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Section 1341 Income Tax Benefit and Its Effect on the Value of
Exxon’s Claim
Section 1341 allows an income tax deduction to a taxpayer
who previously received taxable income under a claim of right,
but who must later repay some or all of that income. For cash
method taxpayers, the deduction is taken when computing income
tax liability for the year of the repayment. Sec. 1341(a). In
its opinion, the Court of Appeals for the Fifth Circuit stated
that the deduction under section 1341 was a factor to consider in
determining the date-of-death value of Exxon’s claim because the
deduction results in an income tax benefit to the estate. Estate
of Smith v. Commissioner, 198 F.3d at 528-529.
The estate argues that the section 1341 income tax benefit
relates to the right to an income tax refund which did not exist
on decedent’s date of death. The estate contends that the Court
of Appeals’s instructions not to consider evidence of postdeath
occurrences when determining the date-of-death value of Exxon’s
claim precludes this Court from considering this issue.
The estate’s argument is contrary to the express language
contained in the Court of Appeals’s opinion. On the issue of the
section 1341 income tax benefit, the Court of Appeals provided:
Of course, once the Tax Court determines, on remand,
the gross value of the Exxon claim for purposes of
section 2053(a)(3), calculation of the section 1341
income tax benefit becomes a simple mathematical
calculation, the result of which will diminish the
gross value of the Exxon claim, dollar for dollar, to
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