§1341 — Computation of tax where taxpayer restores substantial amount held under claim of right

- 5 - ofOhio (1) overruled petitioner's objections to the report and recommendations of the Board ofCommissioners on Grievances and Discipline, (2) concluded that petitioner's Federal crimes involved moral turpitude, and (3) permanently disbarred him from the practice oflaw in Ohio.

We now overrule the objection on the basis of relevance; however, we note that had these documents been denied admission, it would not have changed the result because petitioner failed to submit additional documentation to clarify whether the deductions had been included in gross distributions or had already been

9 If in a subsequent refund action petitioners are denied relief under section 1341, an equitable recoupment claim may then become available (so long as they meet the relevant requirements). See Estate of Stein, 37 T.C. at 956 n.10 (stating that “District Courts have permitted equitable recoupment” if section 1341 does not apply).

Petitioners are thus'not entitled to the tax benefits of section 1341(a) . See, e .g ., Kraft v . United States , 991 F .2d 292, 299 (6th Cir . 1993) ("Furthermore, 26 U.S .C . § 1341 does not apply to a taxpayer who has embezzled or otherwise knowingly misappropriated funds which he is later required to return because the taxpayer never had an, unrestricted right to the money so obtained .") .

Therefore, this example of accounting for tax consequences in valuing assets in an estate is distinguishable from the present valuation issue.

The court in Dominion Resources held that the return of excess deferred Federal income tax is a deductible expense, whereas, in WICOR, Inc., the court distinguished Dominion Resources and decided that a mere reduction of future utility rates did not constitute a deductible business expense. See also Florida Progress Corp. & Subs. v. Commissioner, 114 T.C. ___ (2000) (also filed this date). The use of the word “deduction” in section 1341(a)(2) limits section 1341 applicability to refunds or retur

1341A deals with terminations of multiemployer plans. The events that petitioner complains of do not constitute terminations within the meaning of 29 U.S.C. sec. 1341A. See Kershaw Multiemployer Plans--Special Rules, 359-3d, Tax Mgmt. (BNA), A-35 (1994). We hold, for respondent, that section 1.7476-1(b)(5), Income Tax Regs., does not apply to the instant case.

Under these circumstances, the court held section 1341 inapplicable because it was the corporation, rather than the taxpayer, who had previously reported the item being repaid.

Section 1341 applies if (1) “an item was included in gross income for a prior taxable year (or years) because it appeared that the taxpayer had an unrestricted right to such item,” I.R.C.

To the extent we hold that Mr.

To the extent we hold that Mr.

Petitioner made similar arguments, notably that his wages were not taxable under section 1341, on -i,s 2003 Form 1040 .

Whether petitioner is entitled to an alternative minimum tax (AMT) ordinary loss pursuant to section 1341 for stock forfeited under a lapse provision.

Section 1341 provides relief to a taxpayer who has received income under the claim of right doctrine and applies only if the amount of repayment exceeds $3,000 in the taxable year.

After concessions by the parties, the issues for decision are: (1) Whether one of petitioner's subsidiaries is entitled to compute its tax liability for 1987 and 1988 pursuant to section 1341 and (2) whether funds overcollected pursuant to fuel and energy conservation cost recovery rates constitute income under section 61.

As a result, we hold that petitioner's section 2053(a)(3) deduction in connection therewith is limited to the amount ultimately paid in settlement of that claim.

