceding years lowers taxes in a later year. An NOL deduction reduces the taxable income for a taxable year to which the NOL is carried, and may allow a refund for taxes already paid if the NOL is carried back to an earlier year. Any loss remaining after applying the NOL to preceding years can be used as a deduction to reduce the taxable income for a later year. The taxpayer must use the NOL before applying unused credit.

    Note:

    The Tax Cuts and Jobs Act of 2017, Section 13302, allows for the carryback of certain net operating losses incurred in the trade or business of farming and for non-life insurance companies only. All other entity types can carry net operating losses forward only. See IRM 21.5.9.5.14.11 for additional information.

  2. For individual taxpayers, calculate NOL in the same manner as taxable income, but exclude 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

    • Qualified business income 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.

    • Exclude any Section 250 deduction

    • Exclude any deduction for foreign-derived intangible income

  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 an NOL was three years and the carryforward period was 15 years.

  8. The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the two-year NOL carryback and other specified NOL carryback provisions and provided for an indefinite carryforward period of Net Operating Losses. Exceptions include losses incurred in the trade or business of farming and non-life insurance companies who retain the option to carry NOLs back two years. Non-life insurance companies are limited to a 20-year carryforward.

  9. For a farming loss arising in tax years beginning after August 5, 1997 and ending prior to January 1, 2018, the carryback period is five years. For a farming loss arising in those tax years, and ending prior to January 1, 2018, 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.

    Note:

    The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the five year carryback period and allows for a two year carryback period for farming losses. Additionally, taxpayers reporting an NOL due to farm losses can elect to forgo the carryback period and carry the losses forward. For information regarding an election to forgo the carryback period see IRM 21.5.9.5.2.

  10. For tax periods ending on or prior to December 31, 2017, 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. The Tax Cuts and Jobs Act of 2017 repealed all other special carryback periods. See IRM 21.5.9.5.3 for additional information.

  11. 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" to the CIS case.

  12. An NOL carryback, wherever applicable, is required unless the taxpayer timely elects to forgo the carryback period and carry the NOL forward.

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.

Gulf Opportunity Zone Act of 2005 (GO Zone) - Net Operating Losses
  1. IRC 1400N(k) allowed a five-year carryback for Net Operating Losses (NOLs) that were qualified GO Zone losses, and was 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. For additional information on the Gulf Opportunity Zone Act of 2005 (GO Zone) see archived revisions of IRM 21.5.9.

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. For additional information on the Housing and Economic Recovery Act of 2008 see archived revisions of IRM 21.5.9.

Kansas Disaster Area (PL 110-234) - Net Operating Losses
  1. The Food, Conservation, and Energy Act of 2008 provided 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 an NOL that is a "qualified recovery assistance loss" could be carried back to the five tax years before the NOL year. For additional information on the Kansas Disaster Area (PL 110-234) see archived revisions of IRM 21.5.9.

Midwestern Disaster Area (PL 110-343, Section 702) - Net Operating Losses
  1. HR 1424 (Public Law 110-343), Section 702, provided tax relief for victims of the Midwestern Disaster Area. The Midwestern disaster area was restricted to the states of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin for areas that had 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. The portion of a Net Operating Loss (NOL) that was a "qualified disaster recovery assistance loss" could be carried back to the 5 tax years before the NOL year. For additional information on the Midwestern Disaster Area (PL 110-343) see archived revisions of IRM 21.5.9.

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, provided 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 qualified as federally declared disasters. Section 708 of the National Disaster Relief Act allowed taxpayers to carry back a "qualified disaster loss" five years. For additional information on the National Disaster Relief Act (PL 110-343, Section 708) see archived revisions of IRM 21.5.9.

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 provided an extended carryback period for "eligible small businesses" sustaining a net operating loss in tax year 2008. The provision allowed taxpayers that were "eligible small businesses" to elect a three, four, or five-year carryback period for a 2008 Net Operating Loss (NOL). For additional information on the American Recovery and Reinvestment Act of 2009 (PL 111-5. Section 1211) see archived revisions of IRM 21.5.9.

Worker, Homeownership, and Business Assistance Act of 2009 (PL 111-92, Section 13) - Net Operating Losses
  1. The Worker, Homeownership, and Business Assistance Act (WHBAA) of 2009 was signed into law on November 6, 2009 as Public Law 111-92. Section 13 of the Act amends § 172(b)(1)(H) and 810(b) of the Internal Revenue Code to allow almost all businesses to make an irrevocable election to carry back a Net Operating Loss (NOL) for a year that began or ended in 2008 or 2009 for an extended period (either three, four, or five years). For additional information on the Worker, Homeownership, and Business Assistance Act of 2009 (PL 111-92, Section 13) see archived revisions of IRM 21.5.9.

Effect of Sequestration on the Refundable Amount of the Accelerated Minimum Tax Credit (Form 8827) for Carryback Claims- BMF Only
  1. On March 1, 2013, the President issued a sequestration order in accordance with Section 251A of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, 2 U.S.C. 901a. The order requires that budgetary resources in each non-exempt budget account be reduced by the amount calculated by the Office of Management and Budget (OMB) in its report to Congress, entitled OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013. These required reductions (referred to as “Sequestration”) include a reduction to a refundable credit for corporations who are requesting a refund from Form 8827, Credit for Prior Year Minimum Tax – Corporations. Any refundable portion of the credit will be subject to a pre-defined percentage reduction to the credit claimed on the corporate return.

    Reminder:

    The Tax Cuts and Jobs Act repealed the alternative minimum tax for corporations for taxable years beginning after December 31, 2017. In additions, amendments to section 53 allow corporations to use all of their alternative minimum tax credit carryover to 2018 in tax years 2018 - 2021 and treat a portion as a refundable credit. See IRM 21.7.4.4.9.3.3, Repeal of Alternative Minimum Tax (AMT), and Repeal of Corporate AMT Sequestration, for additional information.

  2. Carryback applications filed on Form 1120 series corporate income tax returns with gain years of 2009 through 2012 processed on or after September 21, 2013 are subject to a sequestration of the refundable credit amount for a corporation electing to accelerate the minimum tax credit on Form 8827. See IRM 21.7.4.4.9.3.3,The Sequestration Rate and Obligation Date, for determining the appropriate sequestration rate.

    Note:

    Only returns with an open refund statute date (RSED) at the time the return/amended return is filed are subject to sequestration.

  3. Processing of RINTS with Form 8827 credits subject to sequestration is a specialized procedure that is worked only by The Large Corp teams in Cincinnati and Ogden. A RINT/TENT that includes a Form 8827 with an amount on line 8c for tax years before 2018 identified in a Carryback Team is to be routed to:

    • Cincinnati – Route to Large Corp., Stop 537G, Team 402 and assign to IDRS number 0230256147

    • Ogden – Cases are scanned into CIS and assigned to IDRS number 0434925340

  4. The refundable portion of the Corp AMT Credit has experienced several changes. For business income tax returns processed in 2013 the refundable portion of the Corp AMT Credit posted as a Transaction Code (TC) 766 Credit Reference Number (CRN) 334 on all original returns, regardless of the tax year. Prior to 2013, all credits that had not been assigned a CRN posted to IDRS as only a TC 766. However, in 2013 a TC 766 CRN 334 may also include other refundable credits not previously assigned a CRN. Caution must be exercised when reviewing the account to determine the correct amount of the refundable Corp AMT Credit. For returns processed after December 31, 2016, the credit reference number for the Form 8827 credit was changed to CRN 793.

  5. Determine if the claim fits the Corporate AMT Sequestration criteria by reviewing the information submitted by the taxpayer to determine if the gain year(s) include a Form 8827, Credit for Prior Year Minimum Tax – Corporations. If there is an amount greater than zero on Line 8c, the case may fit sequestration criteria. If no entry is found or the taxpayer entered a zero on line 8c for tax years before 2018, Corporate AMT Sequestration does not apply. Carryback applications/claims not fitting Corporate AMT Sequestration criteria are processed using normal Carryback procedures.

    Reminder:

    A reduction in tax due to the processing of a carryback application/claim could result in a sequestrable Form 8827, line 8c amount.

  6. Prior to January 1, 2017, the refundable amount of the accelerated minimum tax credit reported on Form 8827 Line 8c must exceed the tax on the module regardless of any other credits, credit elect to subsequent tax year, credit elect from a previous tax year, offsets into, or payments on the account. For tax years beginning in 2017, Corporate AMT Sequestration is applied to offsets to balance dues and credit elects. For tax years beginning after 2017, Sequestration is not applied to the Corporate AMT Credit.

    Note:

    For TY 2009 through 2011, the accelerated minimum tax credit on Form 8827 is included with the credits on Form 3800, General Business Credit, on Schedule J, Part II - Payments and Refundable Credits, of the corporate income tax return. For TY 2012 and subsequent tax years the accelerated minimum tax credit on Form 8827 is a separate entry on Schedule J of the corporate income tax return. For additional information on where the Form 8827 credit can be located, see IRM 21.7.4.4.9.3,Sequestration of Form 8827 Credit - General Information (3).

  7. The accelerated minimum tax credit on Form 8827 must be determined and considered separately from other credits reported on the return. See IRM 21.7.4.4.9.3, Sequestration of Form 8827 Credit – General Information, for additional information.

  8. The general rule for determining the amount subject to sequestration is the lesser of:

    1. The Form 8827 credit in excess of the tax (TC 150), penalties and interest or

    2. Prior to January 1, 2017, the amount of the refund after offsets and credit elect

    3. January 1, 2017 and subsequent, the amount of the refund without considering offsets and credit elect.

  9. Additional information and background on the sequestration of the refundable portion of the Form 8827 credit can be found in:

    • IRM 21.7.4.4.9.3, Sequestration of Form 8827 Credit – General Information


     

Determining When the Accelerated Minimum Tax Credit is Subject to Sequestration on Carryback Applications/Claims Returns Posting Prior to Cycle 201639
  1. In order for the accelerated minimum tax credit on 8827 Line 8c to be subject to sequestration, the accelerated minimum tax credit must exceed the remaining tax on the account after the carryback adjustment, regardless of any other credits, credit elect, credit elect from a previous tax year, offsets into, or payments posted to the account.

    Example:

    TC 150 $1,000, TC 766 $2,000 (accelerated minimum tax credit), $1,000 (remaining accelerated minimum tax credit available for refund) is subject to sequestration.

    Example:

    TC 150 $1,000, TC 766 $2,000 (accelerated minimum tax credit), credit elect to the next tax year $500. $500 is the remaining overpayment and is subject to sequestration because it is solely comprised of the accelerated minimum tax credit.

  2. Prior to January 1. 2017, the credit is not subject to an offset to a balance due on the account, cross-referenced account, or Non-Master File (NMF) account. Offsets to balance due accounts are not subject to sequestration. Any excess of the refundable credit is subject to sequestration. See IRM 21.7.4.4.9.3.2,Determining if Form 8827 Credit is Subject to Sequestration, Returns Posting Prior to Cycle 201701, for additional information.

    Example:

    TC 150 $1,000, TC 766 $2,000 (accelerated minimum tax credit), $1,000 offset to balance due. No remaining credit subject to sequestration.

    Example:

    TC 150 $1,000, TC 766 $2,000 (Accelerated minimum tax credit), credit elect to the next tax year $200, offset to balance due $100. $700 is the remaining overpayment and is subject to sequestration because it is solely comprised of the accelerated minimum tax credit.

  3. Review the account for cross-referenced accounts identified on ENMOD for balance due issues. In order to determine if a NMF balance due exists, research ENMOD for an unreversed TC 130.

    • If an unreversed TC 130 is located on the account, contact the AM NMF Unit via email to request all balance due account transcripts from the Automated Non Master File (ANMF). Attach the NMF balance due transcripts to the CIS case.

  4. If a balance due is located on the account, determine the total credit needed to resolve the balance due(s) including penalties and interest. Transfer the appropriate credit to the balance due accounts. If the entire carryback overpayment is utilized to pay off balance dues, the accelerated minimum tax credit is not subject to sequestration.

    Note:

    If the balance due is a NMF Account, see IRM 3.17.64.9,Credit Transfers, for guidance.

    Note:

    Do not offset to a balance due module that includes a -E freeze. See IRM 21.5.6.4.10, -E Freeze, for additional information.

  5. Any remaining overpayment on the account due to a carryback adjustment on the gain year(s), and the taxpayer has claimed credit for the accelerated minimum tax credit, will be subject to Corporate AMT Sequestration. If the remaining overpayment is more than the credit for the accelerated minimum tax, only the accelerated minimum tax credit portion of the overpayment is subject to Corp AMT Sequestration.

  6. Prior to January 1, 2017, the general rule for determining the amount subject to sequestration is the lesser of:

    1. The credit in excess of the tax (TC 150), or

    2. The amount of the refund after offsets and credit elect

Determining When the Accelerated Minimum Tax Credit is Subject to Sequestration on Carryback Applications/Claims, Returns Posting Cycle 201701 through Present
  1. In order for the accelerated minimum tax credit on Form 8827 for tax periods before 2018 to be subject to sequestration, the accelerated minimum tax credit must exceed the remaining tax, penalties and interest on the account after the carryback adjustment, regardless of any other credits, credit elect, credit elect from a previous tax year, offsets into, or payments posted to the account.

    Example:

    TC 150 $1,000, TC 766 $2,000 (accelerated minimum tax credit), $1,000 (remaining accelerated minimum tax credit available for refund) is subject to sequestration.

  2. Beginning January 1, 2017, for returns posting in cycle 201701 and subsequent the general rule in determining the amount subject to sequestration is the amount of the Form 8827 credit in excess of the tax (TC 150), penalties and interest, regardless if funds will be credit elected, offset the balance dues or other debts, or to satisfy any penalties or interest assessed on the module. For information on the current and past sequestration rate see IRM 21.7.4.4.9.3.4,The Sequestration Rate and Obligation Date.

Determining the Sequestration Amount and Processing Carryback Applications/Claims
  1. The Fiscal Year 2019 Corporate AMT Sequestration rate applied to Carryback applications/claims was 5.9 percent. See IRM 21.7.4.4.9.3.4,The Sequestration Rate and the Obligation Date, for additional information on changes in the sequestration rate.

  2. The chart below provides guidance for making corrections to the accounts when the Form 8827, Credit For Prior Year Mimimum Tax - Corporations, line 8c for tax periods 2018 and prior credit is subject to sequestration. The chart below utilizes the sequestration rate for fiscal year 2019.

    Note:

    When adjusting an account include a TC 971 Action Code 356

    .

    If And Then Examples and Additional Information
    There are no offsets to balance due(s) The 45-day interest-free period is not in jeopardy
    • Utilize the Corp AMT Sequester worksheet to calculate the Corp AMT Sequestration amount at 5.9 percent

    • Reduce the Form 8827 credit by the calculated amount by inputting TC 767 with CRN 793

    Example:

    if $1,000 of the credit is subject to sequestration, $1,000 x 5.9 percent= $59.

    Example:


    •TC 290 $ .00
    CRN 793 $59.00-

    Example:


    •TC 290 $.00
    TC 767 $ 59.00
    • Include HC 4 on the adjustment to stop CP210 and hold credits.
    • Notify the taxpayer via Letter 216C for TENTS or 4734C for RINTS utilizing in an open paragraph the verbiage in IRM 21.7.4.4.9.3.8,Responding to Taxpayers Concerning Sequestration of Form 8827 Credits, (1) informing the taxpayer that the Form 8827 credit available for refund has been reduced due to the sequestration.
    • Input the Carryback adjustment using normal procedures.

    Reminder:

    If/when a manual refund for the Carryback adjustment is required as per IRM 21.5.9.5.12,Carryback Manual Refund, (1), be aware that the Carryback adjustment will post one cycle after the sequestration adjustment.

    There are no offsets to balance due(s) The 45-day interest-free period is in jeopardy
    • Utilize the Corp AMT Sequester worksheet to calculate the Corp AMT Sequestration amount at 5.9 percent

    • Reduce the Form 8827 credit by the calculated amount by inputting TC 767 with CRN 793

    Example:


    •TC 290 $.00
    CRN 793 $59.00-

    Example:


    •TC 290 $.00
    TC 767 $59.00
    • Include HC 4 on the adjustment to stop CP210 and hold credits
    • Issue a manual refund per IRM 21.5.9.5.12(1) for the remaining overpayment
    • Notify the taxpayer via Letter 216C for TENT cases or 4734C for RINT cases utilizing the verbiage in IRM 21.7.4.4.9.3.8,Responding to Taxpayers Concerning Sequestration of Form 8827 Credits, (1) informing the taxpayer in an open paragraph that the Form 8827 credit available for refund has been reduced due to the sequestration
    • Input the Carryback adjustment using normal procedures

    Reminder:

    If/when a manual refund for the Carryback adjustment is required per IRM 21.5.9.5.12,Carryback Manual Refund, (1), be aware that the Carryback adjustment will post one cycle after the sequestration adjustment.

    Note:

    If the transaction goes unpostable, follow normal procedures to correct.

    There are offsets to balance due(s) The 45-day interest-free period is not in jeopardy
    • Determine the amount of offset needed for each balance due account using the appropriate “from” date

    • Transfer the previously determined amount to the balance due and include a TC 570 on the debit side of the credit transfer

    • Utilize the Corp AMT Sequester worksheet to calculate the Corp AMT Sequestration amount at 5.9 percent

    • Reduce the Form 8827 credit by the calculated amount by inputting TC 767 with CRN 793

    • If the balance due offsets are less than the overpayment, the 8827 credit will always be included in the overpayment

    Example:


    •TC 290 $.00
    CRN 793 $59.00-

    Example:


    •TC 290 $.00
    TC 767 $59.00

    • Include HC 4 on the adjustment to stop CP210 and hold credits

    • Notify the taxpayer via Letter 216C for TENTS or 4734C for RINTS utilizing the verbiage in IRM 21.7.4.4.9.3.8,Responding to Taxpayers Concerning Sequestration of Form 8827 Credits, (1) informing the taxpayer in an open paragraph that the Form 8827 credit available for refund has been reduced based on the sequestration

    • Input the Carryback adjustment using normal procedures

    Reminder:

    If/when a manual refund for the Carryback adjustment is required as per IRM 21.5.9.5.12,Carryback Manual Refund, (1), be aware that the Carryback adjustment will post one cycle after the sequestration adjustment.

