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through 1980 were reported as income on her Federal income tax
returns for those years and that petitioner is entitled to
section 1341(a) relief to the extent that these previously taxed
royalties were repaid to Exxon in 1992.
Section 1341(a) provides relief to taxpayers who are forced
to repay an amount previously taken into income under a claim of
right. The reduction in the taxpayer's tax liability
attributable to a repayment is the greater of the amounts
calculated under two approaches. Pursuant to the first approach,
the taxpayer computes his tax liability for the year of repayment
after having deducted the amount of the repayment.14 Sec.
1341(a)(4). Under the second approach, rather than a deduction
in the year of repayment, the taxpayer receives a reduction
(i.e., a credit) in his tax liability for the year of repayment
which is equal to the reduction in tax that would have occurred
for the prior year had the amount received under a claim of right
been excluded from income. Sec. 1341(a)(5). If the reduction in
tax under the second approach is greater than the taxpayer's
income tax liability for the year of repayment, the excess is
refundable or credited just as with any overpayment of tax. Sec.
1341(b)(1).15
14The amount of the deduction to which the taxpayer is
entitled as a result of a repayment must exceed $3,000. Sec.
1341(a)(3).
15Petitioner concedes that the computation of its sec.
(continued...)
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