Instructions for Form 1045 (Rev. February 2006) (2005)

General Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Section references are to the Internal Revenue Code unless otherwise noted.

What's New

5-year NOL carryback of certain timber losses. A loss attributable to qualified timber property can be treated as a farming loss subject to a 5-year carryback period if any portion of the property is located in the Gulf Opportunity (GO) Zone, Rita GO Zone, or Wilma GO Zone. See Certain timber losses on this page.

Gulf Opportunity (GO) Zone loss. A 5-year carryback period applies to the portion of an NOL that is a qualified GO Zone loss. In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. See Qualified GO Zone loss on this page.

Domestic production activities deduction not allowed in figuring an NOL. The domestic production activities deduction is not allowed in figuring your NOL.

Purpose of Form

Form 1045 is used by an individual, estate, or trust to apply for a quick tax refund resulting from:

The carryback of an NOL,
The carryback of an unused general business credit,
The carryback of a net section 1256 contracts loss, or
An overpayment of tax due to a claim of right adjustment under section 1341(b)(1).

Waiving the carryback period. You can elect to carry an NOL forward only, instead of first carrying it back. To make this election for an NOL incurred in your 2005 tax year, attach to your 2005 tax return filed on or before the due date (including extensions) a statement that you are electing under section 172(b)(3) to relinquish the entire carryback period for any 2005 NOL. If you filed your return on time without making the election, you can still make the election on an amended return filed within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return, and write “Filed pursuant to section 301.9100-2” on the election statement. File the amended return at the same address you used for your original return. Once made, the election is irrevocable.

Definitions

Eligible loss. For an individual, an eligible loss is any loss of property arising from fire, storm, shipwreck, other casualty, or theft.

For a small business (as defined in section 172(b)(1)(F)(iii)) or a farming business (as defined in section 263A(e)(4)), an eligible loss is any loss attributable to a Presidentially declared disaster (as defined in section 1033(h)(3)).

An eligible loss does not include a farming loss or a qualified GO Zone loss.

Farming loss. A farming loss is the smaller of:

The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) were taken into account, or
The NOL for the tax year.

Certain timber losses. Income and deductions attributable to qualified timber property can be treated as attributable to a farming business if any portion of the property is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of the tax year which is after the applicable date below.

August 27, 2005, if any portion of the property is located in the GO Zone.
September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone).
October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone).

However, these rules apply only to a timber producer who:

Held qualified timber property (defined in Pub. 535, Business Expenses) on the applicable date below:
1. August 28, 2005, if any portion of the property is located in the GO Zone,
2. September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or
3. October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone); and
Did not hold more than 500 acres of qualified timber property on the applicable date above.

See Pub. 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, for a list of counties and parishes included in the GO Zone, Rita GO Zone, and Wilma GO Zone.

Qualified GO Zone loss. A qualified GO Zone loss is the smaller of:

The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or
The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year):
1. Qualified GO Zone casualty loss (defined on page 2),
2. Moving expenses paid or incurred after August 27, 2005, for the employment of an individual whose main home was in the GO Zone before August 28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO Zone,
3. Temporary housing expenses paid or incurred after August 27, 2005, to house employees of the taxpayer whose main job location is in the GO Zone,
4. Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation allowance for such property) for the year placed in service, and
5. Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, for any damage from Hurricane Katrina to property located in the GO Zone.

See Pub. 4492 for a list of counties and parishes included in the GO Zone.

Qualified GO Zone casualty loss. A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane Katrina. For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of property located in the GO Zone. Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be treated as having occurred in the previous tax year.

Specified liability loss. Generally, a specified liability loss is a loss arising from:

Product liability, or
An act (or failure to act) that occurred at least 3 years before the beginning of the loss year and resulted in a liability under a federal or state law requiring:

Reclamation of land,
Dismantling of a drilling platform,
Remediation of environmental contamination, or
Payment under any workers compensation act.

Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual method of accounting throughout the period in which the act (or failure to act) occurred. For details, see section 172(f).

When To File

You must file Form 1045 within 1 year after the end of the year in which an NOL, unused credit, a net section 1256 contracts loss, or claim of right adjustment arose.

Be sure to file your 2005 income tax return no later than the date you file Form 1045.