    There are offsets to balance due(s) The 45-day interest-free period is in jeopardy
    • Determine the amount of offset needed for each balance due account using the appropriate “from” date

    • Transfer the previously determined amount to the balance due and include a TC 570 on the debit side of the credit transfer

    • Utilize the Corp AMT Sequester worksheet to calculate the Corp AMT Sequestration amount at 5.9 percent

    • Reduce the Form 8827 credit by the calculated amount by inputting TC 767 with CRN 793

    • If the balance due offsets are less than the overpayment, the Form 8827 credit will always be included in the overpayment

    Example:


    •TC 290 $.00
    CRN 793 $59.00-

    Example:


    TC 290 $.00
    TC 767 $59.00

    • Include HC 4 on the adjustment to stop CP210 and hold the credit

    • Notify the taxpayer via Letter 216C for TENTS or 4734C for RINTS utilizing the verbiage in IRM 21.7.4.4.9.3.8,Responding to Taxpayers Concerning Sequestration of Form 8827 Credits, (1) informing the taxpayer in an open paragraph that the 8827 credit available for refund has been reduced based on the sequestration

    • Input the Carryback adjustment using normal procedures

    Reminder:

    If/when a manual refund for the Carryback adjustment is required per IRM 21.5.9.5.12,Carryback Manual Refund, (1), be aware that the Carryback adjustment will post one cycle after the sequestration adjustment.

    Note:

    If the adjustment goes unpostable, follow normal procedures for correction.

  3. Utilize the Corp AMT Sequestration calculator found on the SERP IRM Supplements page for the calculation of the amount of credit to be sequestered.

Tax Cuts and Jobs Act of 2017 Affect on Corporate Alternative Minimum Tax (AMT) - Business (BMF) Carrybacks
  1. The Tax Cuts and Jobs Act of 2017, Section 12001, repealed the alternative minimum tax for corporations, and Section 12002 modified the AMT credit for corporations. The amendments allow corporations to use all of their AMT Credit carryover to 2018 in tax years 2018 - 2021 and treat a portion as a refundable credit. The amount of the refundable credit is equal to 50 percent (100 ercent in taxable years beginning in 2021) of the excess of the minimum tax credit carryover to the taxable year over the amount of the credit otherwise allowable for the year against regular tax liability. See IRM 21.7.4.4.9.3.3 , Repeal of Alternative Minimum Tax (AMT), and Repeal of Corporate AMT Sequestration, for additional information.

  2. When a carryback claim or application with a Form 8827, Credit for Prior Year Minimum Tax - Corporations, is attached, follow the guidance in IRM 21.7.4.4.9.3.3(5) if the return subject to sequestration was not identified in Submission Processing. Follow guidance in IRM 21.5.9.5.14.8.2, for processing a carryback claim or application with Form 8827 attached reporting an amount on line 8c for tax periods 2018 and prior.

    Note:

    The examples in IRM 21.5.9.5.14.8.2 include guidance to input a CRN 334. This CRN is only applicable for original returns processed prior to January 1, 2016 with a Form 8827 credit claimed. Original returns processed after January 1, 2016 are assigned CRN 793. Therefore, when adjusting an account first determine which CRN is applicable. See IRM 21.7.4.4.9.3.7, Processing Amended Returns with Form 8827, for additional information.

Tax Equity and Fiscal Responsibility Act (TEFRA) Partnership Related Claims (Individual (IMF) Only)
  1. Carryback RINTS/TENTS can be filed for TEFRA-related Net Operating Losses. For additional information, see IRM 21.6.6.4.24, Tax Equity and Fiscal Responsibility Act (TEFRA) Partnerships Related Claims.

Net Investment Income Tax (NIIT) Effect on Carryback Adjustments - Individuals, Estates and Trusts Only
  1. The Health Care and Education Reconciliation Act of 2010 (PL 111–152) added a Net Investment Income Tax (NIIT) under IRC 1411 of the Internal Revenue Code for tax years 2013 and subsequent. For additional and processing information see:

    • IRM 21.6.4.4.20, Net Investment Income Tax

    • IRM 21.8.1.13.6, Net Investment Income Tax

    • IRM 21.7.4.4.1.7.1, Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts

  2. NIIT is not applicable to Corporate Income Tax returns.

  3. NIIT is recalculated based on the Carryback of a Net Operating Loss (NOL) on gain years, as long as at least part of the NOL deduction is an IRC 1411 amount, as defined in the IRM sections identified in paragraph (1) above.

  4. A Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, should be included with the carryback claim/application as supporting documentation as per IRM 21.5.9.4.2 (2).

Tax Cuts and Jobs Act of 2017 (P.L. 115-97), Sections Affecting Net Operating Losses
  1. The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017 as Public Law 115-97. The following sections of the Tax Cuts and Jobs Act of 2017 affect carryback cases.

    1. Section 11012 temporarily prohibits taxpayers other than corporations from claiming excess business losses for tax years beginning after December 31, 2017 and before January 1, 2026. Excess business losses prohibited under Section 11012 are carried forward and treated as an NOL carryforward in the subsequent tax year.

    2. Section 12001 repealed the corporate alternative minimum tax (AMT) for tax periods beginning after December 31, 2017.

    3. Section 12002 modified the AMT credit for corporations to allow the AMT credit to offset regular tax liability for any taxable year and made the credit refundable for any taxable year beginning after December 31, 2017 and before January 1, 2022 in the amount equal to 50 percent (100 percent beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against the regular liability.

    4. Section 13302 modified the rules governing NOL deduction. First, for NOLs arising in tax years beginning after December 31, 2017, it limited the deduction to 80 percent of taxable income determined without regard to the NOL deductions, with an exception for non-life insurance companies. Second, it repealed the two-year and other specified carryback provisions as described in IRM 21.5.9.5.3 for NOLs arising in tax years ending after December 31, 2017, with the exception of certain losses incurred in the trade or business of farming and non-life insurance companies. Third, section 13302 allowed for a two-year carryback for certain losses incurred in the trade or business of farming and for non-life insurance companies for NOLs arising in tax years ending after December 31, 2017. Fourth, it allowed an indefinite carryforward of NOLs, with the exception of non-life insurance companies which can carry forward an NOL 20 tax years. Fifth, it allowed taxpayers eligible to carryback NOLs to waive the carryback period as described in IRM IRM 21.5.9.5.2.

    5. Section 13511 repealed the operations loss deduction for life insurance companies and allows the net operating loss deduction that can be carried forward under section 172 for tax periods beginning after December 31, 2017.

    6. Section 13516 repealed the special estimated tax payment rules for insurance companies for tax periods beginning after December 31, 2017.

Tax Cuts and Jobs Act - NOL Carryback and Carryforward Periods
  1. Taxpayers can no longer carry net operating losses back to previous tax periods, unless their NOLs are incurred in the trade or business of farming or unless they are non-life insurance companies. All taxpayers can carry their NOLs forward indefinitely, with the exception of non-life insurance companies, which are limited to a 20-year NOL carryfoward period.

    Reminder:

    Carryback assistors will work carryforward cases and elections to forgo the carryback period. Do not reassign these case types to a non-carryback team.

  2. Taxpayers with eligible farming losses and non-life insurance companies can file an NOL carryback application or claim requesting a two-year carryback. Any remaining NOL not absorbed in the two previous tax years (gain years) is then carried forward. See IRM 21.5.9.5.3 for carryback and carryforward rules.

  3. If a taxpayer no longer eligible to carry back a net operating loss files an election to forgo the carryback period, notate the CIS history as no action and close the case.

    Note:

    If the taxpayer includes other actionable issues with the election to forgo the carryback period, take the appropriate actions on the additional issues and notate the CIS history te election to forgo the carryback period was filed by a taxpayer no longer eligible to carry net operating losses back per TCJA.

Tax Cuts and Jobs Act - Identification of Farming Losses Eligible for Carryback
  1. A farming business means the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity. The farmer is not required to care for the plant or animal during its entire lifecycle but must do more than merely hold for resale. Below are examples of farming activities allowed in a two-year carryback:

    • Animals held for breeding (e.g., cattle, horses, chickens, etc.)

    • Beef cattle ranching

    • Dairy farm

    • Fish farm

    • Growing crops (e.g., fruits, vegetables, grains, nuts, vineyard, etc.)

    • Growing/raising ornamental trees (other than evergreen trees that are more than six years old at the time they are severed from their roots)

    • Horticultural (a branch of agriculture that deals with the art, science, technology, and business of growing plants. It includes the cultivation of medicinal plants, fruits, vegetable, nuts, seeds, herbs, sprouts, mushrooms, algae, flowers, seaweeds and non-food crops such as grass and ornamental trees and plants)

    • Nursery

    • Sod farm

  2. A farming business may include activities that are not allowable in a two-year carryback but the losses can be carried forward. Those include:

    • Cash received for the use of pasture or farmland based on a flat charge when there is no material participation in the farming operation

    • Contract harvesting of an agricultural or horticultural commodity grown or raised by another

    • Farm labor

    • Farm management for a fee or on a contract basis

    • Income from breeding, raising, or caring for dogs, cats, or other pet animals

    • Packaging plants or animals

    • Processing of commodities or products beyond those activities that are normally incident to the growing, raising, or harvesting of such products (e.g., non-incident processing activities, reselling activities, and contract harvesting for others, merely hunting or merely catching)

    • Processing activities that are not incidental to growing, raising or harvesting (e.g., such as canning, freezing, slaughtering, or combining multiple food products into a single item)

    • Resale of plants or animals

    • Timber

    • Veterinary

    • Winery

  3. In order to determine whether a farming corporation or individual filing an NOL is eligible for a two-year carryback under Section 13302 of TCJA, a review of the NAICS code is required. For BMF the NAICS codes are found on ENMOD and/or BMFOLE. For IMF the NAICS codes may be found on TXMOD as "PIA-PBA" (Principal Industry Activity - Principal Business Activity) code or is located on Form 1040, Schedule F, Line B or for Schedule E Part II review the employer identification number(s) listed on line 28 on ENMOD and/or BMFOLE. Take the following actions if the NAICS code:

    1. Begins with "111" or "112," the taxpayer is engaged in a farming business eligible for the two-year NOL carryback. Process the application/claim.

    2. Taxpayers using NAICS code 113210 (forest nurseries and gathering of forest products) may or may not be engaged in a farming business. Review attachments to determine if a statement is attached indicating the taxpayer is a forest nursery. If no statement is attached, reject the application or claim using guidance in IRM 21.5.9.5.4.3. If rejecting via the appropriate carryback letter, request clarification regarding their farming activities under NAICS code 113210. In addition to the appropriate paragraph advising the taxpayer to resubmit their application or claim, include the following in an open paragraph:
      We need additional information before we can process your (application or claim). Our records indicate your primary business activity is forest nurseries and gathering of forest products. Please provide a description of your specific business activities involving forest nurseries and gathering of forest products.

    3. Does not begin with "111" or "112" , or isn’t 113210, and the application/claim is not accompanied by documentation supporting the NOL is from a farming business, reject the application/claim as per IRM 21.5.9.4.3.

Tax Cuts and Jobs Act - Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss (NOL) Carryback
  1. This section provides procedures for processing Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss (NOL) Carryback, due to changes included in the Tax Cuts and Jobs Act of 2017 (TCJA), Section 13302. See IRM 21.5.9.5.14.11.1 for additional information on the changes to the carryback and carryforward periods per TCJA.

  2. A Form 1138 filed for a tax period 2016 and prior are processed using guidance in IRM 21.5.9.5.28.

  3. A Form 1138 filed for tax period 2017 and subsequent are processed using the following guidance.

  4. Changes to the law due to TCJA now limits which taxpayers are eligible to carry a net operating loss back. A non-life insurance company files a Form 1120-PC,U.S. Property and Casualty Insurance Company Income Tax Return, and corporate farmers will file either a Form 1120, U.S. Corporate Income Tax Return, or Form 1120-C, U.S. Income Tax Return for Cooperative Associations. See IRM 21.5.9.5.14.11.2 for guidance on determining corporate farmers with NOLs eligible for a two-year carryback based on Section 13302 of the Tax Cuts and Jobs Act.

  5. If Form 1138 is identified as filed by a non-life insurance company or a corporate farm eligible for the two-year carryback, process the request per guidance in IRM 21.5.9.5.28.

  6. If a Form 1138 is identified as not eligible per IRM 21.5.9.5.28 (8) or not eligible for a two-year NOL carryback per IRM 21.5.9.5.14.11.2, reject the form and notify the taxpayer.

Tax Cuts and Jobs Act of 2017 - 2018 Fiscal Year BMF Carryback Applications and Claims
  1. The Tax Cuts and Jobs Act of 2017 (TCJA), Section 13302, repealed the two-year and all special carryback periods for net operating losses, unless the net operating losses (NOLs) are (1) certain losses from a farming business or (2) losses sustained by non-life insurance companies who retain the two-year carryback period for net operating losses arising in tax periods ending after December 31, 2017. For losses arising in tax years ending after 2017, most taxpayers are no longer eligible to file claims or applications for refund for an NOL carryback but instead must carry their NOLs forward.

  2. Determine if the carryback application/claim is for a loss year that ended prior to 2018. If it is, process it using IRM 21.5.9 guidance for non-TCJA cases.

  3. Reject NOL carryback applications/claims filed for fiscal year 2018 (loss years beginning in 2017 and ending in 2018), other than those arising from certain losses from farming and non-life insurance companies eligible for a two-year carryback.

    Note:

    See IRM 21.5.9.5.14.11.2 for guidance to determine farmers eligible for a two-year NOL carryback.

  4. If the fiscal year 2018 application/claim filed by a farmer or a non-life insurance company is determined to be unprocessible as per guidance in IRM 21.5.9.4.2, reject the case per IRM 21.5.9.4.3, advising the taxpayer of the reason(s) for the rejection. See the guidance in IRM 21.5.9.5.14.11.2 to determine if the farming activity of the taxpayers is eligible for the two-year carryback.

  5. Non-life insurance companies file a Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return. A Form 1120-PC can be identified by the filing requirement code 04 for Form 1120 on ENMOD and BMFOLE. The application or claim filed by a non-life insurance company with a fiscal year 2018 NOL is to be processed if requesting a two-year NOL carryback. If determined to be unprocessible per guidance in IRM 21.5.9.4.2, reject the case per IRM 21.5.9.4.3 advising the taxpayer of the reason(s) for the rejection.

  6. NOLs incurred in the trade or business of farming can be filed on Form 1120, U.S. Corporation Income Tax Return, or Form 1120-C, U.S. Income Tax Return for Cooperative Associations. However, taxpayers who are engaged in multiple trades or businesses could potentially be involved in the trade or business of farming and file a single Form 1120 or Form 1120-C to report the consolidated income from the multiple trades or businesses. The taxpayer identifies the principal business activity and includes the North American Industry Classification System (NAICS) code based on that principal business activity which may or may not specifically identify a farming activity subject to the two-year NOL carryback. Since the IRS only captures one NAICS code on the account, these cases will require documentation from the taxpayer to support eligibility to claim a two-year NOL carryback. See IRM 21.5.9.5.14.11.2 for information to determine if a taxpayer reporting a loss incurred in the trade or business of farming is eligible for the two-year carryback. If unable to determine the two-year carryback eligibility, forward the case through the management chain to the Accounts Management Headquarter Carryback Analyst for review.

Tax Cuts and Jobs Act - Net Operating Losses Incurred in Tax Years Beginning January 1, 2018 and Subsequent
  1. Certain NOLs incurred in the trade or business of farming and NOLs incurred by non-life insurance companies for tax periods ending after December 31, 2017 are eligible for a two-year carryback.

    Reminder:

    NOL carryback periods, including all special carryback periods as described in IRM 21.5.9.5.3 have been repealed for tax years ending after December 31, 2017, except in the case of NOLs incurred by non-life insurance companies and certain NOLs incurred in the trade or business of farming.

  2. Non-life insurance companies file Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return. These are identified by filing requirement code 04 on ENMOD and BMFOLE. Non-life insurance companies are eligible to file a two-year carryback of NOLs and are processed utilizing current IRM 21.5.9 carryback procedures.

  3. Net Operating Losses incurred by farmers will require a review of their North American Industry Classification System (NAICS) Code. For BMF the NAICS codes are found on ENMOD and BMFOLE. For IMF the NAICS Code may be found on TXMOD as "PIA-PBA" code or can be found on;

    • Form 1040, Schedule F, Profit of Loss From Farming, Line B

    • Locate the EIN listed on Form 1040 Schedule E, Supplemental Income and Loss, Part II line 28

      Note:

      Review the NAICS code for the EIN on the Schedule K-1, Beneficiary’s Share of Income, Deductions, Credits, etc., reporting the net operating loss

  4. Take the following actions to assist in the identification farming NOLs eligible for a two-year carryback:

    1. Determine if the NAICs code begins with "111" (crop production) or "112" (animal production).

    2. Process carryback applications and claims reporting farming NOLs with NAICS codes beginning with "111" and "112" utilizing carryback procedures in IRM 21.5.9.5.14.11 unless the taxpayer is requesting an NOL carryback of more than two-years. If the application or claim indicates a carryback period longer than two years, reject the application or claim per IRM 21.5.9.4.3.

