Patrick E. Catalano - Page 14

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          from his individual income.  He claims that the disallowance of             
          the corporation's boat lease deductions entitles him to exclude             
          the boat lease income from the income reported on his individual            
               Petitioner misreads the scope of the tax benefit rule.  The            
          tax benefit rule permits a taxpayer to exclude from taxable                 
          income the amount received as a recovery of an amount deducted in           
          an earlier year, but only to the extent that the deducted amount            
          did not give rise to a tax benefit in that earlier year.  Dobson            
          v. Commissioner, 320 U.S. 489, 505-506 (1943); see Hudspeth v.              
          Commissioner, 914 F.2d 1207 (9th Cir. 1990), revg. and remanding            
          on other ground T.C. Memo. 1985-628.  Petitioner’s receipt of the           
          income he received as lessor is not a “recovery” within the                 
          meaning of the tax benefit rule; it was not “fundamentally                  
          inconsistent” with the corporation’s taking a deduction.  See               
          Hillsboro Natl. Bank v. Commissioner, 460 U.S. 370, 383 (1983).             
          Nor does the tax benefit rule permit a taxpayer to offset the               
          impact of one adjustment against another where both pertain to              
          the same taxable year.  As the Supreme Court explained in                   
          Hillsboro Natl. Bank v. Commissioner, supra at 378 n.10:                    
               Changes on audit reflect the proper tax treatment of                   
               items under the facts as they were known at the end of                 
               the taxable year.  The tax benefit rule is addressed to                
               a different problem--that of events that occur after                   
               the close of the taxable year.                                         

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