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 3.13.2.19.4, Form 56-F, Notice Concerning Fiduciary Relationship of Financial Institution (OSPC Only), and IRM 3.13.2.19.5, Processing Form 56-F.

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 IRS 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.

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.

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.

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:

See IRM 21.7.9.4.1.2.2.1, Modernized e-File (MeF) Amended Returns Requiring Expedited Handling, for additional guidance on the special handling of any other MeF amended returns.

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.

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.

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.

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.

MeF trained employees will create a CII case with the following information:

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

For more information about Modernized e-File for businesses, see E-file for Large Business and International (LB&I), located on the IRS.gov Website.

Beginning in August 2020, IMF taxpayers have the option to electronically file a Form 1040-X, Amended U.S. Individual Income Tax Return, via the Modernized e-File Return (MeF) for tax year 2019 and 2020.

Identify the MeF filed carryback Form 1040-X in CII and IDRS, by the following category codes:

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 (CII) and processing. Any unprocessable carryback cases will be returned to CCP. See IRM 21.5.9.4.2Identifying Processable and Unprocessable Carryback Applications/Claims, for guidance on determining an unprocessable carryback.

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

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

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 processable carryback case.

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.

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.

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 time frame 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.

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.

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.

An adjustment to an SRP included with a carryback application/claim is processed as per guidance in IRM 21.6.4.4.20, Individual Shared Responsibility Provision, and is not included in the carryback adjustment.

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.

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 if issuing a manual refund. Hold the credit on the debit side only of the credit transfer if allowing a systemic refund from the MFT 30 account.

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 Period, 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.

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

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

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 must be carried back one year to reduce taxes for that taxable year. The one year carryback period is mandatory under IRC 39 (a). Taxpayers cannot elect to forgo or waive the mandatory carryback period. The credit can then be carried forward 20 years.

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.

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

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.

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.

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

In order to ensure consistent treatment and to help meet the IRS' 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.

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 Processable and Unprocessable Carryback Applications/Claims.

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.

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

If the loss year amended return is processable 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 21.5.9.5.8, Carryback Manual Refund, if the 45-day interest-free period is in jeopardy.

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.

The Tax Cuts and Jobs Act of 2017, Section 14103(a), Treatment of Deferred Foreign Income Upon Transition to Participation Exemption System of Taxations, amended section 965 to generally require that, for the last taxable year of a deferred foreign income corporation (DFIC) that begins before January 1, 2018, the subpart F income of the DFIC is increased by the greater of the accumulated post-1986 deferred foreign income of the DFIC as of November 2, 2017, or December 31, 2017. Accordingly, a United States shareholder that owns stock of the DFIC under IRC 958(a) generally must include in gross income its pro rata share of the accumulated post-1986 deferred foreign income of the DFIC. If the United States shareholder owns at least one DFIC and one earnings and profit deficit foreign corporation, the United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of the DFIC is reduced by the DFIC’s allocable share of the United States shareholder’s aggregate foreign earnings and profit deficit.

In general, section 965(n) and the applicable regulations allow a taxpayer to make an election for a taxable year to not take into account its section 965(a) inclusions, reduced by section 965(c) deductions, for the taxable year and any taxes deemed paid for the taxable year with respect to its section 965(a) inclusion that are treated as dividends under section 78 in determining:

Section 965(n) will generally affect carryback claims filed on tax year 2017 and subsequent.

To process the carryback claim or application on tax years 2017 and subsequent, include the appropriate hold code on the adjustment, if applicable. See Frequently asked questions about carrybacks of NOLs for taxpayers who have had Section 965 inclusions for additional information.

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. Take the following actions.

For additional guidance on section 965, see IRM 21.5.13, IRC 965 Transition Tax Procedures - Accounts Management.

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.

Until further notice, follow the steps below prior to inputting a carryback adjustment.

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

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 20.2.4.10, Special Overpayment Interest Rules for Corporations, and subsequent subsections, for detailed instructions.

Carryback RINTs/TENTs can be filed for TEFRA-related Net Operating Losses. For additional information, see IRM 21.6.6.2.23, Tax Equity and Fiscal Responsibility Act (TEFRA) Partnerships Related Claims.

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. NIIT applies to individuals, estates and trusts.