    3. Taxpayers using NAICS code 113210 (forest nurseries and gathering of forest products) may or may not be engaged in a farming business. Review attachments to determine if a statement is included indicating the taxpayer is a forest nursery. If no statement is attached, reject the application or claim using per IRM 21.5.9.4.3. If rejecting, request clarification regarding their farming activities under NAICS code 113210.

      Note:

      See IRM 21.5.9.5.14.11.2 for information on farming business activities eligible and non-eligible for a two-year carryback.

    4. Taxpayers may be engaged in multiple trades or businesses. Taxpayers can only provide the NAICS code for the primary business activity which may not reflect business farming activities. If unable to determine whether the NOL carryback application or claim is due to farming activities eligible for an NOL carryback, reject the application or claim to the taxpayer per guidance in IRM 21.5.9.4.3. Include the following paragraph in the carryback letter:
      Our records indicate your principal business is not a farming business as defined in IRC 264A(e)(4). If one or more of your trades or businesses includes farming activities eligible for a net operating loss carryback under the Tax Cuts and Jobs Act, please provide a description of your specific business activities involving farming for reconsideration of your (application or claim).

  5. Reject all other carryback applications and claims filed by entities no longer eligible to carryback NOLs per IRM IRM 21.5.9.4.3. Advise the taxpayer of the reason for the reject and provide guidance the NOL can be carried forward only.

Tax Cuts and Jobs Act - Responses to Request for Additional Information Requested from Farmers with North American Industry Classification System (NAICS) Code 113210
  1. When a response is received for farmers using NAICS code 113210, forward the response through the management chain to the Carryback Planning & Analysis (P&A) Analyst for review. Document Correspondence Imaging Sytems (CIS) with the following notation, “AM HQ Review.”

Tax Cuts and Jobs Act - Section 11012 - Form 461, Limitation on Business Losses for Non-Corporate Entities
  1. Section 11012 of the Tax Cuts and Jobs Act of 2017 prohibits taxpayers other than corporations (i.e., Form 1040, Form 1040-NR, Form 1041, Form 1041-QFT, Form 1041-N and Form 990-T filers) from claiming excess business losses beginning with tax periods after December 31, 2017 and ending before January 1, 2026.

  2. Losses disallowed under this section are treated as an NOL carryforward in the subsequent year and added to any other NOL carryfowards previously reported. Taxpayers with a farming business must apply the excess business loss limitation before carrying any net operating loss back two years.

  3. An excess business loss exists when the aggregate deductions attributable to the taxpayer’s trade(s) or business(es) exceeds the sum of:

    1. the aggregate gross income or gain from those trades or business(es) and

    2. the applicable threshold amount

  4. Total income/loss items for purposes of calculating an excess business loss include the following:

    1. Wages and salaries

    2. Business income or loss

    3. Business Capital gain or loss

    4. Other gains or losses from Form 4797, Sale of Business Property

    5. Rental real estate, royalties, partnerships, S corporations, trusts

    6. Farm income or losses

    7. Any other business income or deductions not previously listed

      Note:

      Taxpayers use the new Form 461, Limitation on Business Losses, to compute the carryforward amount of excess business losses.

  5. If a taxpayer files an amended return to report or increase an excess business loss and likewise reports or increases a net operating loss carryforward, ensure a new Form 461, Limitation on Business Losses, is attached. If not attached reject the application/claim advising the taxpayer of the missing information utilizing guidance in IRM 21.5.9.4.3.

  6. Taxpayers with losses from a farming business must apply the excess business loss limitation before carrying any NOL back two years. If both farming and non farming business losses are incurred that are more than the threshold amount, first allocate the threshold amount to the farming losses.

  7. If the application/claim is processible and includes all required documentation, process the request. For IMF use Reason Code 159 when processing a carryforward claim reporting or increasing the excess business losses.

    Reminder:

    Once an excess business loss is calculated and a net operating loss is determined, see IRM 21.5.9.5.14.11.9 for guidance regarding the NOL Calculators and determining the 80 percent limitation on farming NOLs.

Net Operating Loss Calculator - 80 Percent Limitation Calculation of Eligible Farming Net Operating Loss for Tax Years Beginning 2018 and Subsequent.
  1. Section 13302 provides a calculation of an allowable net operating loss (NOL) deduction to the lesser of:

    1. the aggregate of the net operating loss (NOL) carryovers plus the net NOL carrybacks or

    2. 80 percent of the taxable income computed without including an NOL deduction.

      Exception:

      The 80 percent limitation does not apply to non-life insurance companies.

  2. Any NOL incurred in a tax year ending prior to January 1, 2018, is not subject to the 80 percent limitation. When calculating the appropriate NOL carryback or carryforward amount, NOLs are absorbed in the order in which they arose, starting with the earliest loss year. Thus, NOLs incurred prior to January 1, 2018 are absorbed first. Then the 2018 NOLs are absorbed.

  3. In order to calculate the net operating loss deduction (NOLD) for tax periods beginning after December 31, 2017, subject to the 80 percent taxable income limitation, for net operating losses carried back (or forward) an NOL calculator was developed.

    Reminder:

    Only eligible farming net operating losses carried back on BMF and IMF accounts are subject to the 80% limitation. Net operating losses incurred by a non-life insurance company reported on Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, is not subject to the 80 percent taxable income limitation.

  4. Access the Corporate and Non-Corporate NOL Calculator on SERP under the IRM Supplements tab.

    Caution:

    Do not utilize the NOL Calculators in instances where more than one loss has been carried to a gain year (for example, Form 1045 for 2018 shows that the taxpayer had a carry over from 2015 to 2016). Forward these cases through the management chain to the Headquarter Carryback Analyst for review.

  5. If the Net Operating Loss Deduction (NOLD) computed by the taxpayer does not match the NOL Calculator, refer to guidance in IRM 21.5.9.4.7(4) for additional information.

  6. When processing a carryback case subject to the 80 percent limitation, attach the computation to the CIS case.

Carryback Net Operating Loss (NOL) Effect on Refundable Credits

  1. A change in AGI (Adjusted Gross Income) can result in the taxpayer being eligible for refundable credits not claimed on the original return or ineligible for refundable credits that were originally claimed. It can also increase or decrease the amount of refundable credit originally claimed. The taxpayer must provide the appropriate forms or schedules to substantiate any such changes. For additional information on refundable credits, see IRM 21.6.3.4.2, Refundable Credits.

  2. The taxpayer applying the NOL may be entitled to Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), Recovery Rebate Credit, Premium Tax Credit or other refundable credits on one or more gain years, due to the decrease in AGI that now qualifies the taxpayer for one or more of these credits. It is important to note that any refundable credit could be affected by an NOL carryback on a gain year.

  3. The taxpayer must provide Schedule EIC for EITC if the taxpayer did not previously qualify for EITC, but now qualifies due to the change in AGI. See IRM 21.6.3.4.2.7.10,EITC Claims. Schedule EIC is not needed if the taxpayer previously claimed EITC and the EITC amount is simply being increased due to the change in AGI. Schedule EIC is also not required if the EITC is claimed with no qualifying children.

    Caution:

    Before making an adjustment to EITC, see IRM 21.6.3.4.2.7.14,EITC and Command Code DDBCK, for instructions on the required use of CC DDBCK. Also see IRM 21.6.3.5,Credit Recertification.

  4. The taxpayer must file Schedule 8812 for ACTC. Schedule 8812 is not required if the CSR/TE can "dummy in" the form and arrive at the figure the taxpayer is claiming. If the CSR/TE cannot arrive at the same figure, Schedule 8812 is required. See IRM 21.6.3.4.2.8.2,ACTC - Adjusting the Account, for additional information.

  5. Overpayment Interest Issues - If additional refundable credits are allowed:

    1. You must manually compute the overpayment interest on the gain year using TC 770.

      Exception:

      If issuing a manual refund, it is not necessary to input a TC 770 for zero (.00) with the adjustment. The interest will be manually computed and input with the manual refund as a TC 770, whether for zero or for a money amount.

    2. The EITC, ACTC, and/or other refundable credit is triggered by the carryback adjustment. Therefore, the credits are available on the loss year due date (determined without regard to extensions). See Note below for rules on computation of overpayment interest on these refundable credits.

    3. Credit interest should only be allowed if the 45-day period will not be met. See the Carryback 45-Day Interest-Free Charts on SERP and IRM 20.2.9.2,Determining the Overpayment Interest Period.

    4. If the 45-day period will be met, you must input TC 770 for zero (.00); otherwise, interest will be erroneously computed by Master File on the refundable credit from the due date of the gain year return (determined without regard to any extension of time for filing). See exception under (a) above.

    Note:

    Pursuant to IRM 20.2.9.2(1), Determining the Overpayment Interest Period, interest is computed from the later of the:
    1) Loss year return due date (determined without regard to any extension of time for filing)
    2) Received date of a delinquent loss year return
    3) Date the loss year return is filed in processible form (provided the processible date is after the due date, including any extension of time for filing)
    4) Date the overpayment on the gain year arose

  6. Reducing the AGI based on a carryback adjustment never decreases the taxpayer's previously reported refundable credit(s).

Allocating Carryback Net Operating Losses (NOLs)

  1. In general, for non-community property states, the taxpayer must file an allocation schedule if he or she changes marital status, filing status or spouses in any carryback gain or loss year. For non-community property states, accept the allocation provided by the taxpayer. See Exhibit 21.5.9-2, "Allocation Requirements for Non Community Property States" . For processing procedures on over tolerance claims, see paragraph (4) below.

    Note:

    These instructions do not restrict your ability to reject a claim when appropriate. See Exhibit 21.5.9-2

    , "Allocation Requirements for Non Community Property States."

  2. An allocation schedule is not required if the income, deductions, and NOL are split 50-50 in the following community property states:

    • Arizona

    • California

    • Idaho

    • Louisiana

    • Nevada

    • New Mexico

    • Texas

    • Washington

    • Wisconsin

  3. The allocation schedule may be provided and deemed appropriate in community property states if the taxpayer has income from separate property that is not treated as community property, or if the taxpayer provides reasonable evidence that the parties must allocate their loss pursuant to stipulation or decree approved by the state court. The allocation schedule must properly show which income, deductions, withholding, tax liability and refund belongs to each spouse. A signed statement that loss belongs to the other spouse is needed.

    If Then
    Both taxpayers were married to each other and filed joint returns for all the years involved Treat the NOL deduction as a joint NOL
    Both taxpayers were not married to each other during the gain year Only the spouse who incurred the NOL in the loss year may take the deduction
  4. The following rules apply to taxpayers whose marital status has changed between the taxable year they incur an NOL and the taxable year they seek to use the NOL:

    1. A taxpayer cannot use an NOL incurred before or after marriage to offset the income of a spouse. For example, a taxpayer cannot carryback an NOL incurred after a divorce or death of a spouse to offset the spouse's portion of the jointly-reported income.

    2. A taxpayer who incurs an NOL after a divorce or the death of a spouse may use the NOL to offset only the taxpayer's share of income reported on a joint return filed when the taxpayer and the spouse were married. The refund or credit cannot exceed the recomputed joint overpayment after the NOL is applied.

    3. An overpayment attributable to Spouse A from a joint tax return cannot be used to offset the tax liability of Spouse B from a separate return or a joint return with another taxpayer. Each spouse's share of the overpayment from the joint return must be determined. Math verify the allocation worksheet(s) on over-tolerance cases to ensure that each spouse receives the correct refund.

    4. The taxpayer's former spouse may be entitled to a refund of tax due to the carryback of the taxpayer's NOL to a year in which the er spouses filed a joint return, because of the former spouse's "separate interest" in the joint overpayment.

    5. A former spouse may file a "separate interest" claim or application for refund or credit from a tax year in which the former spouse filed a joint return. Both former spouses' signatures are not required on the request. The signature of the former spouse requesting the refund or credit is sufficient.

  5. Use the following steps when a person (the loss year spouse) carries an NOL back to a taxable year, in which that person filed a joint return with a former spouse.

    1. Recompute the joint tax liability for the carryback year, limiting the maximum amount of the NOL deduction to what the loss year spouse's taxable income for the carryback year would have been, if the spouses had filed married filing separately for that tax year.

    2. After applying the NOL, compute what each spouse's separate tax liability for the carryback year would have been if the spouses had filed married filing separately for that carryback year. Then allocate the recomputed joint tax liability between the spouses based on the following formulas.

      Former Spouse's Separate Tax Liability
      (divided by)
      Total Separate Tax Liabilities
      X Recomputed Joint Tax Liability = Former Spouse's Share of Recomputed Joint Tax Liability
    3. Next, determine each former spouse's contribution toward the payment of the joint tax liability for the carryback year. In a non-community property state, federal income taxes withheld from the wages of a spouse are treated as contributions by that spouse toward the payment of the joint tax liability. In the absence of evidence to the contrary, allocate joint estimated tax payments between former spouses based on the following formula:

      Former Spouse's Separate Tax Liability
      (divided by)
      Total Separate Tax Liabilities
      X Joint Estimated Tax Payment = Former Spouse's Share of Joint Estimated Tax Payment
    4. The refund or credit due each former spouse is the excess of that spouse's contribution to the payment of the recomputed joint tax liability over that spouse's share of the recomputed joint tax liability.

      Note:

      Use joint rate if spouse is deceased.

  6. If the taxpayer's spouse without the NOL is entitled to a refund:

    1. Do not allow a refund to the spouse not reporting the NOL, without a signed claim or application.

    2. Send a Letter 662C to notify the spouse not reporting the NOL that he/she may be entitled to a refund of his/her separate interest in the overpayment.

    3. Input TC 971, Action Code 037, to cross-reference the spouse receiving the refund. See IRM 21.4.4.5,Other Manual Refund Requirements.

    4. Issue a manual refund and use the appropriate Hold Code on the adjustment.

    Note:

    Pub 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, provides taxpayers with allocation instructions.

  7. Any reassessments must be made against the spouse who received the refund:

    1. Freeze the account with TC 470 no closing code (CC).

    2. Assess the appropriate Master File account.

    3. Prepare a C-Letter to advise taxpayer of the separate reassessment.

    4. Prepare Form 3465, Adjustment Request, to advise Accounting to input TC 400 and the correct account to bill.

    5. Send both the C-Letter and Form 3465 to Accounting for further processing.

Carryback Net Operating Loss (NOL) Affecting Alternative Minimum Tax (AMT)

  1. The taxpayer calculates Alternative Minimum Tax (AMT) on "Tax Preference Items," or benefits received from deductions, lower tax rates, and exclusions from tax.

  2. An NOL carryback may increase or decrease the amount of AMT owed.

  3. A carryback of most general business credits does not decrease the amount of AMT owed. See IRC 38(c) for exceptions.

  4. A carryback of foreign tax credit can increase the amount of AMT owed.

  5. Ensure the taxpayer reporting or changing AMT has attached the following, unless the examiner can verify AMT through IDRS, CFOL research, etc.:

    1. Revised Form 6251, Alternative Minimum Tax Computation, for each gain year, to 1045/ 1040-X. Verify all figures reported on 1045/ 1040-X, for each gain year.

      Note:

      Original Form 6251 information can be viewed on CC TRDBV.

    2. Form 4626, Computation of Alternative Minimum Tax-Corporations and Fiduciaries, to Form 1139/Form 1120-X. Verify these figures with Form 1139/Form 1120-X for the tax year involved.

      Caution:

      Thorough verification of figures and computations must be made on Form 6251 (Individual Master File) and Form 4626 (Business Master File) and related schedules, to the extent possible, on carryback cases. As an example, for IMF, charitable contributions should be verified on Schedule A, and Alternative Minimum Tax verified on the Form 6251. Employees must verify the accuracy of the Master File figures, to the extent possible, before rejecting a claim when there are differences between Master File and figures on the claim. See IRM 21.5.9.4.5, Master File Verification - Incorrectly Calculated Carryback Applications/Claims.

  6. Various legislative acts over the last several years have allowed for certain NOLs to offset 100 percent (from 90 percent) of the taxpayer's Alternative Minimum Taxable Income (AMTI). Some of these are The Job Creation and Workers Assistance Act of 2002, Gulf Opportunity Zone Act of 2005 (GO Zone), Kansas Disaster Net Operating Losses (2008), Midwest Disaster Net Operating Losses (2008), National Disaster Relief Act of 2008, The Worker, Homeownership, and Business Assistance Act of 2009 (which also includes elections made under the American Recovery and Reinvestment Act of 2009) and The Tax Cuts and Jobs Act of 2017. Information on these legislative acts can be found in specific subsections of this IRM. See IRM 21.5.9.5.14,Carryback Net Operating Loss (NOL).

Carrybacks Filed by Estates and Trusts

  1. This Section outlines the procedures for estates and trusts claiming Net Operating Loss (NOL) carrybacks by filing:

    • Form 1045, Application for Tentative Refund, (TENT)

    • Amended Form 1041, U.S. Income Tax Return for Estates and Trusts, (RINT)

  2. The estate, trust, or organization must compute the NOL on a separate schedule and attach it to the claim or application. (Generally, on Schedule A, of Form 1045)

  3. See IRM 21.5.9.5.20,Computing the Net Operating Loss (NOL) of Estates and Trusts, for instructions on computing the NOL of estates and trusts.

  4. Taxpayers filing an amended Form 1041 are instructed to check the amended return box and to write "NOL Carryback" on the top of the form.

Form 1040-NR Filed by a Fiduciary - Carryback Application/Claim Processing (Processed at Cincinnati Only)
  1. A fiduciary filer of Form 1040-NR may file a RINT/TENT requesting a carryback refund. However, a Form 1040-NR filed by a fiduciary is processed on Non-Master File (NMF). Therefore, the processing of the RINT/TENT must be coordinated between the Cincinnati Carryback Team and the Cincinnati AM BMF NMF Team for resolution.

