Is there an expedited procedure to obtain a refund due to a net operating loss?
Yes. Both individuals and corporations with losses that can be carried back can file an application for tentative refund. The advantage of filing for a tentative refund is that the funds are usually available within 45 days.
A normal refund request is subject to IRS examination prior to payment; if the refund is in excess of $2 million, it is subject to further review by the Joint Committee on Taxation.
It is important that the relevant forms be prepared without material errors or omissions to avoid rejection. This quick refund application must be filed after the tax return is filed for the year of the loss. Typically, the quick refund application must be filed within 12 months after the last day of the loss year, but the new law is permitting additional time for certain taxpayers.
Another related provision of the Internal Revenue Code permits a corporation expecting a net operating loss in the current year to postpone paying all or some of its income tax liability from the immediately preceding year by filing a Form 1138.
Are there other tax-related opportunities for taxpayers to improve cash flow?
Yes. Taxpayers can enhance cash flow by reviewing accounting methods to accelerate deductions and defer income, examining business activity to identify ordinary loss opportunities, adjusting current estimated tax payments, identifying federal and state tax credits, and applying for a quick refund of corporate estimated tax overpayments.
How can a company obtain a quick refund of estimated tax?
A corporation that has overpaid its estimated tax throughout the year does not have to wait until it files its income tax return to get back the overpayment. A corporation would need to file a form for a quick refund of overpaid estimated tax by the 15th day of the third month after the end of the tax year.
For example, a calendar-year corporation must file by March 15, 2010, for a quick refund relating to 2009 estimated payments.
It is important to note that this rule applies only to corporations, not individuals, and the overpayment must be greater than 10 percent of the revised expected tax liability. The IRS must act with 45 days of filing unless the form is filed with errors or omissions.
Steven Y. Patler, JD, CPA, is a senior manager at Cendrowski Selecky PC. Reach him at (248) 540-5760 or [email protected].