For IMF, the 3.8 percent tax applies when a taxpayer has net investment income and modified adjusted gross income (MAGI) above the thresholds outlined in IRM 21.8.1.13.6, Net Investment Income Tax, and IRM 21.6.4.4.19, Net Investment Income Tax. For BMF, see IRM 21.7.4.4.1.7.1, Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, for additional information when the 3.8 percent net investment income tax is applicable. The NIIT is 3.8 percent of the taxpayer’s net investment income or the excess of the MAGI over certain thresholds, whichever is smaller.

The NIIT for a gain year is recalculated based on the carryback of a net operating loss (NOL) to that year.

Recalculating net investment income is necessary when processing carryback claims filed by taxpayers whose NOL deductions do not decrease their Adjusted Gross Income (AGI) to below the threshold although their section 1411 NOL still decreases their net investment income for the gain year.

In addition to including a Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, with the carryback claim/application, the taxpayer should also include their calculation of section 1411 NOL for NIIT as supporting documentation if the carryback causes the taxpayer’s net investment income for the gain year to decrease and, as a result, the NIIT for that year. Contact the taxpayer if any of the supporting documentation for NIIT is missing per IRM 21.5.9.4.3, Rejecting Unprocessable Carryback Applications/Claims.

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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.

In general, for non-community property states, the taxpayer must file an allocation schedule if their marital status, filing status or spouses change 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.

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

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.

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:

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.

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

Issue a manual refund in the name of the taxpayer that filed the carryback claim. See Title 26 Code of Federal Regulations (CFR) 301.6402-2 and Rev. Rul. 80-8, 1980-1 C.B 298.

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

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

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

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

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

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

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). Information on these legislative acts can be found in specific subsections of this IRM. See IRM 21.5.9.5.10Carryback Net Operating Loss (NOL).

Net Operating Loss Deduction (NOLD) is the net operating losses carried back or carried over to another year and taken as a deduction in the carryback or carryforward years (gain years).

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.

The NOLD is fully absorbed in a gain year when:

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

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.

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).

EXAMPLE:

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.

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.

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

Reject Form 1138 if:

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).

Process Form 1138 using the table below.

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

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.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 was signed into law on March 27, 2020, as Public Law 116-136. Section 2303, Modifications for Net Operating Losses, amends section 172(a) of the Internal Revenue Code and provides a temporary repeal of the 80 percent taxable income limitation for net operating loss (NOL) deductions enacted by the Tax Cuts and Jobs Act (TCJA). Section 2303 of the CARES Act, Modifications for Net Operating Losses, amends section 172(b)(1) of the Internal Revenue Code to provide relief from changes made by the Tax Cuts and Jobs Act (TCJA) for tax years beginning in 2018, 2019, and 2020. Section 2304 of the Cares Act, Modification of Limitation on Losses for Taxpayers Other than Corporations, amends section 461(l) of the Code to provide relief for non-corporate taxpayers from disallowance of excess business losses. Section 2305, Modification of Credit for Prior Year Minimum Tax Liability for Corporations, of the CARES Act updates the refundable percentage of prior year minimum tax (Corp. AMT) credit from 50 percent to 100 percent and provides taxpayers the option to file a request for the refund of the Corp. AMT credit for tax years 2018 and 2019 by filing Form 1139, Corporation Application for Tentative Refund.

Section 2303 and Section 2304 of the CARES Act, provide special rules for the temporary amendment of limitations imposed by certain Tax Cuts and Jobs Act of 2017 (TCJA) provisions for net operating losses (NOLs) incurred in tax years beginning in 2018, 2019, and 2020. The items temporarily repealed include:

The CARES Act, Section 2303, provides additional special rules for net operating losses beginning in tax years 2018, 2019, and 2020 which include the following:

Section 2305 of the CARES Act accelerates the recovery of unused corporate minimum tax credits (MTC) that are reported as refundable credits in line 5c of Form 8827, Credit for Prior Year Minimum Tax - Corporations, and allows the refundable MTCs to be claimed on a Form 1139, if the taxpayer elects to treat all of the unused MTCs as refundable in 2018 or 2019.

The following twelve IRM subsections contain specific guidance for processing Form 1139 or Form 1045 with net operating losses, section 965 inclusions, and 100 percent refund of MTC filed under provisions of the CARES Act.

The Consolidated Appropriations Act, 2021 (P.L. 116-260) was signed into law on December 27, 2020 and included the COVID-related Tax Relief Act (CTRA) of 2020, Section 281 of the CTRA titled Election to waive application of certain modifications to farming losses, amended Section 2303 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020, by adding new subsection (e) as if originally included in the CARES Act section. As a result, section 2303(e) of the CARES Act allows a taxpayer with a farming loss NOL for any taxable year beginning in 2018, 2019, or 2020 to make an election to disregard the CARES Act Amendments.