  2. All RINT/TENT cases received requesting a refund on the Form 1040NR filed by a fiduciary are to be recontrolled to 0241326771 for NMF assistance. Include in the CIS notes the tax periods necessary for review to process the RINT/TENT.

  3. The BMF NMF team will require the assistance of the Carryback Team for verification, review and preparation of the carryback adjustment. Once the Carryback Team has completed the preparation of the carryback adjustment documents, forward the completed documents to the NMF team for preparation of the appropriate documentation for input on the Automated Non-Master File system.

Carrybacks Filed by Exempt and Charitable Organizations

  1. Exempt and charitable organizations may claim a net operating loss and net operating loss deduction, subject to the restrictions in IRC 512(b)(6), using

    • Form 1139 or Form 1120-C, U.S. Income Tax Return for Cooperative Associations

    • Form 990-T, Exempt Organization Business Income Tax Return. Procedures for processing Form 990-T are located in IRM 21.7.7,Exempt Organization and Tax Exempt Bonds

  2. The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the net operating loss two-year carryback provision for all entity types except for certain losses incurred in the trade orf business of farming and for property and non-life insurance companies. Net operating losses can be carried forward indefinitely, except by non-life insurance companies who are limited to a 20-year carryforward period. Section 13302 is applicable to tax periods ending after December 31, 2017.

  3. Expedite carryback claims involving Exempt Organizations to the Ogden Campus within three days of Accounts Management received date.

  4. See IRM 21.3.6,Forms and Information Requests, and IRM 21.7.7.4.16.10,Form 990-T Employee Plan (EP) Claim Procedures, for more information.

  5. The Ogden Campus processes carrybacks filed by exempt and charitable organizations.

Computing the Net Operating Loss (NOL) of Estates and Trusts

  1. When computing the NOL, the estate or trust will complete Schedule A of Form 1045 and exclude the following:

    • Charitable contribution deduction (Schedule A, Form 1041)

    • Income distribution deduction (Schedule B, Form 1041)

    • Exemption amount

  2. Verify the NOL computation using the Schedule A (Form 1045) line item entries compared to the related line items on Form 1041 (or use CC BRTVU).

  3. The allowable exemptions for estates and trusts are:

    • $600 - Estates

    • $300 - Trusts, required to distribute all their income

    • $100 - Trusts, not required to distribute all their income

    Note:

    The exemption amount, in lieu of a personal exemption, is not deductible for NOL purposes.

  4. Like individuals, estates and trusts cannot include a Net Operating Loss Deduction (NOLD) from another year or use a Net Capital Loss (NCL) to increase an NOL.

  5. Treat the estate or trust as an individual when applying the NOLD to the carryback years and computing the "intervening year modifications." Use Form 1045, Schedule B.

  6. If the NOLD is fully absorbed in the earliest gain year, no intervening year modifications are required:

    1. Subtract the NOLD from the TXI.

    2. Recompute any income or deduction based on or limited to a percentage of the income.

      Note:

      Do not recompute charitable contributions.

    3. Recompute the tax, using the new taxable income.

  7. If the NOLD is not fully absorbed in the earliest gain year, add back "intervening year modifications" to recompute the taxable income in each affected gain year.

    1. Start with the taxable income shown on Master File, rather than income reported on taxpayer's return. Add back charitable contribution and income distribution deductions.

    2. Add back any net capital loss deduction.

    3. Add back the exemption amount.

    4. Recompute income or deductions based on or limited to a percentage of AGI, only if you have entries for b) or c) above.

    5. Recompute the NOLD disregarding NOLs for the loss year and succeeding years.

      Note:

      Net Operating Loss deductions are taken on Form 1041 as an itemized deduction not subject to the two percent limitation.

    6. Compute corrected tax liability.

  8. Paragraphs (9), (10), and (11) discuss the effects an estate/trust NOL may have on the individual beneficiaries.

  9. When an NOL carryback occurs, income beneficiaries may be entitled to a refund on their individual return. The income amount previously included in their gross income from the carryback year would be limited to the estates/trusts' distributable net income after application of the NOL carryback. The correction in distributable net income applicable to the beneficiary will be reflected on an amended Schedule K-1 when the estate/trust prepares its Form 1045/Form 1041 to carry back its NOL.

  10. When an income beneficiary receives an amended Schedule K-1, due to the estate/trust NOL carryback discussed in Paragraph (9), the individual must file an amended return within three years of the due date of the return (including extensions) of the taxable year of the NOL. For example, a 2010 refund claim resulting from a 2012 calendar year estate/trust NOL carryback generally must be filed by April 15, 2016 if the 2010 estate/trust return was not extended. Even though the adjustment to the individual's account is not an NOL attributable to the individual taxpayer, use a TC 299 and the trust/estate's loss year due date as the Interest Computation Date when making the adjustment to the individual beneficiary's tax module. Use the amended return received date as the TCB date on the adjustment. See Rev. Rul. 61-20.

    Caution:

    In the example above, the RSED for the individual's timely-filed 2010 return is April 15, 2014. However, because the amended return is the result of an NOL carryback of an estate or trust, of which the individual is a beneficiary, the taxpayer has until April 15, 2016 to file an amended return, based on the amended K-1, and to receive a refund. Use of the TC 299 and the Interest Computation Date of the estate/trust's loss year return allows the adjustment to post and the refund to issue with the correct amount of allowable interest (if any).

  11. On the termination of the estate or trust, any unused NOL carryover that would be allowable to the estate or trust in a later tax year, but for the termination, is allowed to the beneficiaries succeeding to the property of the estate or trust. Beneficiaries claiming the NOL on their individual returns can only carry the NOL forward.

  12. The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the two year and other specified carryback provisions. Taxpayers with net operating losses incurred in the trade or business of farming and non-life insurance companies are required to carry NOLs back two-years.

Carrybacks Filed by Trustee in Bankruptcy

  1. A separate "estate" is created when an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code. After that, the individual debtor and the bankruptcy estate are treated as separate taxable entities, and, either one, or both, may have carrybacks.

  2. An individual debtor with non-exempt assets, may choose to end his or her tax year the day before filing the bankruptcy case, using:

    • One Form 1040 on or before the due date for the tax year ending the day before the bankruptcy case commences

    • One Form 1040 for the taxable year beginning the day the bankruptcy case commences

    Note:

    Each short period is considered a "taxable year" for carryback purposes.

  3. A trustee in bankruptcy or the debtor in possession may identify a Net Operating Loss (NOL) or unused credit when filing Form 1041 on behalf of the Bankruptcy Estate. The trustee or debtor must sign Form 1041 and attach a copy of the Form 1040 showing the estate’s income, deductions, credits, etc. The trustee or debtor may file either Form 1045 or Form 1040-X (normally with Schedule A of Form 1045 as a worksheet) to claim the carryback. See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.

    Note:

    A separate carryback from the debtor's activities is carried back by the debtor in the same manner as any other individual.

  4. A bankruptcy estate computes taxable income the same way as an individual:

    • Using one personal exemption; and claiming itemized deductions or the basic standard deduction as married filing separately

    • Computing tax using the married filing separately rate; and

    • Succeeding to, and taking into account certain tax attributes of the debtor under Section 1398 (g), including NOL and credit carryovers

  5. If any carryback year of the estate is a taxable year before the estate's first taxable year, the carryback year is taken into account for the debtor's taxable year corresponding to the carryback year. See IRC 1398 (j)(2)(a). Therefore, a carryback from the estate's activities is the only one that can be carried back and used against the debtor's pre-bankruptcy years during the bankruptcy case.

  6. The debtor in a bankruptcy case cannot carry back to a taxable year before the debtor's taxable year in which the case commences any NOL or credit arising in a taxable year ending after the case commences. Therefore, an NOL or credit that arises from the debtor's non-estate activities during the bankruptcy case can only be carried forward and used against the debtor's post-bankruptcy income.

  7. Upon "termination" of the estate (termination is not defined in the code or regulations), the debtor succeeds to and takes into account certain tax attributes of the estate under section 1398 (i), including NOL and credit carryovers.

  8. When you process these returns, if an account has a -V and/or -W freeze, and an indicator (TC 520 with closing codes 60-67, 81, 83, or 85-89), contact the Insolvency Unit before making the adjustment.

  9. The Tax Cuts and Jobs Act of 2017, Section 13302, repealed the two year and other specified carryback provisions. Taxpayers with net operating losses incurred in the trade or business of farming and non-life insurance companies retain the option to carry net operating losses back two years.

Carryback Applying Net Operating Loss Deduction (NOLD)

  1. Net Operating Loss Deduction (NOLD) is the net operating loss deducted against income on other tax years (gain years).

  2. Apply the NOLD as a business deduction, even if taxpayer did not have business income that gain year. The NOLD offsets income from all sources including capital gains, in excess of capital losses.

  3. The NOLD is fully absorbed in a gain year when:

    • It is less than or equal to the adjusted gross income (AGI), with certain modifications, minus the total standard deductions or itemized deductions for IMF (Individual Master File).

    • It is less than or equal to taxable income for BMF (Business Master File).

Computing the Individual (IMF) Carryback Net Operating Loss Deduction (NOLD)

  1. When recomputing taxable income and tax liability, subtract the NOLD from the Adjusted Gross Income (AGI). Recompute any income or deduction based on, or limited to, a percentage of the adjusted gross income or modified adjusted gross income, after applying the NOLD such as:

    • Passive activity losses from real estate rentals

    • Taxable social security benefits

    • IRA deductions

    • Excludable savings bond interest

    • Medical expenses

    • Personal casualty and theft losses

    • Miscellaneous deductions subject to the 2 percent limit

    • Itemized deduction limitation

    • Phase out of the deduction for personal exemptions

    Note:

    Charitable contribution deductions are not recomputed.

    Note:

    Recompute the tax, using the new taxable income. While it is necessary to refigure the income tax, AMT, and credits, do not refigure self-employment tax.

    Reminder:

    The Tax Cuts and Jobs Act of 2017, Section 11041, suspended the deduction for personal exemptions for tax years beginning after December 31, 2017 and before January 1, 2026.

  2. When the NOL is not fully absorbed, compute modified taxable income for each affected gain year. Modified taxable income determines how much NOL is absorbed in a gain year and how much remains to be carried to a later year.

    1. Start with the correct taxable income shown on the Master File (MF) rather than the income reported on taxpayer's return.

    2. Recompute the NOLD, disregarding NOLs for the loss year and subsequent years.

    3. Add back the Section 1202 exclusion.

    4. Add back the Section 199 deduction (includes both the Domestic Production Activities Deduction and the Qualified Business Income Deduction).

    5. Add back the Net Capital Loss deduction from Schedule D, Form 1040.

    6. Recompute any income or deductions based on or limited to a percentage of the AGI.

    7. Add back the deduction for exemptions.

    8. Subtract the modified taxable income from the NOL to determine how much NOL may be carried to the next gain year.

    9. Repeat steps a through h until the loss is used, or until the carryover period expires.

    Note:

    Verify taxpayer's NOL absorption computation using Form 1045, Schedule B.

Computing the Carryback Business (BMF) Net Operating Loss Deduction (NOLD)

  1. When recomputing taxable income and tax liability:

    1. Make no modification if the NOLD is fully absorbed in the applicable preceding year.

    2. Subtract the NOLD from the taxable income of the gain year.

    3. Recompute deductions, credits, or tax computations based on or limited to a percentage of the taxable income, or tax liability such as dividends paid on Preferred Stock or alternative tax.

    4. Compute the tax using the new taxable income.

  2. When a Net Operating Loss (NOL) is not fully absorbed, compute modified taxable income in each affected gain year. Modified taxable income determines how much NOL is absorbed in each year.

    1. Use the correct taxable income on Master File, rather than taxpayer's reported income.

    2. Add back any NOLDs deducted for the loss year and subsequent years.

    3. Add back the section 199 deduction.

    4. Recompute deductions limited to a percentage of the taxable income.

    5. Subtract modified taxable income from the NOL to determine how much NOL may be carried to the next gain year.

    6. Repeat steps a through e until loss is used or until the expiration of the applicable carryover period.

      Caution:

      Do not reduce the Personal Holding Company Tax (on Form 1120, Schedule PH), or the Accumulated Earnings Tax assessed by Examination.

      Note:

      Do not recompute charitable contribution deductions .

  3. If an NOL occurs in more than one year, the earlier loss year is deducted before the later loss.

Net Capital Loss (NCL) - Individuals - Carryback/Carryforward Limitations

  1. For individuals, capital losses in any year are deductible to the extent of capital gains, plus a limited amount of ordinary income ($3,000 Married Filing Joint, or $1,500 Married Filing Separately). Any excess is a net capital loss (NCL).

  2. Carry the NCL forward only (not back) on an IMF (Individual Master File) return. For an election to carry back losses from IRC 1256 contracts, see IRM 21.5.9.5.45,Net 1256 Contract Loss Carryback.

  3. A capital loss retains its character as short-term or long-term when it is carried forward. The Schedule D instructions provide a worksheet for computing the amount of the NCL carryforward. The carryforward is combined with other capital gains and losses in the carryforward year. If the combined net losses exceed the deduction limit in that year, there is an NCL carryforward to the following year.

Net Capital Loss (NCL) - Corporations - Carryback/Carryforward Limitations

  1. A corporation can deduct capital losses only up to the amount of its capital gains. In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years.

  2. Unused losses may be carried back three years and forward five years. Losses not deducted in the carryback and carryforward years are forfeited.

    Note:

    The entire amount of any net capital loss must be carried to the earliest of the taxable years to which such net capital loss may be carried. See Treas. Reg. 1.1212-1(a)(3)(ii).

  3. Corporations may carry back a capital loss only to a year with a capital gain, and only to the extent of the gain in that year. This means that an NCL carryback will never reduce the corporation's taxable income below zero since the NCL carryback cannot exceed the capital gain in the carryback year. Combine the loss with all other capital losses in the carryback year until they offset any capital gains for that year.

  4. Carryback the NCL before the Net Operating Loss (NOL). A capital loss carried back cannot cause or increase an NOL in the carryback year.

  5. For tax years beginning after December 31, 2004, the net capital loss for a corporation cannot be carried back to any year the corporation is a:

    • Real Estate Investment Trust (REIT), or

    • Regulated Investment Company (RIC).

  6. For tax years beginning on or before December 31, 2004, the net capital loss for a corporation cannot be carried back to any year the corporation is a:

    • Foreign Personal Holding Company

    • Regulated Investment Company (RIC)

    • Real Estate Investment Trust (REIT)

    • Foreign Investment Company with an IRC 1247 Election

Carryback "Claim of Right"

  1. A taxpayer may file for a refund based on a "Claim of Right" adjustment on Form 1045 or Form 1139 (whether or not the claim is related to a carryback) in order to be eligible for 90-day processing. The taxpayer only enters:

    • Line 33 on Form 1045, or

    • Line 28 on Form 1139

  2. Follow instructions in IRM 21.6.6.4.12,Repayments of Amounts Reported on Form 1099-C, Cancellation of Debt, Erroneously Included in Income and Claim of Right - Section 1341.

  3. Attach Form 1045 or Form 1139 as the source document.

  4. A Claim of Right adjustment for a year may result in a Net Operating Loss (NOL) for that year or an NOL or Net Capital Loss (NCL) for a prior year. Carrybacks and carryforwards prior to the year of the adjustment are taken into account in determining the amount of the adjustment. Normal rules apply for carrying forward any unused NOL or NCL past the year of the adjustment.

Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss (NOL) Carryback

  1. This section provides procedures for processing Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback.

    Note:

    Forms 1138 filed for NOLs expected in 2018 or subsequent are processed per IRM 21.5.9.5.14.11.3.

  2. The extension applies to tax required to be paid after the filing of Form 1138. The payment of tax that may be postponed cannot exceed the expected overpayment from the carryback of the NOL.

    Note:

    Form 1138 may be submitted with Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to allow the taxpayer to defer payment of some or all of the tax due to be paid with the extension request.

  3. In general, the extension for paying the tax expires at the end of the month in which the return for the tax year of the expected NOL is required to be filed (including extensions). The corporation can further extend the time for payment by filing Form 1139, Corporation Application for Tentative Refund, before the period of extension ends. See Example in Paragraph (4).

  4. EXAMPLE:

    • A corporation files Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, for its 201712 tax year. The taxpayer expects to owe $50,000 on the 201712 tax return. The extended return due date is 09/15/2018.

    • At the same time, the corporation files Form 1138 to extend the time to pay the $50,000 tax for 201712 because the corporation expects to have an NOL of $100,000 in 2018.

    • The corporation timely files a balance due return for 201712 on 09/10/2018 with $50,000 of tax due.

    • The extension of time to pay the $50,000 tax for the 201712 tax year expires on 04/30/2019 (the end of the month in which the return for the NOL tax year (201812) is required to be filed (04/15/2019).

    • If the corporation files a tentative carryback application (Form 1139) on or before 04/30/2019, the extension of time to pay the $50,000 201712 tax is further extended until the Form 1139 is either processed or rejected.

  5. Corporations may also file Form 1138 to defer payment of an amount assessed as a deficiency, interest, or penalty. If Form 1138 is filed after the return due date it must be filed by the 10th day following the initial notice of assessment, regardless of the amount shown in the notice.

  6. For purposes of calculating the Failure to Pay (FTP) penalty, a carryback applied to an earlier gain year is deemed to be a payment that is available on the due date of the loss year return. See IRM 20.1.2.3.5,Carrybacks and Carryovers. However, a Failure to Pay penalty is not imposed for any portion of unpaid tax that is satisfied by an NOL carryback when the corporation has filed Form 1138. Under Treas. Reg. 1.6164-1(b) and Treas Reg 1.6164-2(a), the time for payment of the portion of tax satisfied by the carryback is automatically extended when the IRS accepts Form 1138.

