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Part 21. Customer Account Services

Chapter 5. Account Resolution

Section 9. Carrybacks (Cont. 1)

21.5.9  Carrybacks (Cont. 1)

21.5.9.5 
Carryback Processing

21.5.9.5.18  (10-01-2004)
Carrybacks Filed by Estates and Trusts

  1. This Section outlines the procedures for Estates and Trusts claiming 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.

21.5.9.5.19  (10-06-2006)
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 1139 or 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. Expedite carryback claims and applications, involving Exempt Organizations, to the Ogden Campus within 3 days of Accounts Managements function received date.

  3. See IRM 21.3.6, Forms and Information Requests, and IRM 21.7.7, Exempt Organizations and Tax Exempt Bonds, for more information.

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

  5. The Ogden Campus processes TENTS in the Accounts Management function to meet the 90 day processing requirement. The Exempt Organization (EO) Examination Classification office post verifies TENTS within tolerance. See IRM 21.7.7.4.16.2,Tentative Carryback Refunds (TENTS).

    IF THEN
    The loss year return has posted Request the return using the employee number for Examination Branch.
    The loss year has not posted Push Code TC930 the loss year return using the employee number for Examination Branch.

21.5.9.5.20  (10-01-2004)
Computing the NOL of Estates and Trusts

  1. When computing the NOL, the estate or trust excludes the:

    • Income and deductions attributable to the grantor or owners

    • Charitable contribution deduction (Schedule A, Form 1041)

    • Income distribution deduction (Schedule B, Form 1041

  2. The allowable deductions 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:

    These deductions, in lieu of personal exemption, are not deductible for NOL purposes.

  3. 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.

  4. 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.

  5. 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.

  6. 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 deduction in lieu of the exemption.

    4. Recompute income or deductions based on or limited to a percentage of AGI, only if you have entries for 2) or 3) above.

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

    6. Compute corrected tax liability. The NOL deduction is taken on Form 1041 as an itemized deduction not subject to the 2% limitation.

  7. Beneficiaries of an estate or trust can use excess NOL on their individual returns, at the termination of the estate or trust. Beneficiaries claiming the NOL on their individual returns can only carry the NOL forward.

  8. Verify the NOL computation, using Schedule A (Form 1045) and the computations above.

    Note:

    See Rev. Rul. 61–20 for information on how an NOL carryback affects the beneficiary's Form 1040 for the estate or trusts gain year.

21.5.9.5.21  (11-17-2006)
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 an 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 1040X (normally with Schedule A of Form 1045 as a worksheet) to claim the carryback. See Pub 536.

    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 gain year of the estate is a taxable year before the estate's first taxable year, the gain 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.

  6. The debtor cannot carry back to a taxable year before the debtor's taxable year in which the case commences any carryback from a taxable year ending after the case commences. Therefore, a separate carryback from the debtor's non-estate activities can only be carried back 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, treat carryback-related freeze conditions as follows:

    1. If an account has a -V and/or -W freeze, and an indicator (TC520 with closing codes 60-67, 81, 83, or 85-89), contact the Insolvency Unit before making the adjustment.

21.5.9.5.22  (10-01-2004)
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.

    • It is less than or equal to taxable income for BMF.

21.5.9.5.23  (10-01-2004)
Computing the IMF Carryback 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% limit

    • Itemized deduction limitation

    • Phase out of the deduction for personal exemptions

    Note:

    Do NOT recompute the deduction for charitable contributions.

    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.

  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 NCL deduction from Schedule D, Form 1040.

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

    5. Add Backthe deduction for exemptions.

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

    7. Repeat steps 1 through 6 until the loss is used, or until the carryover period expires.

    Note:

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

21.5.9.5.24  (10-01-2004)
Computing the Carryback BMF 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 an 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. Recompute deductions limited to a percentage of the taxable income.

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

    5. Repeat steps 1 through 4 until loss is used or until the expiration of the applicable carryover period.

      Caution:

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

      Note:

      Charitable contribution deductions are not recomputed.

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

21.5.9.5.25  (10-01-2004)
Carryforward Net Capital Loss (NCL) to Individuals

  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. Only carry the NCL forward (not back) on an IMF return. For an election to carry back losses from IRC 1256contracts, See IRM 21.5.9.5.45.

  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 a NCL carryforward to the following year.

21.5.9.5.26  (10-01-2005)
Carryback NCL to Corporations

  1. Corporations may carryback a capital loss only to a year with a capital gain, to the extent of the gain. 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 NOL.

  2. The amount carried back cannot cause or increase an NOL in the carryback year.

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

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

    • Foreign Personal Holding Company

    • Regulated Investment Company

    • Real Estate Investment Trust (REIT)

    • Foreign Investment Company with an IRC 1247 Election

  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 a regulated investment company.