The following sections provide guidance for elections to waive the carryback period as well as revocations of elections to waive the carryback period filed prior to the enactment of the CARES Act for farming losses arising in tax years 2018, 2019, and 2020.

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).

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 21.5.9.5.11.3, Net 1256 Contract Loss Carryback.

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.

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.

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

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.

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

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:

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:

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.

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.

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).

Route to Examination for technical advice if:

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.

TENTs and RINTs must have the following documents attached:

Verify that the taxpayer:

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

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

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. This is referred to as the credit ordering rule. Therefore, the order in which the credits are used in any tax year is:

For more information, see Instructions for Form 3800, General Business Credit.

In general, the carryback period for unused general business credits is one year (carried to the first preceding year), and the carryforward period is 20 years. Unused applicable credits listed in IRC 6417(b) may be carried back 3 years and forward 20 years. Unused credits for oil and gas production from marginal wells (Form 8904 ), are carried back 5 years and forward 20 years. See IRM 21.5.9.5.3, Special Carryback/Carryforward Periods, for a list of specific credits.

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.

When determining a credit carryback, consider the following items:

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.”

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:

A Net Operating Loss (NOL) or Net Capital Loss (NCL) carryback reduces taxable income and tax liability. General business 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.

The taxpayer can carry back the released general business credit on the same application showing the NOL or NCL that created the released credit, with the following exceptions. The taxpayer must use Form 1040-X or Form 1120-X when:

The period of limitations for credit or refund is governed by the year of the NOL or NCL that caused the release of the credit. See IRC 6511(d)(2)(A) . Use the appropriate transaction code (TC 295/TC 299) and the same Interest Computation Date (INTCMP-DT) as was used with the NOL or NCL carryback adjustment.

If a systemic refund will be issued, interest must be manually computed. Refer to IRM 21.5.9.5.7, Carryback Interest, for additional information.

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 25.6.1.10.3.4.4, Foreign Tax Credit.

See IRM 21.5.9.5.10.8.9, Form 1139 Requesting Refundable Credit for Prior Year Minimum Tax Credit (MTC) for Corporations - CARES Act, for processing guidance specific to the 100 percent corporate refundable MTC reported on Form 8827.

The carryforward period for the released business credit is based on the year the credit was originally determined. If the released credit is from a previous carryback or carryforward, carry it forward according to the original credit year.

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.

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.

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,Earned Income Tax Credit (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.

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, Additional Child Tax Credit (ACTC) - Adjusting the Credit, for additional information.

Overpayment Interest Issues - If additional refundable credits are allowed:

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

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

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

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.

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, generally, 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.

Taxpayers compute the recapture tax on:

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

The Investment Credit recapture tax can only be offset by other credits when:

Taxpayers must carryback excess Foreign Tax Credit (FTC) on Form 1040-X, Form 1120-X, or other amended returns. Excess FTC cannot be filed on a Form 1045 or Form 1139 and are to be rejected.

Excess FTC carryback/carryforward limitations are located in Exhibit 21.5.9-1, General Business Credits, Foreign Tax Credit, and Other Non-Refundable Credits - Availability for Carryback/Carryforward.

If the carryback of excess 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 25.6.1.10.3.4.4, Foreign Tax Credit.

For 199808 and subsequent ending periods, the excess FTC carryback interest rules are identical to other carrybacks, IRC 6611(f). See IRM 21.5.9.5.7, Carryback Interest.

When an excess 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.

When an excess 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.

Computational instructions for carrybacks of excess FTC can be found in:

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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.

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

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.

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

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).

The allowable exemptions for estates and trusts are:

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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 90-day processing period allows the IRS 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.

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 CII with the times and dates of the telephone attempts. See IRM 21.5.9.4.3, Rejecting Unprocessable Carryback Applications/Claims, for additional information.

An application for a tentative refund is not treated as a claim for credit or refund. It may be rejected, in whole or in part, if there are any material omissions, math errors that cannot be corrected within the 90-day period, or the application includes a released credit required to be filed on Form 1040-X or Form 1120-X. See IRM 21.5.9.5.12.3, Released Credits Available for Carryback/Carryforward. If the application is rejected in whole or in part, no suit challenging the rejection may be brought in any court.

