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recomputing the amount of decedent's income tax for the years
1975 through 1980 pursuant to section 1341(a)(5). Respondent
argues that the section 1341(a)(5) adjustment is limited to the
portion of the $681,840 settlement that represents excess
royalties that were paid to and reported by decedent during the
years 1975 through 1980. We agree with respondent.
Neither party cites any case law to support their respective
positions. Nevertheless, the language of the statute indicates
that its relief is focused on a "taxpayer", who reported an
"item" in "gross income" for a "prior taxable year" where it is
established after the close of that taxable year "that the
taxpayer did not have an unrestricted right to such item". Sec.
1341(a). The computation contained in section 1341(a)(5) directs
the taxpayer to recompute the tax for the "prior taxable year (or
years) which would result solely from the exclusion of such item
(or portion thereof) from gross income for such prior taxable
year (or years)." From this, we believe it is clear that section
1341 relief is restricted to items of income previously received
and reported by a taxpayer who must repay those same items in a
subsequent year.
Kraft v. United States, 991 F.2d 292 (6th Cir. 1993),
supports this analysis. In Kraft, the taxpayer invoked section
1341 based upon amounts he was required to repay because of a
fraud perpetrated in prior years. The fraudulently obtained
funds had been deposited into a corporate account and reported as
corporate income. The taxpayer's benefit came in the form of
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