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(1) an item was included in gross income for a
prior taxable year (or years) because it appeared that
the taxpayer had an unrestricted right to such item;
(2) a deduction is allowable for the taxable year
because it was established after the close of such
prior taxable year (or years) that the taxpayer did not
have an unrestricted right to such item or to a portion
of such item; and
(3) the amount of such deduction exceeds $3,000,
then the tax imposed by this chapter for the taxable
year shall be the lesser of the following:
(4) the tax for the taxable year computed with
such deduction; or
(5) an amount equal to--
(A) the tax for the taxable year computed
without such deduction, minus
(B) the decrease in tax under this chapter
(or the corresponding provisions of prior revenue
laws) 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).
* * * * * * *
(b) Special Rules.--
(1) If the decrease in tax ascertained under
subsection (a)(5)(B) exceeds the tax imposed by this
chapter for the taxable year (computed without the
deduction) such excess shall be considered to be a
payment of tax on the last day prescribed by law for
the payment of tax for the taxable year, and shall be
refunded or credited in the same manner as if it were
an overpayment for such taxable year.
Petitioner argues that the entire 1992 payment of $681,840
was in satisfaction of a claim against decedent's estate and,
therefore, the entire amount is eligible to be used to reduce
royalty income previously reported by decedent for purposes of
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