Tax Procedure: Claim of Right Relief Is Unavailable if the Taxpayer Obtained the Funds By Fraud

tax court, evasionIf a taxpayer receives money that she believes is properly hers, she has income under the Internal Revenue Code and the funds received will be subject to tax. If she learns in a subsequent year that she was not entitled to the money and repays it, then she would have a deduction in that tax year. But if the taxpayer’s tax bracket is different in the year of repayment, the deduction may not be equal to the excessive tax previously paid.

To address this problem, Congress enacted section 1341 of the Code, which provides the taxpayer with an additional option: She may calculate her tax in the year of repayment by deducting the excessive tax paid in the year the income was received.… Read More