21.5.9.5.27  (10-01-2004)
Carryback "Claim of Right"

  1. A taxpayer may file for a refund based on a "Claim of Right" adjustment on Form 1045 or 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 28 on Form 1045, or

    • Line 28 on Form 1139

  2. Follow instructions in IRM 21.6.6.4, Specific Claims Procedures.

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

  4. A Claim of Right adjustment for a year may result in an NOL for that year or an NOL or 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.

21.5.9.5.28  (10-01-2007)
Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting an NOL Carryback

  1. This section provides procedures for corporations filing Form 1138 to extend the time to pay tax for the preceding year, if a loss is expected in the current year.

  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.

  3. Corporations may also file Form 1138 to defer collection of a deficiency, if Form 1138 is filed after the return due date. Form 1138 must be filed within 10 days after taxpayer received notice and demand.

  4. Carrybacks do not reduce the net amount due for purposes of calculating FTP Penalty, see IRM 20.1.2.1.10, Carrybacks and Carryovers.

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

  6. Reject Form 1138 if:

    • Deferred tax is not corporate income tax

    • Deferred tax is not due for the prior year

    • 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 selection.

    IF THEN
    Form 1138 is accepted

    • Determine the deferred amount.

    • Inform the taxpayer by mail that Form 1138 has been accepted. Request payment for any undeferred amount within 30 days.

    • Input TC470 CC98 on the gain year where there is the balance due.

    • Input TC930 DLN Code 85 using your tax examiner number on the loss year.

    • Monitor for 4th payment of any non-deferred amount. Release the freeze with TC472, if payment not received within 30 days.

    Form 1138 is not accepted

    • Correspond with taxpayer to explain why Form 1138 was rejected.

    • Associate Form 1138 with the original return.

    Note:

    A TC470 CC98 is released by a TC295, system (52 cycles), TC472 CC98, or when module becomes zero or credit balance.

  7. Suspend the Form 1138 if the gain year has not been processed. Push code the 1138 to the gain year return, and return to the CSR. When the push code is returned, then follow the IF and THEN chart above.

  8. Form 1139 must be filed within 1 year after the end of the year in which the NOL arose. Associate Form 1138 with Form 1139 once filed.

    IF FORM 1139 THEN
    Is found If gain year has been satisfied, abate the FTP. No further action is required if the Form 1139 was processed and FTP was abated.
    Is not found Input TC472 .00 to release TC470; use blocking series 15. Associate Form 1138 with the original return.

21.5.9.5.29  (10-01-2004)
Carrybacks Filed on Forms 1045 and 1139 (TENTS)

  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

    • Form 1139, Corporation Application for Tentative Refund for BMF

  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 NOLs and NOLD

    • BMF NCL

    • BMF Carryback/Carryforward Periods

    • Consolidated Corporations

    • Personal Service Corporation

    • Form 1138

21.5.9.5.30  (10-01-2005)
Carryback Forms 1045 and 1139 Processing and Filing Requirements

  1. Forms 1045 and 1139 have a 90-day processing requirement. To meet this legal requirement, the adjustment must be input by the time frames below. However, every effort must be made to process the carryback within the 45-day interest free period mentioned in (2) below. See Exhibit 21.5.9-3. See Exhibit 21.5.9-4.

    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.

  2. TENTS have a 45-day interest free period. See IRM 21.5.9.5.32.

  3. Taxpayers filing for a TENT must file the application within 1 year from the end of the loss year (e.g., 200612, on or before 12-31-2007).

    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. New provisions 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 1 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, the Form 1139 must be annotated in RED at the top: "Filed pursuant to IRC 1502" and must state the "year end" of the consolidated group that the new member joins. Both items must be present in order to determine if the Form 1139 is timely. If the regulation is cited but the year ending is omitted, the application is not considered complete. Correspond with the corporation (via phone or in writing) to obtain the missing information following procedures in See IRM 21.5.9.4.3.

    Example:

    Both Corporation X and Y are calendar year filers. Corporation X is being acquired by the Y consolidated group on June 30, 2006. Corporation X closes its books on June 30, 2006. 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, 2007 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 new regulations, Corporation X will have until 12-31-2007 to file a Form 1139 instead of 06-30-2007.

21.5.9.5.31  (10-01-2005)
Carryback Forms 1045 and 1139 Transaction Codes and Blocking Series

  1. Unique processing codes adjusting TENTS:

    • Transaction Codes
      295 - Tentative Carryback Adjustment /Decrease
      294 - Reverses Tentative Carryback Adjustment/Increase

    • Blocking Series
      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

21.5.9.5.32  (10-15-2007)
Carryback Interest Computation Dates

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

  2. The INT-COMPTN-DT determines the date that credit interest begins on the overpayment. The TCB-DT determines the expiration date of the 45–day interest-free period.