  7. Interest is charged on postponed amounts from the date that the payments would normally be due.

  8. Reject Form 1138 if:

    • Deferred tax is not corporate income tax

    • Deferred tax is not due for the prior year (check for balance due on the tax year immediately preceding tax year entered on Line 1, Form 1138)

    • Form 1138 is incomplete and/or is not signed by taxpayer or valid representative

    • The deferred tax is paid

    • The corporation is a Personal Service Corporation (PSC) with a valid Section 444 election for the year to which (or from which) the corporation is seeking an NOL carryback. (If ENMOD shows a TC 054 or TC 055 and the entity's FYM is other than 12, the PSC has a valid Section 444 election.)

  9. Suspend the Form 1138 if the gain year has not been processed. Push code the Form 1138 to the gain year tax module, and return to the CSR. When the push code is returned, follow the instructions in Paragraph (10).

  10. Process Form 1138 using the table below.

    If Then
    Form 1138 is accepted
    1. Determine the deferred amount ( Form 1138, Line 6c).

    2. In the taxpayer by mail, using Letter 2643C, that Form 1138 has been accepted. Request payment for any undeferred amount within 30 days (Form 1138, Line 3 minus Line 6c). See Step 5 below.

    3. Input TC 470 CC 98 on the immediately preceding tax year where there is the balance due. This sets a W- freeze on the module and suspends both collection action and offsets in to the module.

    4. Input TC 930 DLN Code 85 using your tax examiner number on the loss year. When the loss year return posts, follow the instructions in paragraph (12) below.

    5. Monitor for fourth payment of any non-deferred amount. Release the freeze with TC 472 CC 98, if payment not received within 30 days.

    Form 1138 is not accepted
    1. Correspond with taxpayer, using Letter 2643C to explain why Form 1138 was rejected.

    2. Associate Form 1138 with the original gain year return.

  11. A TC 470 CC 98 (W- freeze) is released by any of the following actions.

    • Input of a TC 295

    • Systemically (after 52 cycles)

    • Input of TC 472 CC 98

    • When module becomes zero or credit balance

  12. In order for the taxpayer to get the further extension noted in Paragraph (3), Form 1139 must be filed by the end of the month in which the loss year return is due (including extensions). Otherwise, the extension to pay the prior year tax expires on that date (see paragraph (4) above). Monitor the loss year for receipt of Form 1139 by the required date. Follow the instructions in the table below.

    Example:

    Form 1138 is filed and accepted for an extension to pay taxes for 201612. This grants the taxpayer an extension to pay the tax for 2016 until 04/30/2018 (the end of the month in which the loss year return is due). Form 1120 is timely filed for 201712 on 04/15/2018. The taxpayer files Form 1139 on or before 04/30/2018. This filing allows the taxpayer an additional extension to pay the 2016 tax until the Form 1139 is either accepted or rejected. If the taxpayer does not file Form 1139 by 04/30/2018, then the extension to pay the 2016 tax expires on that day. In that case, input TC 472 CC 98 to release the W- freeze on the prior year module to allow the normal collection and offset routine to resume.

    If Form 1139 Then
    Is filed by the required date
    • On the gain year, abate any assessed Failure to Pay (FTP) penalty (TC 270 or 276) on the portion of tax that is satisfied by the carryback.

    • No further action is required. Input of TC 295 on the gain year releases the TC 470 CC 98 and allows normal collection/offset routine to resume on any amount not paid by the NOL.

    Is not filed by the required date Input TC 472 CC 98 to release TC 470 and allow the normal offset and collection routine to resume. Associate Form 1138 with the original gain year return.

Carrybacks Filed on Form 1045 and Form 1139

  1. This section provides procedures for working applications for tentative refunds (TENTS). Taxpayers file carryback TENTS using these forms:

    • Form 1045, Application for Tentative Refund for IMF (Individual Master File)

    • Form 1139, Corporation Application for Tentative Refund for BMF (Business Master File)

  2. When processing Form 1045, consider the following:

    • Net Operating Loss (NOL)

    • Net Operating Loss Deduction (NOLD)

    • Earned Income Tax Credit (EITC)

    • Net Capital Loss (NCL)

    • Allocations for filing status changes

    • Alternative Minimum Tax (AMT)

    • Carryback/carryforward periods

    • Additional Child Tax Credit (ACTC)

    • IDRS/Master File verification of loss year and gain year

    • Statute expiration

  3. When processing Form 1139, consider the following:

    • Special Rules for BMF (Business Master File) NOLs and NOLD

    • BMF (Business Master File) NCL

    • BMF (Business Master File) Carryback/Carryforward Periods

    • Consolidated Corporations

    • Personal Service Corporation

    • Form 1138

Carryback Form 1045 and Form 1139 Processing and Filing Requirements

  1. Form 1045 and Form 1139 have a 90-day processing requirement. The start of the 90-day statutory processing period begins on the later of:

    • The date the complete application is 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.

  2. The 90-day processing period allows the Service an opportunity to review, perfect and process an application. The 90-day period does not allow the taxpayer any additional time, beyond the normal 12-month period, to perfect, modify or refile an application.

  3. Therefore, if any information is missing, it is critical that two telephone attempts be made to contact the taxpayer requesting the missing information be faxed in order to complete the processing of the application. Document CIS with the times and dates of the telephone attempts. See IRM 21.5.9.4.3,Rejecting Unprocessible Carryback Applications/Claims, for additional information.

  4. Otherwise, if an application is not processible and the 90-day period has expired or will expire shortly, the application must be rejected and the taxpayer must be advised to file an amended return to claim the carryback.

  5. To meet the 90-day legal requirement, the adjustment must be input by the time frames below.

    1. Within 70 days of the TENT received date; or

    2. Within 70 days of the last day of the month that includes the due date (or extended due date) for filing the loss year return.

      Reminder:

      Every effort must be made to process the carryback within the 45-day interest-free period mentioned in (7) below. The Carryback 45-Day Interest-Free Charts are located on SERP under the IRM Supplement tab.

  6. IRC § 6411(a) requires that the loss year return must be filed on or before the date a tentative carryback application (Form 1045 or Form 1139) is filed. It is not necessary for the loss year return to be posted to Master File at the time the TENT is processed. If the loss year return has not posted, verify the date on Line 2b of Form 1139 or Form 1045 has been entered and is not a date that is in the future. If blank or a future date was entered, reject the application and advise the taxpayer the TENT can be resubmitted once the loss year return has been filed. See IRM 21.5.9.4.2,Identifying Processible and Unprocessible Carryback Applications/Claims.

  7. TENTS have a 45-day interest-free period. See IRM 21.5.9.5.32,Carryback Form 1045 and Form 1139 interest Computation Dates.

  8. Taxpayers filing for a TENT must file the application within one year from the end of the loss year (e.g., 201812, on or before Dec. 31, 2019).

    Exception:

    A corporation that becomes a new member of a consolidated group files a separate return for the period up to the date the corporation became a new member of the consolidated group. Regulations under IRC 1502 (for separate return years of new members that begin on or after January 1, 2001) specify that certain corporations can file their tentative carryback application for the short period, separate return year, within one year from the end of the current taxable year of the "consolidated group" that the new member joins. If such corporations choose to file for a tentative carryback for the separate return year, those corporations must, on Form 1139, check "yes" on line 5a and complete line 5b.

    Example:

    Both Corporation X and Y are calendar year filers. Corporation X is being acquired by the Y consolidated group on June 30, 2017 in a transaction that does not qualify as a reverse acquisition. Corporation X closes its books on June 30, 2017. Corporation X has filed a short period, separate return for January through June. Previously, Corporation X ending its tax year in June would only have until June 30, 2018 to file a Form 1139. However, the regulations under IRC 1502, allow Corporation X to use the Y consolidated group's tax year end to determine the proper date for filing Form 1139. Therefore, under the regulations, Corporation X will have until Dec. 31, 2018 to file a Form 1139 instead of June 30, 2018.

Carryback Form 1045 and Form 1139 Transaction Codes, Blocking Series, and Correspondence Imaging System (CIS) Requirements

  1. Unique transaction codes and blocking series are used to adjust TENTS.

  2. Transaction codes which identify TENTS are:

    • 294 - Reverses Tentative Carryback Adjustment/Increase

    • 295 - Tentative Carryback Adjustment /Decrease

  3. Blocking series which identify TENTS are:

    • 91 - Without the original gain year return

    • 92 - With original gain year return

    • 92 - Account manually brought back from retention register

    • 95 - Reassessment on a statute imminent or expired year

  4. When the TENT is a CIS case, for each gain year being adjusted, on the ADJ54 screen input an entry of "1" in the CIS IND> field to indicate the adjustment is based on a CIS digital image. Also input the CIS ID of the TENT (from the loss year) in the Remarks section of ADJ54. This will leave an audit trail for anyone subsequently looking for the loss year document.

Carryback Form 1045 and Form 1139 Interest Computation Dates

  1. TENT adjustments require input of the interest start date (INT-CMP-DT) and carryback received date (TCB-DT).

    • INTCMP-DT provides the date overpayment interest on the overpayment begins and the credit availability date for purposes of computing underpayment interest.

    • TCB-DT determines the expiration date of the 45-day interest-free period.

    Caution:

    Do not include an AMD-CLMS-DT on these adjustments.

  2. When the 45-day interest-free period is missed, the INT-CMP-DT is used by the computer when determining the start date of overpayment interest on the overpayment.

    Reminder:

    The due date for a timely filed Form 1040-NR that includes wages that are not subject to U.S. withholding is five and a half months after the end of the taxable year. For calendar year Form 1040-NR filers the date would be June 15.

    If the Application is Received in Processible Form And Then Input the
    Prior to the loss year return due date (determined without regard to any extension of time of filing).

    Caution:

    The loss year return must have been filed on or before the date the TENT was filed.

    The Net Operating Loss (NOL) adjustment is input prior to the loss year return due date (determined without regard to any extension of time for filing.)
    1. Loss year return due date as the TCB-DT.

    2. Use current date as the INT-CMP-DT.

      Caution:

      For underpayment interest purposes, the NOL credit is not available until the due date of the loss year return.

    3. Input Override Code "C."

    Note:

    Overpayment interest is not paid in this situation. The 45-day count for issuing the interest-free refund does not begin until the loss year return due date.

    Prior to the loss year return due date (determined without regard to any extension of time for filing).

    Caution:

    The loss year return must have been filed on or before the date the TENT was filed.

    The NOL adjustment is input on or after the loss year return due date (determined without regard to any extension of time for filing).
    1. Loss year return due date, or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

    3. Adjustment with NO override code.

    Note:

    The 45-day count for issuing an interest-free refund in this situation does not begin until the loss year return due date or processible date (the TCB date). If the refund is not issued within 45 days of the later of these dates, overpayment interest is paid beginning on the loss year due date (the INT-CMP-DT).

    On or after the loss year return due date (or extended due date) The loss year return was timely filed (received on or before its due date or extended due date)

    Example:

    Taxpayer files extension until 10/15/2019 for his 201812 Form 1040. The processible loss year return for 2018 is received on 08/20/2019. The IRS receives a TENT from the taxpayer on 08/25/2019.

    1. TENT received date,TENT processible date, or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

    3. Adjustment with NO override code.

    Example:

    In the example, since the IRS received a processible TENT on 8/25/2019, we have 45 days from 8/25/2019 (the TCB-DT) to issue a refund without interest. If the refund is not issued within that 45-day timeframe, interest is paid beginning on the loss year return due date (04/15/2019 - the INT-CMP-DT) because the loss year return was timely filed on or before its extended due date.
    Had the loss year return been received in processible form after its due date (determined with regard to any extension of time for filing the loss year return), that date is not input in the INT-CMP-DT field because the carryback is available on the normal loss year return due date. However, for overpayment interest purposes, the late received date of the processible loss year return is considered when determining the overpayment interest period. See IRM 20.2.9.2, Determining the Overpayment Interest Period, for the appropriate interest start date.

    On or after the loss year return due date (or extended due date) The loss year return was not timely filed (received after its due date or extended due date)

    Example:

    Taxpayer filed an extension for his 201812 Form 1120 to 09/15/2019. The processible return for 2016 is received on 09/29/2019. The return is late filed. The IRS receives a TENT from the taxpayer on 10/05/2019.

    1. TENT received date, TENT processible date, delinquent loss year return received date, or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

      Note:

      The delinquent loss year return received date is not input in the INT-CMP-DT field because the carryback is available on the normal loss year return due date. However, for overpayment interest purposes, the delinquent loss year return received date (or loss year return processible date, whichever is later) is considered when determining the overpayment interest period. See IRM 20.2.9.2,Determining the Overpayment Interest Period, for the appropriate interest start date.

    3. Adjustment with NO override code.

    4. If the adjustment results in an overpayment, use TC 770 to manually address/compute overpayment interest. (Use TC 770 .00 if no interest is due.)

      Exception:

      If issuing a manual refund, it is not necessary to input a TC 770 for zero (.00) with the adjustment. The interest will be manually computed and input as a TC 770 with the manual refund whether for zero or for a money amount.

       

      Note:

      In the example, since the IRS received a processible TENT on 10/05/2019, we have 45 days from 10/05/2019 (the TCB date) to issue a refund without interest. If the refund is not issued within that 45-day time-frame, interest is paid beginning on 09/29/2019 (the received date of the late-filed loss year return). You must manually compute the interest and input with TC 770. Otherwise, Master File will calculate the interest from the normal return due date (the INT-CMP-DT), generating more interest than the taxpayer is entitled to.

  3. For additional information, see IRM 20.2.9.2,Determining the Overpayment Interest Period.

    Note:

    Refer to IRM 20.1.2.1.3.3,Taxpayers Abroad, for information regarding individual filers outside of the United States.

Carryback Form 1045 and Form 1139 with Examination Criteria

  1. Process Form 1045 and Form 1139 and allow the refund(s) prior to routing TENTS with CAT A criteria.

    Caution:

    Do not input a TC 971 AC 013 on any of the carryback-related tax modules prior to forwarding the TENT to Examination. The TC 971 AC 013 sets the -A freeze and indicates there is an unprocessed claim or amended return being forwarded. This is not the case with a TENT where the carryback application has already been processed and paid prior to referral.

  2. In addition to CAT A criteria in IRM 21.5.3,General Claims Procedures, the following criteria are specific to carryback applications:

    • Joint Committee Cases (JCC) - Carryback adjustment(s) resulting in a combined IMF or a BMF non-C Corp refund of ≡ ≡ ≡ ≡ ≡ ≡ or more or a combined C Corp refund of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or more

    • Claims with an aggregate total tax decrease ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (Do not send as JCC.)

    • TC 520, TC 576 (-Q Freeze), or TC 420 with a status greater than 08 in the gain or loss year modules

    • Consolidated corporate return loss years for which affected gain years were filed under a different EIN

    • BMF ONLY - IRC § 847 Insurance Companies: Suspend using CIS if any of the following are indicated, "Special Estimated Tax Payments (SETP)," "Special Estimated Tax Deposits," "Special Estimated Tax Account," "Special Loss Discount Account (SLDA)," or "8816." ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Reminder:

      The Tax Cuts and Jobs Act of 2017, Section 13516, repealed the special estimated tax payment for insurance companies. The information in the chart above is applicable to tax years beginning prior to January 1, 2018.

  3. When referring Carryback cases to CAT-A select the primary reason for referral as listed below:

    • IMF/IMF International: To refer cases to CAT-A, select NOL Carryback/Carryforward as primary referral reason from the drop down listing on CIS. Select the appropriate secondary referral reason specific to the case and include remarks if necessary.

    • BMF/BMF International: To refer cases to CAT-A, select Carryback/Carryforward TENT as primary referral reason from the drop down listing on CIS. Select the appropriate secondary referral reason specific to the case and include remarks if necessary.

  4. Always review the TENT for freeze codes to be addressed prior to processing the case as per IRM 21.5.9.4.6,Carryback Freeze Conditions. Exercise caution when working with a Department of Justice (DOJ) case. Do not process a TENT prior to reviewing the account for the following indicators:

    • If an account with any module in status 72 and/or with an unreversed TC 520 with a closing code (cc) of 70, 75, 80 or 82 identified, follow the guidance in IRM 21.5.6.4.46,-W Freeze.

    • If an account with any module that includes a TC 550 and definer 04 (judgment) identified, follow the guidance in IRM 21.5.6.4.44(3), -V Freeze.

      Caution:

      Actions on cases where the DOJ is litigating or has secured a judgment, without DOJ concurrence/approval, may have a negative serious impact on the ongoing litigation or secured judgment.

  5. Process the TENT and forward the case to the campus where the parent corporation filed, if Form 1139 for a subsidiary corporation meets Examination criteria.

  6. If taxpayer checked "yes" to the question, "Have you filed a petition in tax court for the year or years to which the carryback is to be applied?," process the TENT and notify the Appeals Office. Contact information for Appeals can be found by selecting, Appeals Case Routing, under the Who/Where tax on SERP.

  7. All large dollar and Joint Committee Cases must be expedited due to interest considerations. Refer to IRM 21.4.4.5,Other Manual Refund Requirements, for additional information on million dollar or more refunds.

Carryback Form 1045 and Form 1139 with an Open Underreporter (Automated Underreporter (AUR) or Business Underreporter (BUR)) Issue (TC 922 or TC 925)
  1. If there is an open IMF (Individual Master File) or BMF (Business Master File) Underreporter (AUR or BUR) case on any of the years (loss or gain years), contact the AUR or BUR Coordinator at the campus location (as identified by the first two digits of the TC 922 or TC 925) prior to processing the TENT. A listing of AUR and BUR Coordinators is located on SERP. See AUR Coordinators Contact Information, for IMF (Individual Master File) or BMF-AUR Program Contact Information, for BMF (Business Master File).

