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taxable to Mr. Tschetter in those years. See Pahl v.
Commissioner, 67 T.C. 286, 289 (1976).
If a taxpayer is required to repay income recognized under
the claim of right doctrine in an earlier tax year, section 1341
permits the taxpayer, in effect, to elect to compute his taxes
for the year of repayment in a manner that gives the taxpayer the
equivalent of a refund (without interest) of tax for the earlier
year. Specifically, section 1341(a)(5) permits the tax for the
year of repayment to be reduced by the amount of the tax paid for
the year of receipt that was attributable to the inclusion of the
repaid amount in that year’s gross income. United States v.
Skelly Oil Co., 394 U.S. 678, 682 (1969). Section 1341, however,
requires actual repayment, restoration, or restitution. Chernin
v. United States, 149 F.3d 805, 816 (8th Cir. 1998); Kappel v.
United States, 437 F.2d 1222, 1226 (3d Cir. 1971); Estate of
Smith v. Commissioner, 110 T.C. 12 (1998).
Although the directors of Wolf Creek Farm adopted a
resolution that required Mr. Tschetter to repay amounts for which
the corporation is disallowed a deduction, Mr. Tschetter does not
claim that he has repaid the disallowed amounts. Indeed, there
is no evidence in the record to show that he did. Therefore,
section 1341 does not apply. We hold that Wolf Creek Farm’s
payment of Mr. Tschetter’s food and utilities expenses
constitutes income to Mr. Tschetter.
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