IRC section 1341 - a reversal.
Most taxpayers normally know when and how much income they have earned. In certain cases, a taxpayer has to give back to the original payor an amount it previously reported as income (for example, a refund). In these situations, the taxpayer can claim a deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for the repayment. If tax rates have remained constant, the income and the deduction will offset each other. If current rates are lower, the deduction will not fully offset the taxes the entity paid previously. Under these circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or a taxpayer may use IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 1341 to calculate the tax due based on the rates in effect when it reported the income. A recent case reexamines the issue and restricts the taxpayers that may use the relief provision.
In 1983 Cinergy Corp., a public utility, increased its rates due to financial difficulties. The higher rates were based on, among other things, current and deferred federal income taxes. In 1988 following an improvement in Cinergy's financial condition, the government ordered it to refund part of its prior rate collections, specifically the portion for deferred taxes. The deduction for the refund generated a lower savings than the tax the company paid on the original receipts. Cinergy attempted to calculate the tax using section 1341, and the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. objected. The taxpayer paid the assessed tax and sued for a refund.
Result. For the IRS. Taxpayers may avail themselves of the special computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. in section 1341 if they have met three conditions:
* The taxpayer included an item in income to which it appeared to have an unrestricted right.
* The IRS allowed a deduction in a subsequent year because the taxpayer did not have a right to the item.
* The deduction exceeds $3,000.
The government successfully argued Cinergy did not meet the first two requirements.
The IRS said the taxpayer did not meet the first requirement because it had an actual, not an apparent, right to the income it reported. To qualify for section 1341 a taxpayer must have only an apparent right to the income. Cinergy responded that in prior cases the courts had accepted an actual right as falling within the statute's requirements because the word "appears" does not just refer to an incorrect conclusion. An appeals court found prior cases had conflicting opinions and looked at the legislative history behind section 1341, Based on the review, the court concluded Congress did not intend for taxpayers with an actual right in income to use this provision. Congress had enacted it to help taxpayers that incorrectly reported income under the claim-of-right doctrine only to find out later they did not have a right to the income.
The IRS also argued Cinergy did not meet the second condition because the refund was based on subsequent events rather than on events connected to the original collection and reporting of the income. The court agreed there needed to be a direct nexus between the original reporting of income and its refund. In this case the taxpayer did not demonstrate a connection. The refund was the result of the company's improved financial condition rather than an item that existed when the rate increase was granted. Having failed two of the three requirements, Cinergy could not use section 1341.
This case reopens the question of whether a taxpayer that reports income based on an actual right to it may use section 1341. This most recent decision concludes actual income does not qualify, although several prior cases allowed it to. Although not at issue, the court's reasoning suggests it would side with prior courts and deny section 1341 treatment to any income a company received without a claim of right, such as illegally obtained income (for example, embezzled em·bez·zle
tr.v. em·bez·zled, em·bez·zling, em·bez·zles
To take (money, for example) for one's own use in violation of a trust. funds). The case also demonstrates the need for a taxpayer to prove a link between the collection of the income in question and its refund. Given the projected future decreases in tax rates, this limitation on the use of section 1341 will be detrimental det·ri·men·tal
Causing damage or harm; injurious.
detri·men for some taxpayers in years to come.
* Cinergy Corp. v. United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , U.S. Court of Federal Claims, March 2003.
For Richer, For Poorer--But Mostly Poorer
Married couples with joint filing status submit less than half of the country's tax returns (48%), yet pay 74% of all U.S. income taxes.
Sources: Tax Foundation, www.taxfoundation.org, 2003.
More Deductions, Higher Cost
Firms charged an average of $208 to prepare an itemized form 1040 in 2002 and about $102 for a nonitemized one. *
ITEMIZED DEDUCTIONS Itemized Deduction
A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year.
* Fees vary sharply by state and region.
Source: National Society of Accountants, www.nsacct.org, 2002.
Prepared by Edward J. Schnee, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , PhD, Hugh Culverhouse Hugh Franklin Culverhouse, Sr. (1919 – 1994) was the longtime owner of the Tampa Bay Buccaneers of the National Football League. Early life
A native of Birmingham, Alabama; Culverhouse attended the University of Alabama, where he was a member of Delta Kappa Epsilon Professor of Accounting and director, MTA (1) (Message Transfer Agent or Mail Transfer Agent) The store and forward part of a messaging system. See messaging system.
(2) See M Technology Association.
1. (messaging) MTA - Message Transfer Agent. program, Culverhouse School of Accountancy, University of Alabama The University of Alabama (also known as Alabama, UA or colloquially as 'Bama) is a public coeducational university located in Tuscaloosa, Alabama, USA. Founded in 1831, UA is the flagship campus of the University of Alabama System. , "Tuscaloosa.