    1. Prior to contacting the AUR or BUR Coordinator ensure a complete and processible carry back application has been received. If incomplete, reject the application back to the taxpayer and request additional necessary information per IRM 21.5.9.4.2,Identifying Processible and Unprocessible Carryback Applications/Claims. If complete follow directions below.

    2. Advise the AUR or BUR Coordinator you have a tentative carryback application that involves one of the tax years with an open Underreporter issue.

    3. The AUR or BUR Coordinator will review the case and determine if the case (or a response) is needed.

      If Then
      The Underreporter issue can be resolved
      1. The AUR or BUR Coordinator will advise the Carryback Team to monitor IDRS for the posting of the Underreporter closing actions.

      2. Once the Underrporter closing actions have posted, continue processing the claim.

      The Underreporter issue CANNOT be resolved BMF (BUR):
      • The BMF Underreporter will notify the taxpayer that the claim cannot be processed because of outstanding BMF Underreporter issue.

      • Close the carryback control and notate CIS


      IMF (AUR):
      • The Carryback Team will notify the taxpayer that the claim cannot be processed because of the outstanding AUR issue.

        Note:

        Include the relevant toll-free contact number when corresponding with the taxpayer.

      • Close the Carryback control and notate CIS.

    Caution:

    A TC 922 (or TC 925 for BMF), by itself, does not mean there is an open AUR (BUR for BMF) case. The last Process Code associated with the TC 922 (TC 925 for BUR) shows the current status of the case. See IRM 21.3.1.5.56,Status of IMF Underreporter Cases, to determine if there is an open AUR case or IRM 21.3.1.5.111,Letter 2030/2531 - Business Master File (BMF) Underreporter Program - General Information, to determine if there is an open BUR case.

    Note:

    A TC 925 may or may not be included on the account to assist with the identification of a BMF-AUR case. Therefore, until further notice, any Carryback cases that have a multiple control with IDRS number 048xxxxxxx are not to be processed until contact is made with the BMF-AUR Program Contact as listed on the SERP Who/Where Tab. These cases will be one of the following IDRS Categories:
    •BUR0
    •BUR1
    •BURS
    •BURC

Reassessing Carryback Form 1045 and Form 1139

  1. TENTS can be reassessed without Examination deficiency or erroneous refund procedures.

  2. Write (Letter 449C) or call taxpayer for a complete signed copy of any unfiled loss year return. Suspend the case for 40 calendar days (70 calendar days for overseas taxpayers). Forward the received loss year return for processing once received.

  3. If the loss year return is not received, or does not support the application, reassess ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    1. Input TC 294 to assess the difference between the allowed amount and the correct amount.

    2. Input TC 298 if the year to be assessed is statute imminent/expired.

    3. Enter the loss year return due date as the interest computation date (INT-CMPTN-DT) for TC 294/298, unless the statute is imminent/expired. If the statute is imminent/expired, see IRM 20.2.9.4, Carryback Recaptures, for interest computation rules and use of blocking series 95.

      Caution:

      Master File cannot accurately compute underpayment interest on the recovery of a prior TC 295 adjustment carrying an INT-CMPTN-DT dated earlier than the loss year return due date. While the TC 294/298 input to Master File must carry that same INT-CMPTN-DT, manually compute underpayment interest. Anytime underpayment interest is manually computed, recompute the entire tax module to ensure an accurate computation is made. See IRM 20.2.5.6.2,Manual Computations.

    4. Attach the application to the most current gain year.

    5. Change all affected tax years. A correction to one module may affect a carryover to another.

    6. Explain the change to taxpayer.

    7. Enclose a copy of the corrected Form 1045 or Form 1139 with the letter, if the change is too complex for a simple explanation.

    Note:

    Mathematical/Clerical Appeal Rights do not apply to the reassessment of TENTS.

Business (BMF) Carrybacks Filed by Consolidated Corporations

  1. In general, the status of the corporation(s) i.e., status as a standalone corporation, a subsidiary member of a consolidated group, or an agent for the consolidated group (which could be either the common parent or a designee, a substitute agent for the group) for the carryback year determines the corporation which is responsible for filing the Form 1139.

  2. Specifically, with regard to a consolidated group filing an application for a tentative carryback adjustment, the appropriate agent to act for the consolidated carryback year is responsible for filing the tentative carryback application for any consolidated net operating loss carryback, any consolidated capital loss carryback, or any carryback of an unused consolidated business credit, per IRC 6411 and Treas. Reg. 1.1502-78.

  3. If a net operating loss, capital loss, or business credit carryback arises in a consolidated return year, and the loss or credit is being carried back to:

    1. A consolidated return year of the same consolidated group - then the common parent of the group for the carryback year is responsible for filing the application (Form 1139) for a tentative carryback refund or

    2. A separate return year (i.e., not a consolidated return year) of the corporation to which such loss is attributable - then the corporation to which such loss is attributable is responsible for filing the application (Form 1139) with regard to that corporation's apportioned part of the loss.

  4. For a consolidated return year of another consolidated group for the carryback year (i.e., not the consolidated group that generated the loss carryback), then the common parent (or agent) of the consolidated group for the carryback year is responsible for filing the Form 1139. However, the amount of such refund, via the carryback, may be limited under Treas. Reg. 1.1502-21(c). Further, such carryback may be waived by the consolidated group that generated the loss under Treas. Reg. 1.1502-21(b)(3)(ii)(B).

  5. When the NOL arises in a separate return year (i.e., not a consolidated return year) and the loss is being carried back to a consolidated return year, the common parent of the group for the carryback year is responsible for filing the Form 1139.

Corporation Entitled to Receive Refunds
  1. In general, the corporation's status for the tax year of the overpayment determines the corporation which is entitled to receive the refund, i.e., its status as a standalone corporation, a subsidiary member of a consolidated group, or an agent for the consolidated group (which could be either the common parent or another entity as provided in the appropriate regulations).

  2. The payment of the refund resulting from an application for a tentative carryback adjustment will be made to, and in the name of, the appropriate entity to act for the carryback year.

  3. If the net operating loss, capital loss or business credit to be carried back arises in a consolidated return year, the refund resulting from a tentative carryback adjustment will be made directly to, and in the name of:

    1. The common parent for the carryback year, if the carryback year was a consolidated return year for the same consolidated group that generated the loss or credit.

    2. The corporation to which the loss or credit is attributable, in a case where that corporation filed a separate corporate tax return for the carryback year.

    3. The common parent for the carryback year, in a case where the corporation to which the loss or credit is attributable was a member of another consolidated group in the carryback years. (i.e., not the same consolidated group that generated the carryback) and the loss is actually deducted from consolidated taxable income in the carryback year or the credit is actually allowed in computing the consolidated tax liability in the carryback year.

    4. The common parent of the consolidated group (or agent) for the carryback year, where the loss or credit arises in a separate return year (i.e., not a consolidated return year) and is being carried back to a consolidated return year.

  4. Refer to IRM 21.4.4,Manual Refunds, when further clarification is required. Verify the receiving entity to receive the refund, document the actions taken to obtain such clarifying information, and if the information was not provided, contact the taxpayer to obtain name(s) and EIN(s).

  5. For further rules with regard to consolidated groups that include insolvent financial institutions, refer to Treas. Reg. 301.6402-7.

Business (BMF) Carrybacks Filed by Personal Service Corporation (PSC)

  1. A Personal Service Corporation (PSC) with an IRC 444 election, allowing it to have a tax year other than the required calendar year, is not allowed a Net Operating Loss (NOL) carryback. A PSC that does not have Section 444 elections in effect may carry back their NOL, but not to a taxable year for which a Section 444 election is in effect.

    Note:

    Although IRC 280H(e) states that a PSC that has a Section 444 election in effect cannot carry back an NOL, they can carry back unused general business credits and/or capital losses. For additional information see (4) below.

  2. IRC 444 PSC filers are identified on ENMOD with TC 054/TC 055, Filing Requirement Code 1120 -19. Contact taxpayer if necessary, to confirm the corporation is not a PSC Section 444 filer, before allowing adjustments.

  3. If taxpayer is not a PSC Section 444 filer:

    1. Document the conversation with the name and title of the corporate officer providing the information.

    2. Route the information and Form 3465 to Entity, requesting a TC 052 be input to CC ENMOD to change filing requirements.

    3. Delay the TC 295 or TC 299 one cycle.

  4. A PSC may carry back if a Net Capital Loss (NCL) or unused general business credits. However, the Section 444 election must first be temporarily reversed prior to inputting the carryback adjustment. Take the following actions if a PSC with a valid request for an NCL or carryback of unused business credits is received:

    1. Prepare Form 3465 for Entity to change the filing requirements until the adjustment posts and then reestablish the Section 444 Election.

    2. Delay the TC 295 or TC 299 one cycle.

    Caution:

    Only those PSCs eligible for a carryback of an NCL or unused general business credit are to be forwarded to Entity for the temporary reversal of the Section 444 election. Accounts Management is responsible for making this determination.

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T (RINTS)

  1. This section outlines procedures for working RINTS. Taxpayers file carryback RINTS using these forms:

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

    • Form 112-0X, 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

    • Amended Form 990-T, Exempt Organization Business Income Tax Return. See IRM 21.7.7.4.16,EO Claim Procedures, for Form 990-T carryback processing.

  2. Certain conditions and requirements separate RINTS from regular amended returns:

    • Filing and Processing

    • Transaction Codes and Blocking Series

    • Interest Computation Dates

    • RINT Verification

    • Multiple RINT Claims

    • RINTS with CAT-A Criteria

    • Disallowance

    • Reassessment

    • Net 1256 Contract Loss Carryback

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T Processing and Filing Requirements

  1. The loss year return must be posted to Master File. See IRM 21.5.9.4.2,Identifying Processible and Unprocessible Carryback Applications/Claims.

  2. RINTS have a 45-day interest-free period. See IRM 21.5.9.5.11,Carryback Interest, for additional information.

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T Transaction Codes and Blocking Series

  1. RINTS can be identified by unique transaction codes and blocking series.

  2. Unique adjustment transaction codes identify RINTS, which generate interest from the interest computation date. They are:

    • 299 - Abatement of Prior Tax Assessment

    • 298 - Additional Tax Assessment

  3. Unique adjustment blocking series identify RINTS. They are:

    • 91 - without the original return

    • 92 - with original gain year return

    • 92 - a manual transfer from the retention register

    • 95 - reassessment on statute imminent or expired year

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T Interest Computation Dates

  1. RINT adjustments require an input of the interest start date (INT-CMP-DT) and carryback received date (TCB-DT):

    • INT-CMP-DT provides the date overpayment interest on the overpayment begins and the credit availability date for purposes of computing underpayment interest.

    • TCB-DT determines the expiration date of the 45-day interest-free period.

    Caution:

    Do not include an AMD-CLMS-DT on these adjustments.

  2. When the 45-day interest-free period is missed, the INT-CMP-DT is used by the computer when determining the start date of overpayment interest on the overpayment.

    Reminder:

    The due date for a timely filed Form 1040-NR that includes wages that are not subject to U.S. withholding is six and a half months after the end of the taxable year. For calendar year Form 1040-NR filers the date would be June 15.

    If the Amended Return/Claim (RINT) is Received in Processible Form And Then input the
    Prior to the loss year return due date (determined without regard to any extension of time for filing).

    Caution:

    The loss year return must have been filed on or before the date the RINT was filed.

    The Net Operating Loss (NOL) adjustment is input prior to the loss year return due date
    (determined without regard to any extension of time for filing)
    1. Loss year return due date as the TCB-DT.

    2. Use current date as the INT-CMP-DT.

      Caution:

      For underpayment interest purposes, the NOL credit is not available until the due date of the loss year return.

    3. Use Override Code "C."

      Caution:

      For any underpayment interest purposes, the NOL credit is not available until the due date of the loss year return.

    Note:

    Overpayment interest is not paid in this situation. The 45-day count for issuing the interest-free refund does not begin until the loss year return due date.

    Prior to the loss year return due date determined without regard to any extension of time for filing.)

    Caution:

    The loss year return must have been filed on or before the date the RINT was filed.

    The NOL adjustment is input on or after the loss year return due date (determined without regard to any extension of time for filing).
    1. Loss year return due date or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

    3. Adjustment with NO override code.

    Note:

    The 45-day count for issuing an interest-free refund in this situation does not begin until the loss year return due date or processible date (the TCB date). If the refund is not issued within 45 days of the later of these dates, overpayment interest is paid beginning on the loss year due date (the INT-CMP-DT).

    On or after the loss year return due date (or extended due date) The loss year return was timely filed (received on or before its due date or extended due date)

    Example:

    Taxpayer files extension until 10/15/2017 for his 201612 Form 1040. The processible loss year return for 2016 is received 08/20/2017. The IRS receives a RINT from the taxpayer on 01/14/2018.

    1. RINT received date, RINT processible date or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

    3. Adjustment with NO override code.

    Example:

    In the example, since the IRS received a processible RINT on 01/14/2018, the Service has 45 days from 01/14/2018 (the TCB-DT) to issue a refund without interest. If the refund is not issued within that 45-day timeframe, interest is paid beginning on the loss year due date (04/15/2017 - the INT-CMP-DT) because the loss year return was timely filed
    Had the loss year return been received in processible form after its due date (determined with regard to any extension of time for filing the loss year return), that date is not input in the INT-CMP-DT field because the carryback is available on the normal loss year return due date. However, for overpayment interest purposes, the late received date of the processible loss year return is considered when determining the overpayment interest period. See IRM 20.2.9.2, Determining the Overpayment Interest Period, for the appropriate interest start date.

    On or after the loss year return due date (or extended due date) The loss year return was not timely filed (received after its due date or extended due date)

    Example:

    Taxpayer filed an extension for his/her 201712 Form 1120 to 10/15/2018. The processible loss year return for 2016 is received 09/29/2018. The loss year return is late filed. The IRS receives a RINT from the taxpayer on 01/14/2019.

    1. RINT received date , RINT processible date, delinquent loss year return received date, or loss year return processible date (whichever is later) as the TCB-DT.

    2. Loss year return due date as the INT-CMP-DT.

      Note:

      The delinquent return received date is not input in the INT-CMP-DT field because the carryback is available on the normal loss year return due date. However, for overpayment interest purposes, the delinquent loss year return received date (or loss year return processible date, whichever is later) is considered when determining the overpayment interest period. See IRM 20.2.9.2,Determining the Overpayment Interest Period, for the appropriate interest start date.

    3. Adjustment with NO override code.

    4. If the adjustment results in an overpayment, use TC 770 to manually address/compute overpayment interest. (Use TC 770 .00 if no interest is due.)

      Exception:

      If issuing a manual refund, it is not necessary to input a TC 770 for zero (.00) with the adjustment. The interest will be manually computed and input as a TC 770 with the manual refund whether for zero or for a money amount.

     

    Note:

    In the example, since the IRS received a processible RINT on 01/14/2019, we have 45 days from 01/14/2019 (the TCB date) to issue a refund without interest. If the refund is not issued within that 45-day time-frame, interest is paid beginning on 09/29/2018(the received date of the late-filed loss year return). You must manually compute the interest and input with TC 770. Otherwise, Master File will calculate the interest from the loss year return due date (the INT-CMP-DT) generating more interest than the taxpayer is entitled to.

    Note:

    The loss and gain year returns must be posted before a RINT can be processed.

  3. See IRM 21.5.9.5.11,Carryback Interest, and IRM 20.2.9.2,Determining the Overpayment Interest Period, for additional information.

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T with Examination Criteria (CAT-A)

  1. Classify RINTS with CAT-A Examination criteria on the loss/gain year before allowing the claim. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

    Note:

    IMF/IMF International: To refer cases to CAT-A, select NOL Carryback/Carryforward as primary referral reason from the drop down listing on CIS. Select the appropriate secondary referral reason specific to the case and include remarks if necessary.
    BMF/BMF International: To refer cases to CAT-A, select Carryback/Carryforward RINT as primary referral reason from the drop down listing on CIS. Select the appropriate secondary referral reason specific to the case and include remarks if necessary. For BMF cases involving Research Credits see IRM 21.5.9.5.46,Combination Carrybacks (RINTS) Involving Research Credits.

    Note:

    BMF ONLY - IRC 847 Insurance Companies: Suspend using CIS if any of the following are indicated, "Special Estimated Tax Payments (SETP)," "Special Estimated Tax Deposits," "Special Estimated Tax Account," "Special Loss Discount Account (SLDA)," or "Form 8816." ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    The Tax Cuts and Jobs Act of 2017, Section 13516, repealed the special estimated tax payment for insurance companies. The information in the chart above is applicable to tax years beginning prior to January 1, 2018.

  2. Always review the RINT for freeze codes to be addressed as per IRM 21.5.9.4.6,Carryback Freeze Conditions. Exercise caution when working with a Department of Justice (DOJ) case. Do not process the RINT prior to reviewing the account for the following indicators:

    • If an account with any module in status 72 and/or with an unreversed TC 520 with a closing code (cc) of 70, 75, 80 or 82 identified, follow the guidance in IRM 21.5.6.4.46,-W Freeze.

    • If an account with any module that includes a TC 550 and definer 04 (judgment) identified, follow the guidance in IRM 21.5.6.4.44 (3), -V Freeze.

      Caution:

      Actions on cases where the DOJ is litigating or has secured a judgment, without DOJ concurrence/approval, may have negative serious impact on the ongoing litigation or secured judgment.

