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OPINION
Issue 1. Tax-Benefit Rule
Respondent contends that the tax-benefit rule requires
petitioner to include in her 1992 income the $2,290,469 refund of
interest which was deducted on her 1988 amended tax return. In
the alternative, respondent asserts that that amount is includable
in the income of either the estate or the trust.11
The tax-benefit rule requires an amount to be currently
included as income to the extent that: (1) The amount was properly
deducted in a year prior to the current year; (2) the deduction
resulted in a tax benefit; (3) an event occurs in the current year
that is fundamentally inconsistent with the premises on which the
deduction was originally based; and (4) a nonrecognition provision
of the Internal Revenue Code does not prevent the inclusion in
gross income. See, e.g., Hillsboro Natl. Bank v. Commissioner, 460
U.S. 370, 383-384 (1983); Frederick v. Commissioner, 101 T.C. 35,
41 (1993). A current event is an event that is fundamentally
inconsistent with the premises on which the deduction was
originally based when that event would have prevented the deduction
11 The deficiencies and additions respondent determined
against the estate and trust are alternatives. Neither a
deficiency nor an addition to tax will be due from either entity
should we hold that petitioner realized income pursuant to the
tax-benefit rule.
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Last modified: May 25, 2011