  3. Credit (overpayment) availability date depends on the loss year return received and processing dates:

    IF THE APPLICATION IS RECEIVED THEN INPUT THE
    AND input PRIOR to the return due date

    1. Loss year return due date as the TCB-DT.

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

      Caution:

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

    3. Input Override Code "C."

    Prior to the return due date and input AFTER the return due date

    1. Loss year return due date as the TCB-DT.

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

    3. Adjustment with NO override code.

    On or after the return due date (or extended due date)

    1. TENT received date as the TCB-DT.

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

    3. Adjustment with NO override code.

    On or after the return due date (or extended due date), and the loss year return is a delinquent processed return

    1. TENT received date as the TCB-DT.

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

    3. Adjustment with no override code.

    4. Use TC770 to manually compute credit interest from the received date of the delinquent loss year return, to the refund schedule date.

  4. See IRM 20.2.4.7.2.3, Interest, 45-day Rule and Amended Returns and Claims (OBRA 1993). (This does not apply to RINTS.)

    Note:

    Refer to IRM 20.1.2.1.2.1 (5), Extension of Time to File, for information regarding individuals filers outside of the United States.

21.5.9.5.33  (10-06-2006)
Carryback Forms 1045 and 1139 with Examination Criteria

  1. Allow the refund and route TENTS with the following criteria to Examination:

    • Joint Committee Cases (JCC) with an aggregate total tax decrease of ≡ ≡ ≡ ≡ ≡ ≡ or more

    • TC520, TC576, or TC420 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

    • Any case that qualifies for referral under CAT A criteria. Refer to IRM 21.5.3-2.

  2. 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.

  3. 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.

  4. All large dollar and Joint Committee Cases must be expedited due to interest considerations. Refer to IRM 21.4.4.4 (5),Preparation of Manual Refund Forms, for additional information on million dollar or more refunds.

21.5.9.5.34  (10-01-2004)
Reassessing Carryback Forms 1045 and 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. Forward the received loss year return for processing.

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

    1. Input TC294 to assess the difference between the allowed amount and the correct amount.

    2. Input TC298 if the year to be assessed is statute imminent/expired.

    3. Use the same interest date and blocking series as the TC295 being reversed, unless the statute is imminent/expired, then you must use blocking series 95.

    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 1139 with your letter, if the change is too complex for a simple explanation.

    Note:

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

21.5.9.5.35  (10-26-2007)
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 to file 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.

  3. For NOL, capital-loss or business credit carryback arising in a consolidated return year (that is, the loss arises in a consolidated group tax year) where the loss is being carried back to:

    1. A consolidated return year of the same consolidated group in the loss year - then the common parent of the group (or designated substitute agent) for the carryback year is responsible for filing the application (Form 1139) for a tentative carryback refund to the loss carryback year, and

    2. A standalone return year (i.e., not a consolidated return year) of the corporation from 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 of the consolidated group for the carryback year is responsible for filing the Form 1139. Yet the amount of such refund, via the carryback, may be limited under Treas. Reg. Section 1.1502-21(b)(3)(ii)(B).

  5. When the NOL arises in a standalone 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 (or the designated substitute agent) for the carryback year is responsible for filing the Form 1139 for the loss.

21.5.9.5.35.1  (10-26-2007)
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 a designated substitute agent for the group).

  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 NOL, capital or business credit to be carried back arises in a consolidated return year (i.e., the loss or credit arises in a consolidated tax year), the refund resulting from a tentative carryback adjustment will be made directly to, and in the name of:

    1. The common parent (or the designated substitute agent) for the carryback year, in cases where that carryback year was a consolidated return year for the same consolidated group as was the case for the loss year.

    2. The corporation for the year of the loss or credit, in a case where that corporation has filed a separate, standalone corporate tax return for the carryback year.

    3. The common parent for the carryback year, in a case where the corporation for the carryback year is a member of another consolidated group (i.e., not the same consolidated group that generated the loss 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 designated, substitute agent for that consolidated group) for the carryback year, where the NOL arises in a standalone return year (i.e., not a consolidated return year) and the loss is being carried back to a consolidated return year.

  4. For rules regarding which corporation should file the tentative claim and which entity is entitled to receive the refund for those taxable years to which a loss or credit may be carried back for tax years for which the due date (without extension) of the original return is before June 28, 2002, See Treas. Reg. Section 1.1502-78 version which was in effect for those tax years for which the due date of the original return (without extension) was prior to June 28, 2002.

  5. 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).

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

21.5.9.5.36  (10-06-2006)
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 an NOL carryback. PSC's that do not have section 444 elections in effect may carryback their NOL's, but not to a taxable year for which a Section 444 election is in effect.

  2. IRC 444filers are identified on ENMOD with TC054/055, Filing Requirement Code 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 name and title of the corporate officer providing the information.