  3. Forward all claims that meet CAT-A criteria to Examination, using local routing procedures before adjusting.

  4. Accounts Management must retain control of these cases and monitor for timely return from Examination. See IRM 21.5.3.4.7,Processing Claims and Amended Returns With Examination Involvement. CIS cases are suspended to CAT-A, and the IDRS control is then updated per CIS to Examination.

    Note:

    See IRM 21.7.7.4.16.10,Form 990-T Employee Plan (EP) Claim Procedures, for carryback processing of Form 990-T.

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T with an Open Automated Underreporter (AUR) and Business Underreporter (BUR) Issue (TC 922 or TC 925)
  1. If there is an open IMF (Individual Master File) or BMF Underreporter (AUR or BUR) case on any of the years (loss or gain years), contact the AUR or BUR Coordinator at the campus location (as identified by the first two digits of the TC 922 or TC 925) prior to processing the RINT. A listing of AUR and BUR Coordinators is located on SERP. See AUR Coordinators Contact Information, for IMF (Individual Master File) or BMF-AUR Program Contact Information, for BMF (Business Master File).

    1. Prior to contacting the AUR or BUR Coordinator ensure a complete and processible carry back claim has been received. If incomplete, reject the application back to the taxpayer and request additional necessary information per IRM 21.5.9.4.2,Identifying Processible and Unprocessible Carryback Applications/Claims. If complete follow directions below.

    2. Advise the AUR or BUR Coordinator you have a restricted interest carryback claim that involves one of the tax years with an open Underreporter issue.

    3. The AUR or BUR Coordinator will review the case and determine if the case (or a response) is needed.

      If Then
      The Underreporter issue can be resolved
      1. The AUR or BUR Coordinator will advise the Carryback Team to monitor IDRS for the posting of the Underreporter closing actions.

      2. Once the Underrporter closing actions have posted, continue processing the claim.

      The Underreporter issue CANNOT be resolved BMF (BUR):
      • The BMF Underreporter will notify the taxpayer that the claim cannot be processed because of outstanding BMF Underreporter issue.

      • Close the carryback control and notate CIS


      IMF (AUR):
      • The Carryback Team will notify the taxpayer that the claim cannot be processed because of the outstanding AUR issue.

        Note:

        Include the relevant toll-free contact number when corresponding with the taxpayer.

      • Close the Carryback control and notate CIS.

      Caution:

      A TC 922 (or TC 925 for BMF), by itself, does not mean there is an open AUR (BUR for BMF) case. The last Process Code associated with the TC 922 (TC 925 for BUR) shows the current status of the case. See IRM 21.3.1.5.56,Status of IMF Underreporter Cases, to determine if there is an open AUR case or IRM 21.3.1.5.111,Letter 2030/2531 - Business Master File (BMF) Underreporter Program - General Information, to determine if there is an open BUR case.

      Note:

      A TC 925 may or may not be included on the account to assist with the identification of a BMF-AUR case. Therefore, until further notice, any Carryback cases that have a multiple control with IDRS number 048xxxxxxx are not to be processed until contact is made with the BMF-AUR Program Contact as listed on the SERP Who/Where Tab. These cases will be one of the following IDRS Categories:
      •BUR0
      •BUR1
      •BURS
      •BURC

Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C, and Form 990-T - Claim Disallowance

  1. Fully or partially disallowed carryback claims require detailed explanations. See IRM 21.5.3.4.6,No Consideration and Disallowance of Claims and Amended Returns, for specific requirements. The letter must include appeal rights and the right to file suit, as well as indication of the loss and gain year.

  2. See IRM 21.5.3.4.6.2,Appeals and Responses to Letters 105C/106C, for specific instructions in handling responses to fully and partially disallowed carryback claims.

  3. Use blocking series 00/blocking series 15 for BMF and 91/blocking series 92 for IMF (Individual Master File) partially disallowed claims. Send Letter 106C.

  4. Use blocking series 98/blocking series 99 for IMF and BMF (Business Master File) fully disallowed claims. Send Letter 105C.

  5. The refund statute of limitations on a carryback is determined by the loss year. See IRM 25.6.1.10.2.8.1,Net Operating Loss (NOL) Carryback or Capital Loss Carryback, and IRM 25.6.1.10.2.8.2,Business Credit Carryback.

Reassessing Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C, and Form 990-T

  1. RINTs, unlike TENTs, cannot be processed prior to the loss year return posting to Master File. Therefore, the reassessment procedures used for TENTs (see IRM 21.5.9.5.34,Reassessing Carryback Form 1045 and Form 1139), when the loss year return posts with different figures than the return copies provided by the taxpayer, or because the loss year return was not filed, do not apply to RINTS. See the paragraphs below for situations where the RINT may need to be addressed after processing.

  2. If the IRS makes an error in processing a RINT, such as a TC 299 input for an incorrect amount (claim is for $500, but input is for $5,000), or the adjustment is made to an incorrect tax period (adjustment is input to 201312 instead of 201412), and a refund is issued, erroneous refund procedures must be followed. See IRM 21.4.5,Erroneous Refunds.

  3. If the IRS makes an error in processing a RINT, such as a TC 299 input for an incorrect amount (claim is for $500, but input is for $5,000) or the adjustment is made to an incorrect tax period (adjustment is input to 201312 instead of 201412), but no refund is issued and the statute for assessment is open [based on the loss year Assessment Statute Date (ASED)], this is considered a "clerical error" and the Service may simply reverse the adjustment without using deficiency procedures. Whether a notice was issued when the incorrect adjustment was made is not a factor. If a notice was issued based on the incorrect adjustment, send the taxpayer a letter when the correction is made, apologizing for the error, and advise the taxpayer that a corrected notice will be issued. See Crompton-Richmond Co. v. United States, 311 F. Supp. 1184, 1187(S.D.N.Y. 1970).

  4. If the taxpayer files a corrected Form 1040-X or Form 1120-X, input TC 298 to assess tax previously allowed. Enter the loss year return due date as the interest computation date (INTCMP-DT) for TC 298 unless the statute is imminent/expired. If the statute is imminent/expired, see IRM 20.2.9.4, Carryback Recaptures, for interest computation rules and use of blocking series 95.

    Caution:

    Master File cannot accurately compute underpayment interest on the recovery of a prior TC 299 adjustment carrying an INT-CMPTN-DT dated earlier than the loss year return due date. While the TC 298 input to Master File must carry that same INT-CMPTN-DT, underpayment interest must be manually computed. Anytime underpayment interest is manually computed, it is necessary to recompute the entire tax module to ensure an accurate computation is made. See IRM 20.2.5.6.2,Manual Computations.

Carryback of Foreign Tax Credit (FTC)

  1. Taxpayers must carryback Foreign Tax Credit (FTC) on Form 1040-X, Form 1120-X, or other amended returns. Reject a Form 1045 or Form 1139 claiming a carryback of unused FTC.

    Note:

    Any carryback cases assigned to Philadelphia as ITCB/IRNT (IMF International Carryback) or Ogden as ITCB/IRNT (BMF International Carryback), which are later determined to be domestic or below International tolerance must have the CIS category code updated and the case processed in Philadelphia (IMF) or Ogden (BMF).

  2. FTC carryback/carryforward limitations are located in Exhibit 21.5.9-1.

    Note:

    A taxpayer can only carry back excess foreign tax credits to a year in which there was foreign income subject to U.S. tax. If the taxpayer is claiming FTC on a tax period without foreign income subject to U.S. tax, disallow the claim and notify the taxpayer of the specific tax period(s) that do not have foreign income subject to U.S. tax.

  3. If the carryback of FTC produces an overpayment in the carryback year, any claim for refund of that overpayment is subject to 10-year statute of limitations from the due date of the tax return for the year in which the foreign tax was paid or accrued, see IRM 25.6.1.10.2.8.4,Foreign Tax Credit.

  4. For 199808 and subsequent ending periods, the FTC carryback interest rules are identical to other carrybacks, IRC 6611(f). See IRM 21.5.9.5.11,Carryback Interest.

  5. When a FTC carryback reduces an underpayment for a previous tax year, the carryback does not affect the computation of the interest on the underpayment for the period ending with the filing date for the tax year in which the foreign taxes were paid or accrued.

  6. When a FTC carryback attributable to a Net Operating Loss (NOL) or Net Capital Loss (NCL) carryback from a subsequent year reduces an underpayment for an earlier tax year, the carryback does not affect the computation of the interest on the underpayment for the period ending with the filing date for the subsequent tax year in which the NOL or NCL carryback arose.

  7. Computational instructions for carrybacks of FTC can be found in:

    • IRM 21.8.1.3.7,Carryback and Carryover - Foreign Tax Credit (Individual Master File)

    • IRM 21.8.2.10.7,Carryback and Carryover - Foreign Tax Credit (Business Master File)

    • IRM 20.2.10.2.4,Carrybacks and Carryovers of Excess Foreign Taxes Paid

    Note:

    Foreign Tax Credit carryback claims are International criteria, filed on Form 1040-X or Form 1120-X, and can be filed by both International and Domestic taxpayers. Route IMF Foreign Tax Credit (FTC) carryback claims to the Philadelphia Campus, BLN 3–J23.134 and BMF Foreign Tax Credit (FTC) carryback claims to the Ogden Campus. If using CIS, carryback FTC cases must be reassigned through the system after updating the case information, if required. For detailed information on reassigning cases through CIS, refer to IRM 3.13.6,Submission Processing Image Control Team (ICT) Correspondence Scanning. When reassigning a case in CIS ensure to update the Category Code appropriately to eliminate delay in processing.

    Example:

    TENT = ITCB and RINT = IRNT

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

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

    Example:

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

    Example:

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

    Example:

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

    Example:

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

Net 1256 Contract Loss Carryback

  1. This section provides procedures for working Form 6781, Gains and Losses from Section 1256 Contracts and Straddles. Taxpayers holding section 1256 contract(s) during the year should file this form.

  2. The Commissioner must approve claims based on revocation of a section 1256(d) mixed straddle election. The approval of the revocation must be attached to the case.

  3. For tax years 2001 and prior, a taxpayer could file only an amended return (Form 1040-X) for these losses. For tax years 2002 and later, a taxpayer can file either a tentative (Form 1045) or an amended return (Form 1040-X).

  4. Route to Examination for technical advice if:

    • The taxpayer cannot provide approval and insists the claim be processed.

    • Amended return, increasing losses on Form 6781, meets Category A criteria.

  5. An individual taxpayer can carryback section 1256 contract(s) losses three years but can only apply them to section 1256 contract(s) gains. Assume there were no section 1256 contract(s) if the taxpayer does not carryback to the second or third preceding tax year.

    Caution:

    Section 1256 carrybacks are not available to corporations, partnerships, estates, or trusts. If a loose Form 6781 is received in Accounts Management for a corporation, partnership, estate, or trust, follow the instructions in Paragraph 9 to have the Form 6781 associated with the applicable tax return (Form 1120, Form 1065, Form 1041, etc.).

  6. TENTS and RINTS must have the following documents attached:

    • Pages one and two of the loss year return

    • Original and revised Form 6781 for the gain year(s)

    • Original and revised Schedule D for the gain year(s)

  7. Verify that the taxpayer:

    • Has a valid election on Form 6781 to carryback all or part of the loss

    • Did not deduct the loss in both the loss and gain years

    • Completed Box D and Line 6 on Form 6781 for the loss year (Corporations, partnerships, estates and trusts are not eligible to check box D.)

    • Applied section 1256 contract(s) losses only to section 1256 contract(s) gains

    • Did not use section 1256 contract(s) losses from the loss year to create a net operating or capital loss in the carryback year

  8. Input using the same rules as other TENT and RINT adjustments.

    Note:

    Taxpayer must allocate the amount of loss, income, credits, and refunds if there is a Filing Status change.

  9. When Form 6781 is received in Accounts Management, and it is determined no adjustment is necessary, follow the instructions below.

    If Then
    Original return is not posted File the loose Form 6781 with a TC 930 push code.
    Original return has posted Attach to the original return.

Combination Carrybacks (Claims) Involving Research Credits

  1. This section provides instructions for processing carryback claims for RINTS in combination with research credits.

  2. 6765, Credit for Increasing Research Activities, is used to claim the credit for increasing the research activities of a trade or business.

  3. For TY 2006 and subsequent, the credit can be claimed only as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800. As part of the general business credit, any portion of the research credit that cannot be used in the current taxable year can be carried back one year to reduce taxes for that taxable year. It can then be carried forward 20 years.

  4. For processing claims only involving the research credit, follow procedures outlined in IRM 21.7.4.4.8.3.5,Form 6765, Credit for Increasing Research Activities. This IRM section contains the most comprehensive and up to date information on research credits.

  5. For combination claims involving a carryback (RINT) and the research credit:

    1. Follow all normal procedures as outlined in IRM 21.5.9 for the carryback portion.

    2. Treat the research credit portion as a separate adjustment, if it is not part of the carryback amount, following procedures in IRM 21.5.9.5.10.

      Note:

      When referring Carryback cases with research credits to Exam for classification, first use IDRS to determine if the BOD is LMSB or SBSE. Follow the procedures below for each BOD type:

      If IDRS shows Then refer to Exam for Classification via CIS
      LBI Select HQ Reserved 5 from the drop down listing of primary reason referred.
      SBSE Select Other from the drop down listing of primary reason referred.
  6. Special processing instructions were required when the credit expired June 30, 1999 but was reinstated retroactively for the period July 1, 1999 - June 30, 2004, by the Tax Relief Extension Act of 1999. This law created two suspension periods and allowed claims to be filed on Form 1139, Form 1045, Form 1120-X, and Form 1040-X. The statute has expired for the vast majority of these claims, so the instructions have been removed from both IRM 21.7.4 and IRM 21.5.9. However, if for some reason a statute is still open, the instructions in IRM 21.7.4 and IRM 21.5.9 can be found in prior revisions of the IRMs located on the Electronic Publishing Website.

Carryback Applications and Claims Filed in Conjunction with Amended Returns Filed for the Loss Year

  1. Taxpayers may file an amended return that creates (or modifies) a net operating loss and submit the carryback application/claim based on that amendment at the same time.

  2. The amended loss year return and the TENT/RINT may be assigned to different CSRs.

  3. In order to ensure consistent treatment and to help meet the Service's commitment to process TENTs/RINTs as quickly as possible, follow the procedures outlined in the following paragraphs when an amended loss year return is received in conjunction with the related carryback claim/application.

  4. Taxpayers are required to include a copy of any amended return generating or modifying the net operating loss with the carryback application/claim (TENT/RINT). See IRM 21.5.9.4.2,Identifying processible and Unprocessible Carryback Applications/Claims.

    1. Review the copy of the amended return.

    2. Research IDRS/CIS for evidence that the amended return has been received or processed.

      Note:

      Amended returns are generally scanned into CIS within 14 days of the IRS received date.

    3. If no evidence of the amended return is found, reject the TENT/RINT, as there is no basis on which to process the carryback adjustment.

  5. If the amended return is located on IDRS/CIS and has not been processed, the TENT/RINT and the loss year amended return should be worked by the same CSR/TE, if possible. If not possible, coordinate the processing of the amended loss year return and the carryback claim with the other CSR/TE.

  6. Coordination with regard to the amended return must involve the following:

    1. Verify that the starting figures on the TENT/RINT agree with the figures on the amended loss year return. If the figures do not agree, reject the TENT/RINT and include a copy of the unprocessed amended loss year return. See IRM 21.5.9.4.5,Incorrectly Calculated Carryback Applications/Claims.

    2. Ensure the amended return is processible (i.e., includes all required documentation and is signed). If the amended return is not processible and will be rejected back to the taxpayer, reject the TENT/RINT as well, as there is no basis on which to process the carryback adjustment.

    3. Determine if the loss year amended return is based on a specific issue that the Service has identified for automatic disallowance without Examination involvement. If the amended return will be disallowed, the TENT/RINT must also be rejected/disallowed.

      Example:

      See IRM 21.6.6.4.50.1,Claims due to Corporate Misconduct.

    4. Evaluate the loss year amended return for CAT-A criteria and a required referral to Examination. See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General. See paragraphs (7) and (8) below for additional information for processing these claims.

  7. If the loss year amended return is processible and has not already been processed, ask the employee assigned the amended loss year return to input the adjustment as soon as possible. Explain that the TENT/RINT must be processed within the 45-day interest-free period in order to eliminate or reduce the amount of interest issued on the carryback refund. See IRM 21.5.9.5.12,Carryback Manual Refund, if the 45-day interest-free period is in jeopardy.

  8. If the loss year amended return adjustment cannot be input for any reason, and the amended return cannot be reassigned to the carryback employee, follow the instructions in the table below. How the carryback is resolved is determined by whether it is a TENT or a RINT.

    If And Then
    The carryback is a TENT (Form 1045 or Form 1139) The TENT figures match the loss year amended return figures

    Note:

    Do not consider CAT-A criteria prior to processing the TENT.

    Reminder:

    If the TENT figures do not match the loss year amended return figures, follow the instructions in Paragraph (6) above.

    1. Process the TENT and issue the refund.

      Note:

      Do not wait for the loss year amended return adjustment to be input.

    2. Monitor the loss year until either the amended return adjustment has been input or the loss year amended return is selected for examination.

    3. If the loss year amended return adjustment is made, verify the adjustment matches the figures that were used for the TENT adjustment. If not, follow reassessment procedures for TENTS. See IRM 21.5.9.5.34,Reassessing Carryback Form 1045 and Form 1139.

    4. If the loss year amended return is selected for examination, then refer the 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).

    The carryback is a RINT

    Reminder:

    A RINT cannot be processed until the loss year adjustment has been input.

    The loss year amended return is selected for examination Send the RINT to the Examination area working the amended loss year return.
    Otherwise, if the amended loss year return cannot be processed for any other reason:
    • Reject the RINT.

