Practitioners beware - use of Form 1045 or 1139 may create unexpected liability.

• Author: Everidge, Kathy L.

Tax practitioners considering refund requests based on the carryback of losses or credits must be aware of the potential different results generated by the filing of an application for a tentative carryback adjustment (tentative) filed on a Form 1045, Application for Tentative Refund (for individuals), or Form 1139, Corporation Application for Tentative Refund (for corporations), versus the filing of an actual claim for refund (claim) on a Form 1040X, Amended U.S. Individual Income Tax Return, or Form 1120X, Amended U.S. Corporation Income Tax Return. One of the most significant differences involves the IRS's ability to charge interest on subsequently determined deficiencies. While most taxpayers will not be concerned about potential deficiency interest issues, for certain taxpayers the potential negative ramifications of filing a tentative may be highly significant.

Background

In general, the tentative is limited to specific items listed in Sec. 6411. These items include net operating loss (NOL) carrybacks, capital loss carrybacks and business credit carrybacks. A carryback of foreign tax credits (FTCs) is not specifically mentioned in Sec. 6411 and must be carried back on a Form 1040X or 1120X.

One critical difference in the filing of a tentative versus a claim is the fact that a tentative is a pre-audit refund while a claim generally results in a post-audit refund. The taxpayer in need of cash will most often focus on this fact when considering which form and associated procedures to use. The table on page 764 provides a comparison of differences between die filing of a tentative versus a claim.

Additional Issue

Both tentative and claim carrybacks extend the period of assessment for the carryback year. One distinction related to this extension, which has not been focused on by many practitioners, must be addressed. If a Form 1045 or 1139 is filed, the statute of limitations (SOL) for assessment of tax for the year to which the carryback is taken (i.e., the carryback year) is actually extended for an amount equal to the refund. This includes amounts related to the carryback and items unrelated to the carryback, as long as die deficiency does not exceed die refund importantly, interest is not subject to this limitation and may result in the Service assessing an amount in excess of the refund. If a Form 1040X or 1120X is filed, the IRS may assess a deficiency attributable to the carryback, but not one attributable to items unrelated to the...