If an application is not processable and the 90-day period has expired or will expire shortly, the application must be rejected. If a processable application is not received within 12 months from the end of the loss year, the taxpayer must file an amended return (e.g., Form 1040-X or Form 1120-X) before the period of limitation expires, to claim the carryback. See IRM 25.6.1.10.3.4.1 , Net Operating Loss (NOL) Carryback or Capital Loss Carryback, for additional information about the period of limitations for carryback claims.

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

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 processable and Unprocessable Carryback Applications/Claims.

TENTs have a 45-day interest-free period. See IRM 21.5.9.5.16.3, Carryback Application interest Computation Dates.

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).

Unique transaction codes and blocking series are used to adjust TENTs.

Transaction codes which identify TENTs are:

Blocking series which identify TENTs are:

Save the PDF of any letter generated on a carryback case. Attach to the CII case with the Attach File button instead of capturing the "request completed" screen. See IRM 21.5.1.5.1, CII General Guidelines, for additional CII requirements.

TENT adjustments require input of the interest computation date (INTCMP-DT) and carryback received date (TCB-DT).

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

For exceptions and additional information, see IRM 20.2.9.2, Determining the Overpayment Interest Period, and IRM 20.2.4.8.1, Systemic Refunds.

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

An application for a tentative refund is not treated as a claim for credit or refund. Unless otherwise specified, follow the guidelines in paragraph 3 below when referring carryback applications to CAT-A. The following CAT-A criteria are specific to carryback applications filed on Form 1045 and Form 1139:

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

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 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.

All large dollar and Joint Committee Cases must be expedited due to interest considerations. Refer to IRM 21.4.4.6, Other Manual Refund Requirements, for additional information on million dollar or more refunds.

TENTs can be reassessed without Examination deficiency or erroneous refund procedures.

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.

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Follow the instructions in this subsection to resolve tentative refund applications where the period of limitation for credit or refund based on the loss year is imminent (180 days or less) or expired.

An application for tentative refund filed on Form 1045 and Form 1139 is not treated as a claim for credit or refund. It may be rejected, in whole or in part, if there are any material omissions, math errors that cannot be corrected within the 90-day period, or the application includes a released credit required to be filed on Form 1040-X or Form 1120-X. If the application is rejected in whole or in part, no suit challenging the rejection may be brought in any court. The taxpayer does not have appeal rights under law for any rejected or unprocessed tentative refund application.

If the taxpayer timely files a Form 1045 or Form 1139 tentative refund application and the application is rejected or the tentative refund is not processed for any reason, the taxpayer must file a claim for credit or refund using Form 1040-X, Form 1041, or Form 1120-X on or before the period of limitations for credit or refund expires. The tentative refund application cannot be processed after the period of limitation for credit or refund has expired.

If the tentative refund application was timely filed, processable, and the period of limitations for credit or refund for the loss year is not expired, process the application following normal procedures. If the timely filed application is not processable and the period of limitation for credit or refund is imminent or expired, continue processing per paragraph 6 below.

Research the current open TENT case and prior closed TENT cases in CII to determine if the taxpayer submitted amended returns for the carryback gain years.

Thoroughly research all CII images, EUP, and IDRS to determine if the taxpayer previously filed an amended return for each carryback gain year, then follow the guidance in the table below.

If the ASED or extended carryback claim due date is expired and an amended return was not previously filed or was not located through CII/EUP/IDRS research for any carryback gain year, issue Letter 216C, Tentative Carryback Application Adjustment Request, with opening paragraph "B" and the three open paragraphs below:

Employees should not be using the procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, paragraphs 3 through 6, to disallow tentative refund applications (TENTs). If a Letter 105C, Claim Disallowed, was issued for a tentative refund application, send Letter 216C following paragraph 7 above and issue a Letter 544CApology for IRS Error, with the open paragraph below:

If the taxpayer included a copy of a previously filed tentative refund application with a request to appeal a Letter 105C and research shows the Letter 105C was issued based on an amended return (e.g., Form 1040-X or Form 1120-X), follow the procedures in IRM 21.5.3.4.6.2, Appeals and Responses to Letter 105C and Letter 106C.

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

RINTs have a 45-day interest-free period. See IRM 21.5.9.5.7, Carryback Interest, for additional information.

RINTs can be identified by unique transaction codes and blocking series.

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