Okay, so you’ve heard about Form 1139, and maybe you’re wondering if it’s something your business needs to know about. Let’s break it down and see if it fits your situation. Think of Form 1139 as a shortcut for getting a refund from the IRS when your corporation has experienced a loss or a credit that allows you to recover some of the tax paid.
What is a Tentative Refund?
The term “tentative refund” is key here. It doesn’t mean the IRS is just guessing or that the refund is uncertain. It means that the IRS processes the refund request more quickly than if you amended your tax return. This quick processing is often based on the loss or credit applied. However, the IRS can later review this application and adjust it if needed. It’s faster, but still subject to review.
How Does Form 1139 Work?
Essentially, Form 1139 acts as an official request for the IRS to apply a carryback (or in some cases, a carryforward) of a loss or credit. A “carryback” allows you to apply a loss or credit from the current year to a previous tax year, while a “carryforward” is when you apply it to a future year.
Let’s look at the steps involved:
- The Trigger Event: Something happens in your business that results in either a net operating loss (NOL) or an unused general business credit. A net operating loss means your business expenses exceeded your income for the year. The general business credit can be a variety of credits, like for research or investments, that you couldn’t fully use in the current year.
- Identify Eligibility: You need to determine that you’re eligible to use Form 1139.
- Complete the Form: You’ll carefully fill out Form 1139, providing all the necessary details. This includes information about the loss or credit you’re applying, the tax year you’re applying it to, and the recalculation of tax and the amount of refund you are requesting.
- File Quickly: Unlike an amended tax return, you must file Form 1139 within 12 months after the end of the tax year that created the loss or credit. So, timing is essential! If you miss the deadline, you’ll have to go the slower route, by filing an amended return, Form 1120X
- IRS Review and Processing: The IRS processes your request relatively quickly. They’ll usually either approve your refund or notify you if there’s an issue. They may also review your claim further.
Who Can Use Form 1139?
Generally, corporations (not individuals) can use Form 1139. This includes:
- C corporations
- S corporations (but generally, the loss or credit flows through to the shareholder’s individual return)
- Other corporate entities treated as corporations for tax purposes
The key thing is that they must experience a net operating loss or an unused general business credit, and that loss or credit must be eligible for carryback.
What are the Qualifying Situations for using Form 1139?
The most common situation is having a net operating loss in one year that can be used to reduce tax liability in a prior year (or in some cases, a future year).
- Net Operating Loss (NOL): If your business’s expenses exceeded its income for the year, creating a net loss, you might be able to carry back the loss to previous profitable years.
- Unused General Business Credit: If your company has earned a business credit, but could not use all of it because of tax liability limitations, you might be able to use Form 1139 to carry back the credit.
- Other Qualifying Adjustments: there are other less common items that could generate an eligible adjustment for Form 1139. You can look into those by reading the Form 1139 instructions.
Form 1139 vs. Amended Tax Return (Form 1120-X)
You might be thinking, “Why not just amend my tax return?” That’s a great question! Here’s the key difference:
- Form 1139 (Tentative Refund): Faster processing but limited to specific situations and deadlines. Think of it as an expedited refund process.
- Form 1120-X (Amended Corporate Tax Return): Used for general corrections and adjustments to a previously filed return. It takes longer to process than Form 1139.
Use Form 1139 if you have a qualifying NOL or unused credit and need a quick refund. Use Form 1120-X for other adjustments or when you miss the Form 1139 deadline. If the IRS rejects Form 1139 you also have to file Form 1120-X.
Important Considerations and Timing
- Deadline: You must file Form 1139 within 12 months of the end of the tax year in which the NOL or unused credit arose. This is a hard deadline, so mark your calendar.
- Accuracy: Make sure all your calculations and information on the form are accurate. Errors can delay processing or result in an audit.
- Professional Advice: This isn’t necessarily a DIY form. If you’re unsure about any part of it, get advice from a tax professional. They can help you maximize your benefits and avoid mistakes.
- Review: The IRS may later review your claim and adjust the refund. So be prepared to support your claim with documentation.
- Special rules: There can be special rules for certain types of businesses or for carrybacks that go back 5 years or more. Always read the form instructions.
A Few Quick Examples
Let’s say your corporation had a net operating loss of $100,000 in 2023. If you’ve been profitable in the two previous years, you might be able to “carry back” that loss to reduce your taxable income in 2021 or 2022, resulting in a refund. If you had a significant unused general business credit in 2023, Form 1139 could also let you carry that back as well.
Let’s say the same corporation as above tried to claim a tentative refund for 2021 because of the 2023 NOL but the tax return they filed for 2021 was fraudulent. The IRS may review the application and deny it as well as apply penalties.
Common Misconceptions About Form 1139
- It’s a Guarantee: Some people think that just filing Form 1139 guarantees a refund. It doesn’t. It’s a request, subject to review by the IRS. The IRS could determine you are not entitled to the requested refund.
- Anyone Can Use It: Only corporations, or other organizations taxed as corporations, can use Form 1139, not sole proprietors or partnerships.
- It’s Always Better: Sometimes it’s more appropriate to file Form 1120-X. You need to know the deadlines, and if you miss the Form 1139 deadline, Form 1120-X is the only choice.
Key Takeaways
Form 1139 is a valuable tool for corporations experiencing a net operating loss or unused business credit. It offers a faster way to get a refund. However, it’s not a magic bullet and has strict deadlines and eligibility requirements. Make sure to research this form and speak to a tax professional to ensure you are taking advantage of any tax breaks available to your business.