State income tax carryback refund claims usually are not accruable.On July 21, 1993, the Tax Court awarded legal fees to the taxpayer in Yapp Corporation (Spray Rite Service Corporation), TC Memo 1993-323, holding that the Service was not reasonably justified in litigating the substantive case (reported at TC Memo 1992-348). The case involved an Illinois state income tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. claim filed in coordination with a Federal income tax refund claim. The state claim carried back a 1987 operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carryback and was filed Nov. 14, 1988; the refund, however, was not received until 1990. The taxpayer had previously filed a carryback in 1986 from 1985 to 1984 and received that refund in 1986. A second carryback to 1984 of a 1986 loss was filed in 198 7 and received in 1989. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. relied on the all events rule of Regs. Sec. 1.451-1(a) to contend that the 1984 state income tax refund should be accrued into income of the 1987 loss year. Although not noted in the decision, the Service had previously concluded in Rev. Rul. 65-190 that a New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of state net operating loss carryback refund claim should be accrued in the loss year even though, under Rev. Rul. 62-160, the interest on the state income tax refund should not be accrued until the year the refund claim was allowed. Similarly, in Rev. Rul. 69-372, the IRS had concluded that a net operating carryback refund claim of Colorado state income tax should be accrued in the year the loss was sustained and not in the year the claim was finally allowed by the Colorado Department of Revenue. In the substantive decision, the Tax Court noted that it had ruled against the Service's loss year accrual position in Doyle, Dane, Bernbach, Inc., 79 TC 101 (1982), nonacq. 1988-2 CB 1. In the procedural decision, the Tax Court noted that the IRS had not appealed Doyle, Dane, Bernbach, Inc. and therefore its litigating position in Yapp Corporation was not substantially justified. Consequently, the Service was required to reimburse re·im·burse tr.v. re·im·bursed, re·im·burs·ing, re·im·burs·es 1. To repay (money spent); refund. 2. To pay back or compensate (another party) for money spent or losses incurred. the taxpayer for the 76 hours of billable time incurred in trying the substantive case. Inasmuch as in·as·much as conj. 1. Because of the fact that; since. 2. To the extent that; insofar as. inasmuch as conj 1. since; because 2. every taxpayer should have access to the Tax Court, it appears that the adverse IRS rulings are no longer effective. Taxpayers who file state income tax carryback refund claims should not accrue the resulting state income tax refunds into Federal taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. until the year the refunds are received, even though the taxpayer is otherwise on the accrual method of accounting. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion