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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
return.
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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