§111 — Recovery of tax benefit items

This means that any refundable portion ofthe QEZE Real Property Tax Credit that remained after first reducing the Maineses' state income-tax liability is taxable as income.¹¹ The exclusionary aspect ofthe tax-benefitrule under section 111(a) does not apply here to the extent that the decreased pass-through income from Huron reduced the Maineses' federal tax liability.

Because we hold that timely ap- proval was not secured for any penalty, we need not address petitioner's concerns.

Failure To Report a Portion ofa Taxable State Income Tax Refund The tax benefit rule ofsection 111 provides that ifan amount is deducted from income in one year and a part or all ofthe amount is recovered in a later year, the recovered amount is treated as income for the year it is received to the extent the deduction reduced the amount oftax imposed.

As we’ve already discussed, the tax-benefit rule and section 111 are what we use to answer this question.

Such an amount could, however, be subject to the tax benefit rule under section 111 to the extent a tax benefit was obtained from previously deducting that amount.

Commissioner, T.C. Memo. 1997-92. Petitioner claimed an $8,708 income tax deduction relating to payment of State taxes in 1994, and he received a $1,150 State tax refund in 1995. Petitioner contends that he received no tax benefit in 1995 relating to the refund because his 1995 adjusted gross income was negative. We disagree; 19

State Income Tax Refund Pursuant to section 111, if State income tax was deducted on a Federal income tax return for a prior taxable year and if such deduction resulted in a tax benefit to the taxpayer, such as a reduction of Federal income tax for the prior taxable year, a subsequent recovery by the taxpayer of the State income tax must be included in the taxpayer’s gross income for

Accordingly, under the regulations promulgated pursuant to section 111, the $1,743.89 in State taxes refunded to petitioner in 1991 constitute a “recovery exclusion” and need not be included in gross income for that year.10 8 Under sec.

Generally, pursuant to section 111 and the regulations thereunder, if State income tax was deducted on a Federal income tax return for a prior taxable year and if such deduction resulted in a tax benefit to the taxpayer (i.e., a reduction of Federal income tax) for such prior taxable year, then a subsequent recovery by the taxpayer (i.e., a refund) of such State income t

Petitioners dispute these arguments, citing respondent’s published guidance and section 111, the Tax Benefit Rule.

Generally, under section 111 and the regulations thereunder, if State income tax was deducted on a prior year’s Federal income tax return and resulted in a 5 reduction of Federal income tax and a tax benefit to the taxpayer, the taxpayer’s subsequent recovery of the State income tax must be included in gross income for the year in which the recovery is received.

172, 190. This change presented novel issues for Australia and the United States in applying the 1982 Treaty, the Pine Gap Agreements, and Australian domestic law. 10 benefits are viewed as “any exclusion, exemption, deduction, rebate, credit or other allowance.” 1982 Treaty, art. 1(2)(b), 35 U.S.T. at 2001–02. To give effect to th

Generally, under section 111 and the regulations thereunder, ifState income tax was deducted on a prior year's Federal income tax return and resulted in a reduction ofFederal income tax and a tax benefit to the taxpayer, the taxpayer's subsequent recovery ofthe State income tax must be included in gross income for the year in which the recovery is received.

111 (excluding from gross income the reco- very ofamounts deducted in a prior year that gave rise to no tax benefit); Maines v. Commissioner, 144 T.C. 123, 130-131 (2015). On their 2012 Federal income tax return petitioners claimed and were al- lowed a deduction of$7,165 for State and local income taxes paid to Maryland. In 2013 they received

tible when paid. Petitioners further argue that should Mr. Wages' bail bonding business reacquire any sums from the indemnity fund in the future, those amounts should be recaptured in that year's gross receipts under the tax benefit rule codified in section 111. Respondent disagrees with petitioners' theory. First, he points out that petitioners' argument rests on allegations that are not part ofthe evidentiary record in the case and thus petitioners have not sustained their burden ofproof. Seco

The inclusionary component provides that an amount deducted from gross income in one year is included in income in a subsequent year ifan event occurs in the subsequent year that is fundamentally inconsistent with the premise on which the deduction had previously been based.