If you carry back any portion of an NOL or an unused general business credit to tax years before the 3 years preceding the 2005 tax year, you may need to use additional Forms 1045. Complete lines 1 through 9 and Schedule A on only one Form 1045. Use this Form 1045 for the earliest preceding tax years. You must sign this Form 1045, but do not need to sign the other Forms 1045.

Where To File

File Form 1045 with the Internal Revenue Service Center for the place where you live as shown in the instructions for your 2005 income tax return.

Do not include Form 1045 in the same envelope as your 2005 income tax return.

What To Attach

Attach copies of the following, if applicable, to Form 1045 for the year of the loss or credit:

If you are an individual, pages 1 and 2 of your 2005 Form 1040 and Schedules A, D, and J (Form 1040), if applicable,
Any Form 4952, Investment Interest Expense Deduction, attached to your 2005 income tax return,
All Schedules K-1 you received from partnerships, S corporations, estates, or trusts that contribute to the carryback,
Any application for extension of time to file your 2005 income tax return,
All Forms 8271, Investor Reporting of Tax Shelter Registration Number, attached to your 2005 income tax return,
All Forms 8886, Reportable Transaction Disclosure Statement, attached to your 2005 income tax return,
Forms 8302, Electronic Deposit of Tax Refund of $1 Million or More,
All other forms and schedules from which a carryback results, such as Schedule C or F (Form 1040), Form 3800, General Business Credit, Form 6781, Gains and Losses From Section 1256 Contracts and Straddles, or Form 8586, Low-Income Housing Credit, and
All forms or schedules for items refigured in the carryback years, such as Form 3800, Form 6251, Alternative Minimum Tax—Individuals, Form 6781, Form 8586, Form 8844, Empowerment Zone and Renewal Community Employment Credit, or Form 8884, New York Liberty Zone Business Employee Credit.

You must attach copies of all required forms listed above, and complete all lines on Form 1045 that apply to you. Otherwise, your application may be disallowed.

Processing the Application

The IRS will process your application within 90 days from the later of:

The date you file the complete application, or
The last day of the month that includes the due date (including extensions) for filing your 2005 income tax return (or, for a claim of right adjustment, the date of the overpayment under section 1341(b)(1)).

The processing of Form 1045 and the payment of the requested refund does not mean the IRS has accepted your application as correct. If the IRS later determines that the claimed deductions or credits are due to an overstatement of the value of property, negligence, disregard of rules, or substantial understatement of income tax, you may have to pay penalties. Any additional tax also will generate interest compounded daily.

The IRS may need to contact you or your authorized representative (for example, your accountant or tax return preparer) for more information so we can process your application. If you want to designate a representative for us to contact, attach a copy of your authorization to Form 1045. For this purpose, you can use Form 2848, Power of Attorney and Declaration of Representative.

Disallowance of the Application

Your application is not treated as a claim for credit or refund. It may be disallowed if it has material omissions or math errors that are not corrected within the 90-day period. If the application is disallowed in whole or in part, no suit challenging the disallowance can be brought in any court. But you can file a regular claim for credit or refund before the limitation period expires, as explained later under Form 1040X or Other Amended Return.

Excessive Allowances

Any amount applied, credited, or refunded based on this application that the IRS later determines to be excessive may be billed as if it were due to a math or clerical error on the return.

Form 1040X or Other Amended Return

Individuals can get a refund by filing Form 1040X, Amended U.S. Individual Income Tax Return, instead of Form 1045. An estate or trust can file an amended Form 1041, U.S. Income Tax Return for Estates and Trusts. Generally, you must file an amended return no later than 3 years after the due date of the return for the applicable tax year.

If you use Form 1040X or other amended return, follow the instructions for that return. Attach to the amended return a copy of Schedule A of Form 1045 showing the computation of the NOL and, if applicable, a copy of Schedule B of Form 1045 showing the computation of the NOL carryover. Complete a separate Form 1040X or other amended return for each year for which you request an adjustment.

The procedures for Form 1040X and Form 1045 are different. The IRS is not required to process your Form 1040X within 90 days. However, if we do not process it within 6 months from the date you file it, you can file suit in court. If the IRS disallows your claim on Form 1040X and you disagree with that determination, you must file suit no later than 2 years after the date we disallow it.

Additional Information

For more details on NOLs, see Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.