The partnership must recognize income under the tax benefit rule
They argued that following the tax benefit rule
, the refunds were not includible in income because under New York law the credits were labeled as overpayments of state income tax, and they had not taken a deduction for state income tax paid in the preceding year on their income tax return for any of the years.
995, 999 (1967) (noting that the tax benefit rule
Future recoveries will result in additional deductions or in gross income under the tax benefit rule
Moreover, the tax benefit rule
does not require the refund be taken into income because the amount refunded was never deducted under California law.
Explain how the Department applies the tax benefit rule
in the following situation:
If the insurance reimbursement is more than was expected, the excess may have to be reported as income under the tax benefit rule
However, a policy dividend can be included in income in full under the tax benefit rule
The loss should be shown net of any expected recovery from insurance companies or the Securities Investor Protection Corporation, as reconciled in future tax years under the tax benefit rule
Under the tax benefit rule
, some or all of an employer's deductions in an earlier year may have to be included in income in a later year if an event occurs that is fundamentally inconsistent with the premise on which the deduction was based.
Any remaining accrued interest (that was previously deducted) would be reported as ordinary income under the tax benefit rule
(1180 East 63rd St.
However, in revenue ruling 93-75, the IRS took a new approach, stating in part, "If a taxpayer's itemized deductions in a prior taxable year were reduced by the overall deduction limitation in section 68(a) of the code and the taxpayer subsequently recovers all or a portion of these previously deducted amounts (for example, state income taxes), the recovery or refund is, in general, fully includable in gross income under the tax benefit rule