    • Advise the taxpayer he/she can refile the carryback claim once he has received a notice from the IRS for the loss year amended return adjustment.

      Caution:

      If the claim or amended return is received within 180 days of the Refund Statute Expiration Date (RSED), follow IRM 21.5.3.4.3,Tax Decrease and Statute Consideration.

Processing Carryback Claims and Applications with ID (Identity)Theft/Scrambled SSN (Social Security Number)/Mixed Entity/ Integrity and Verification Operations (IVO) Involvement

  1. If a tentative application (TENT) is received with ID theft/Scrambled SSN/Mixed Entity/IVO issues on the loss year:

    • Verify the application as per the instructions in IRM 21.5.9.4, Carryback Verification.

    • Process the carryback on the gain year(s).

    • If there is an open control on the loss year and the account has not been corrected, contact the IDT Carryback Liaison at the site with the open IDT control and provide a copy of pages one and two of the loss year. A listing of IDT Carryback Liaisons can be found on SERP under the Who/Where tab at Identity Theft - Carryback Liaisons.

      Caution:

      See IRM 21.5.1.4.4.1, Unresolved Taxpayer Protection Program (TPP) Issues for Correspondence and Loose Forms, for applications and claims filed with an unposted loss year return held by TPP.

    • If there is no open control on the loss year and the account has not been corrected, call or write the taxpayer for a newly-signed copy of the loss year return, per the procedures in IRM 21.5.9.5.34,Reassessing Carryback Form 1045 and Form 1139.

    • If there are issues not discussed above, contact the IDT (Identity Theft) Carryback Liaison at the site with the open IDT control for assistance.

    Caution:

    If a manual refund is issued, make every effort to ensure that the refund is being issued to the correct taxpayer at the correct address. This also applies to any correspondence requesting additional information for processing the application.

    Reminder:

    For additional information on Scrambled SSN procedures, see IRM 21.6.2.4.3,NOMRG Procedures, see IRM 21.6.2.4.2,Scrambled SSN Case Procedures, or for general procedures for Identify Theft see IRM 25.23.4.3,Identity Theft General Research.

  2. If a TENT is received with ID theft/Scrambled SSN/Mixed Entity/IVO issues on the gain year, contact one of the IDT Carryback Liaisons prior to processing the TENT.

  3. If a RINT is received with ID theft/Scrambled SSN/Mixed Entity/IVO issues, contact one of the IDT Carryback Liaisons prior to processing the carryback claim.

  4. If a carryback claim (RINT) was processed in error on an ID theft/scrambled SSN/Mixed Entity/IVO account, see IRM 21.5.9.5.43,Reassessing Carryback Form 1040-X, Form 1120-X, Form 1041, Form 1120-C and Form 990-T, for processing instructions.

Carryback Applications and Claims Involving Business (BMF) Return Integrity and Compliance Services (RICS) Filters Processing

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 25.23.11.7.3, BMF Returns Selected for RICS Review, for additional information.

  2. These returns can be identified by the following:

    1. No TC 150 posted

    2. At least one TC 971 AC 711

    3. TC 973 which suspends the return in question

      Note:

      A TC 973 may not be present on accounts where Submission Processing deemed the return is unprocessible.

    4. Issuance of Letter 6042C or 5263C

      Note:

      Only RICS employees have the authority to determine if the return in question is RICS BMF IDT or not.

  3. IRM 21.5.9.4.2 states a carryback tentative application can be processed prior to the posting of the loss year return. However, if either the loss year or gain year includes a tax period with RICS BMF IDT indicators discussed above, do not process the carryback tentative application. Reject the case using the appropriate carryback letter and include the following paragraphs:

    Our records show Letter (choose 5263C or 6042C, whichever is applicable) dated (enter date the letter was issued per ENMOD +7 calendar days - Example: ENMOD shows letter 6042C generated on 12042018, the printed letter date you enter here would be 12/11/2018) was issued to you. Before the IRS can process your carryback request you must respond to that letter using the address or fax number provided on that letter to avoid additional delays in the processing of your tax return. For additional information, visit our website at www.irs.gov/ltr6042c.
    Form (1139 or 1045 whichever is applicable) is only valid for 12 months from the end of the carryback loss year. If this time frame has expired you will be required to submit an amended return for each tax period you are requesting a carryback adjustment.

  4. Reject Carryback claims with RICS BMF IDT indicators to the taxpayer. Reject the case using the appropriate carryback letter and include the following paragraphs:

    Our records show Letter (choose 5263C or 6042C, whichever is applicable) dated (enter date the letter was issued per ENMOD + 7 calendar days - Example: ENMOD shows letter 602C generated on 12042018, the printed letter date you enter here would be 12/11/2018) was issued to you. Before the IRS can process your carryback request you must respond to that letter using the address of fax number provided on that letter to avoid additional delays in the processing of your tax return. For additional information, visit our website at www.irs.gov/ltr6042c.
    Once your (enter tax period of return(s) with RICS indicators - ex. Dec. 31, 2017) return(s) have been processed you can resubmit your carryback claim to the Internal Revenue Service Center where you live as shown in the instructions for your income tax return.

  5. If the taxpayer responded to Letter 5263C or 6042C and the return in question has been determined not to be BMF ID theft, RICS will input a TC 971 AC 712, TC 971 AC 713, or TC 972 AC 711 on the tax period to reverse the TC 971 AC 711 and the return will be processed. Take the following actions:

    1. If a T 971 AC 712 or TC 972 AC 711 posted resulting in a posted TC 150 without any freeze conditions, process the carryback tentative application or claim.

    2. If a TC 971 AC 713 posted resulting in a posted TC 150 but there is an unreversed TC 570 present on the account, contact Frivolous Return Program (FRP) before proceeding with processing the case. Refer to Return Integrity & Compliance Services Frivolous Return Program to locate the appropriate FRP POC under the FRP Campus Contacts link.

  6. If ENMOD does not indicate that either a Letter 5263C or 6042C was issued to the taxpayer, send a Form 4442, Inquiry Referral, to RICS requesting the letter be reissued. See IRM 25.23.11.7.3, BMF Returns Selected for RICS Review, (10) and (11) for additional information.

    1. Reject the carryback tentative application or claim back to the taxpayer with the appropriate carryback letter. Include the following paragraphs:
      For TENT/ITCB Cases:
      A review of your account indicates there is an issue with processing your tax return. You will receive letter 6042C requesting information you need to provide to avoid additional delays in processing your Form (enter form number) for tax period(s) (include tax periods with RICS Indicators on account).
      Once your (enter tax period(s) with RICS indicators - ex. Dec. 31, 2017) return(s) have been processed you can resubmit your request for a carryback to the Internal Revenue Service Center where you live as shown in the instructions for your income tax return . Please note Form (1139 or 1045 whichever is applicable) is only valid for 12 months from the end of the carryback loss year. If this time frame has expired you will be required to submit an amended return for each tax period you are requesting a carryback adjustment.

      For RINT/IRNT Cases:
      A review of your account indicates there is an issue with processing your tax return. You will receive letter 6042C requesting information you need to provide to avoid additional delays in processing your Form (enter form number) for tax period(s) (include tax periods with RICS indicators on account - ex. Dec. 31, 2017).
      Once your tax return(s) have been processed you may resubmit your amended return requesting a carryback to the Internal Revenue Service Center where you live as shown in the instructions for your income tax return .

U.S. Virgin Island Carryback/Carryforward Applications/Claims

  1. A taxpayer who resided or currently resides in the U.S. Virgin Islands may file a RINT or TENT to request the carryback/carryforward of a Net Operating Loss (NOL), Net Capital Loss (NCL), Unused Credits, or a Claim-of-Right adjustment. Verification as per IRM 21.5.9.4, Carryback Verification, requires an additional step since the loss or gain years were/are filed in the U.S. Virgin Islands.

    Note:

    For additional information on IMF International Adjustments see IRM 21.8.1, IMF International Adjustments, and for BMF International Adjustments, see IRM 21.8.2, BMF International Adjustments.

Application/Claim Received from the U.S. Virgin Islands - Loss Year filed with the U.S./Gain Year Filed with the U.S. Virgin Islands
  1. Upon receipt of a loss year return filed in the U.S., verify that the RINT/TENT is processible as per IRM 21.5.9.4.2, Identifying Processible and Unprocessible Carryback Applications/Claims.

  2. If a determination is made that pertinent supporting information is missing from either the RINT or TENT, with the exception of the filing of the gain year returns since these were/are filed with the U.S. Virgin Islands, reject the carryback/carryforward request as per IRM 21.5.9.4.3, Rejecting Unprocessible Carryback Application/Claims.

  3. Once the RINT/TENT has been verified per the guidance in (1) and (2) above, notify the taxpayer via Letter 216C (for TENTS) or 4734C (for RINTS) to explain the IRS is unable to process their request. To accommodate the character limitations for open paragraph(s) in the letters, include the following two open paragraphs in the letter:
    Paragraph 1:The IRS verified your 20XX (loss year) Federal Income Tax Return, including the carryback information. However, the adjustment on the gain year tax return(s) cannot be processed by the IRS. Since you filed your gain year tax returns(s) with the U.S. Virgin Island Bureau of Internal Revenue, that tax agency must process your carryback request.
    Paragraph 2: A referral will be made to the U.S. Virgin Islands Bureau of Internal Revenue. However, you may also need to prepare and submit an amended return to the U.S. Virgin Islands Bureau of Internal Revenue for processing. Include all documentation supporting the net operating loss with your amended return and send it to:
    U.S. Virgin Islands Bureau of Internal Revenue
    Disclosure Officer
    6115 Estate Smith Bay, Suite 255
    St. Thomas, VI 00802

    Note:

    Attach a copy of the letter to the CIS case.

  4. EEfax the taxpayer’s carryback/carryforward request to the U.S. Competent Authority at ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , Attn: U.S. Territory Program Manager. Notate on CIS that the carryback/carryforward has been forwarded to the U.S. Territory Program Manager for processing.

    Note:

    Include the number of days remaining in the 45-day interest free period on the fax cover sheet.

Application/Claim Received from the U.S. Virgin Islands - Gain Year Filed with the U.S./Loss Year Filed with the U.S. Virgin Islands
  1. The IRS will process the carryback/carryforward RINT/TENT received from the U.S. Virgin Islands when the gain year is posted on IDRS/CFOL. As per IRM 21.5.9.4, Carryback Verification, verify the RINT/TENT includes all the required attachments to support the carryback/carryforward RINT/TENT and the gain years have posted to Master File.

  2. The loss year is filed with the U.S. Virgin Islands Bureau of Internal Revenue and will require contact through Competent Authority to obtain necessary information for verification of the loss year return. Follow the steps included in the Obtaining Tax Information from a U.S. Territory Tax Agency document. When preparing the Form 8796, Request for Return Information, ensure that a return fax number is included on the request.

    Note:

    When requesting verification of an election to forgo the carryback period, on Form 8796, Section B, Item 2 check the radio button next to the “other” and notate a request to verify that the election to forgo the carryback period has been timely filed.

    Reminder:

    Notate CIS that the U.S. Virgin Island Bureau of Internal Revenue has been contacted to request the loss year information.

  3. Once the loss year information has been received from the U.S. Virgin Island Bureau of Internal Revenue, process the RINT/TENT using normal carryback/carryfoward procedures.

Carryback Applications and Claims with Section 965 Involvement

  1. The Tax Cuts and Jobs Act of 2017, Section 14103, Treatment of Deferred Foreign Income Upon Transition to Participation Exemption System of Taxations, amended section 965 to provide rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. For the last taxable year of a deferred foreign income corporation (DFIC) which begins before January 1, 2018, a United States shareholder of the DFIC must include in its subpart F income its pro rata share of the accumulated post-1986 deferred foreign income of the DFIC. The rules also allow a reduction to inclusions for the pro rata share of the deficit in foreign earnings and profits of other foreign corporations.

  2. Section 965(n) allows, among other things, a United States shareholder of a DFIC to make an election to not take into account certain amounts described under section 965(n)(2) in determining:

    1. Its net operating loss for the taxable year or

    2. The amount of taxable income which may be reduced by NOL carry overs or carry backs.

  3. Section 965(n) will generally affect carryback claims filed on tax year 2017 and subsequent.

  4. Taxpayers who carry back to years in which they have a section 965(a) inclusion (“965 year”) are not permitted to file a Form 1139 or Form 1045 but instead are required to file the appropriate amended return(s) for the affected carryback tax periods. If a tentative application or claim for a carryback is received for a year with a section 965(a) inclusion or statement, reject the application and provide the following in the carryback letter.

    Taxpayers that carry back to years in which they have a section 965(a) inclusion (“965 year”) may not use [enter the appropriate tentative application form, i.e., Form 1139 or Form 1045]. Therefore, we are rejecting your [enter either Form 1139 or Form 1045]. Please submit an amended return to report your carryback.

  5. To process the carryback application/claim on tax years 2017 or 2018, include the appropriate hold code on the adjustment, if applicable.

    Caution:

    A hold code may be required if a taxpayer has made a section 965(n) election because until the taxpayer pays the entire amount of the non-section 965 liability plus the entire amount of the section 965(h) net tax liability, the taxpayer is not entitled to a refund of the excess payment.

    Reminder:

    Follow guidance in IRM 21.5.9.5.14.11 if the loss year is affected by the Tax Cuts and Jobs Act of 2017.

  6. If there is a section 965(h) net tax liability, coordination with the P&A staff at the centralized AM section 965 sites (BMF- Ogden or IMF- Brookhaven) must be completed. The centralized site will input the required TC 767/ CRN 263. After the action is complete, the carryback team will continue to process the carryback request. If the centralized site indicates the section 965(h) net tax liability is paid in full, no section 965 action is necessary and the carryback process can continue.

    1. Issue a manual refund for the remaining overpayment if no other balance due is owed.

    2. Issue the appropriate carryback letter to notify the taxpayer of the difference between the expected carryback refund and the actual carryback refund.

  7. For additional guidance on section 965, see IRM 21.6.4.4.22, Section 965 - Transition Tax on Untaxed Foreign Earnings, or IRM 21.7.4.4.25, Section 965 - Transition Tax.

General Business Credits, Foreign Tax Credit, and Other Non-Refundable Credits - Availability for Carryback/Carryforward

For general business credits arising in taxable years beginning after December 31, 1997, the carryback period is one year and the carryforward period is 20 years. For a complete listing of general business credits, and additional information, see Form 3800, General Business Credit, and Instructions for Form 3800. Also, see IRM 21.6.3.4.1,Non-Refundable Credits Procedures, (Individual Master File), and IRM 21.7.4.4.8.3,Information on Specific Non-Refundable Credits, for information on specific credits.

The table below lists the availability of non-refundable credits, other than general business credits, for carryback/carryforward.

Other Credits Carry Back Carry Forward
Child and Dependent Care Credit
Form 2441
No No
Credit for the Elderly or Permanently and Totally Disabled
Schedule R
No No
Child Tax Credit No No
Education Credits
Form 8863
No No
Mortgage Interest
Form 8396
No three years
Adoption Credit
Form 8839
No five years
District of Columbia First-Time Homebuyer Credit (DC Residents Only)
Form 8859
No Unlimited (until used)
FOREIGN TAX CREDIT - Individuals, Estates, and Trusts
Form 1116
Carryback of excess taxes arising in tax years beginning prior to October 23, 2004; carryover of excess taxes carried to tax years ending prior to October 23, 2004

Note:

Excess Foreign Tax Credits can only be carried to a year in which there was foreign income subject to U.S. tax.

one year 10 years
FOREIGN TAX CREDIT - Individuals, Estates, and Trusts
Form 1116
Carryback of excess taxes arising in tax years beginning after October 22, 2004; carryover of excess taxes carried to tax years ending after October 22, 2004

Note:

Excess Foreign Tax Credits can only be carried to a year in which there was foreign income subject to U.S. tax.

one year 10 years
FOREIGN TAX CREDIT - Corporations
Form 1118
Carryback of excess taxes arising in tax years beginning prior to October 23, 2004; carryover of excess taxes carried to tax years ending prior to October 23, 2004

Note:

Excess Foreign Tax Credits can only be carried to a year in which there was foreign income subject to U.S. tax. .

one year 10 years
FOREIGN TAX CREDIT - Corporations
Form 1118
Carryback of excess taxes arising in tax years beginning after October 22, 2004; carryover of excess taxes carried to tax years ending after October 22, 2004

Note:

Excess Foreign Tax Credits can only be carried to a year in which there was foreign income subject to U.S. tax. Taxpayers may not carryover or carryback excess foreign taxes that they are deemed to pay or accrue under IRC 960(d)

one year 10 years

Allocation Requirements for Non-Community Property States

Filing Status Allocation Requirements
Loss Year Gain Year None Yes Loss Year Gain Year
Single Separate X      
Single Single X      
Single
(Single Spouse)
Joint
(Dec'd Spouse)
  X   X
Single Joint   X   X
Joint Joint
(Same Spouse)
X      
Joint
(Year of Death)
Joint
(Surviving Spouse)
X      
Joint
(New Spouse)
Joint
(Dec'd Spouse)
  X X X
Joint
(New Spouse)
Joint
(ex Spouse)
  X X X
Joint Single   X X  
Joint Separate   X X  
Joint New Spouse) Head of Household   X X  
Separate Single X      
Separate Separate X      
Separate Joint (and both spouses have signed for a joint refund) X      
Separate Joint (but only spouse with Net Operating Loss (NOL) has signed carryback)   X   X
Head of Household
(Surviving Spouse)
Joint
(Dec'd Spouse)
  X   X
Head of Household Joint
(ex Spouse)
  X   X
Qualifying Widow(er) Joint   X   X