H.R. Rept. No. 111-447, at 15 (2010). Unfortunately, no direct legislative history exists to explain the change. What we do have is the rationale behind an almost identical amendment included in a bill that never became law.6 H.R. 4849, 111th Cong., sec. 111 (2010). The House passed H.R. 4849 partly out ofconcern for the potential inequities an inflexible penalty may create. H.R. Rept. No. 111-447, supra at 15. Congress had heard from the National Taxpayer Advocate that the potential magnitude o

Generally, under section 111 and the regulations thereunder, if a tax was deducted on a prior year's return that resulted in a reduction of tax and a tax benefit to the taxpayer, the taxpayer's subsequent recovery of the tax must be included in gross income in the year the recovery is received.

Respondent does not assert, and there.is no evidence, that petitioners sold credits that they could have claimed against a State income tax liability. Therefore, whether a taxpayer who sells credits at a discount that he could have used, pays his State tax liability, and deducts that liability for Federal tax purposes may receive capital

111.1 (2011) ("the U.S. Postal Service hereby incorporates by reference in this part, the Domestic Mail (continued...) - 31 - effect for the years at issue, required that a periodical include a "statement of frequency" of publication, and section E211. 5 . 3 provided: All issues must be published regularly as called for by the statement of fr

Respondent does not assert, and there is no evidence, that petitioners sold credits that they could have claimed against a State income tax liability. Therefore, whether a taxpayer who sells credits at a discount that he could have used, pays his State tax liability, and deducts that liability for Federal tax purposes may receive capital

cussion of the CUT method. See sec. 1.482-6, Income Tax Regs., for a discussion of the profit split method. These regulations, promulgated in December 2008, are effective for transactions entered into on or after Jan. 5, 2009. See infra, Discussion, sec. 111(A), Comparability of OEM Agreements, for a more in-depth discussion. During the May 2 hearing, respondent referred to “access to R&D team” and “access to marketing team” as “assembled workforce”. The term “pre-existing intangibles” is not us

Respondent conceded the balance of the State income tax refund determined in the 2001 deficiency notice. 3All section references are to the Internal evenue Code in effect for the year in issue, and all Rule refereIces are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. 4Petitioner has lived in Las Vegas, Nev.

Commissioner, T.C. Memo. 1997-92; sec. 1.111-1(a), Income Tax Regs. The amount of the refund is taxable to petitioner absent his proving to the contrary. Petitioner has failed to present any evidence or testimony to the effect that the amount of this tax refund was not taxable to him for the subject year. -8- We sustain respond

We therefore sustain respondent’s tax deficiency determinations for 1997, 1998, and 1999. We now turn our attention to the additions to tax for failure to file a tax return and pay tax. Sec. 6651(a)(1) and (2). Section 6651(a)(1) imposes an addition to tax for failure to timely file a return. Petitioner can avoid the section 6651(a)(1) ad

Commissioner, T.C. Memo. 1997-92. Petitioner claimed an $8,708 income tax deduction relating to payment of State taxes in 1994, and he received a $1,150 State tax refund in 1995. Petitioner contends that he received no tax benefit in 1995 relating to the refund because his 1995 adjusted gross income was negative. We disagree; 19

(3) Recovery of tax benefits items.--Any amount to which section 111 (relating to recovery of tax benefit items) applies.

Generally, under section 111 and the regulations thereunder, if a tax was deducted on a prior year's return that resulted in a reduction of tax and a tax benefit to the taxpayer, a subsequent recovery by the taxpayer of such tax must be included in gross income in the year the recovery is received.

634; Simplification of Imputed Interest Rules (continued...) - 34 - Accordingly, we must decide whether the tests developed under prior law for purposes of the investment tax credit must be used in deciding the appropriate recovery classes (for tax years ended 1985 and 1986) or appropriate recovery periods (for tax years ended 1

634; Simplification of Imputed Interest Rules (continued...) - 34 - Accordingly, we must decide whether the tests developed under prior law for purposes of the investment tax credit must be used in deciding the appropriate recovery classes (for tax years ended 1985 and 1986) or appropriate recovery periods (for tax years ended 1