Claim of Right Section 1341 addresses instances in which a taxpayer includes an item in gross income for a prior taxable year because it appeared that the taxpayer had an unrestricted right to the item of income. A deduction is allowed after the close of the prior taxable year if it is established that the taxpayer did not have an unrestricted right to that item. § 1341(a). Pursuant to section 1341 a taxpayer may be eligible for a refund. For the purposes of section 1341, the original “circumsta

Section 1341 appears to provide a legal remedy for the problem that petitioners have identified. Section 1341 is captioned “Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right.” It applies where (1) “an item was included in gross income for a prior taxable year . . . because it appeared that the taxpayer had an u

Section 1341 appears to provide a legal remedy for the problem that petitioners have identified. Section 1341 is captioned “Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right.” It applies where (1) “an item was included in gross income for a prior taxable year . . . because it appeared that the taxpayer had an u

be sham, frivolous, or so unsubstantial that it would obviously be futile to try it . * * * We reject, however, petitioner's misguided view, reflected in his objection to respondent's motion for summary judgment, that he is entitled to relief under section 1341 . In certain circumstances, section 1341 may provide tax relief to a taxpayer who repays money in one year that had been included in gross income for a prior year under a claim of right . The relief provided under section 1341, however, a

assets in the IRAs will never be transferred to a hypothetical buyer, we find that the reasoning of Estate of Davis v. Commissioner, supra, inapplicable to this case. B. Cases Where Future Tax Benefit Taken Into Account 1. Estate of Smith —Value of Sec. 1341 Deduction Taken Into Account in Valuing Claim Against Estate In Estate of Algerine Smith v. Commissioner, 198 F.3d 515 (5th Cir. 1999), revg. 108 T.C. 412 (1997), the Court of Appeals for the Fifth Circuit addressed whether to consider the i

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.

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.

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.

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.

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.

attributable to gas costs from the unbilled - 2 - period as of Dec. 31, 1986. Held, further, P’s rate reductions from 1987 through 1990 to compensate for excess deferred Federal income tax are not deductible business expenses within the meaning of sec. 1341, and, therefore, P is not entitled to the beneficial treatment of sec. 1341. David E. Jacobson and Richard P. Swanson, for petitioner. Robert M. Morrison and J. Anthony Hoefer, for respondent. COHEN, Judge: Respondent determined the following

ayments as business expenses under section 162 or section 165; (2) whether petitioner’s deductions or losses resulted in a net operating loss (NOL); (3) if petitioner is not entitled to an NOL, whether he is entitled to the computational benefits of section 1341 with respect to the disgorgement payment; (4) whether petitioner is liable, in the alternative, for additions to tax for fraud under section 6653(b)(1)(A) and (B) or for negligence under section 6653(a)(1)(A) and (B); and (5) whether pet

paid claims that were based in part on excessive royalties that. had been paid to and reported by decedent in prior years. In our previous opinion in these cases, we held that P was entitled to an overpayment of income tax pursuant to application of sec. 1341, I.R.C., and that such overpayment was includable in the taxable estate. Estate of Smith v. Commissioner, 108 T.C. 412 (1997). The parties now disagree on the method of calculating the overpayment. R also seeks to amend the answer in order

Section 1341 Credit In 1970, decedent and her two aunts, Jessamine and Frankie Allen, entered into oil and gas leases from which they derived royalties during the years 1975 through 1980. Jessamine and Frankie Allen died in 1979 and 1989, respectively, and decedent served as the independent executrix of both their estates. Upon Jessamine’s death, d

income amounts received from the sale ofsome ofthose tax credits. As a result of SERVED Dec 28 2017 - 2 - [*2] litigation, Ps repaid some ofthose proceeds in subsequent tax years. Ps contend they are entitled to a 2007 taxable year deduction under I.R.C. sec. 1341 for repayment ofthe credit proceeds. IJe]4: R complied with the requirements ofI.R.C. sec. 6751(b). IIeld, further, the 40% accuracy-relatedpenalty for a gross valuation misstatement is sustained for tax years 2007 and 2008. I]eld, fu

usly taken into gross income by Towers Construction under a claim of right when it received the advances from Key West Polo. Cf. sec. 1341(a)(1) (in computing tax where the taxpayer repays amounts held under claim of right, the remedial mechanism of sec. 1341 applies only if the item was included in gross income for prior years). - 40 - . liability to CB&T is a nondeductible contingent liability under section 461(f).3° We sustain respondent's determination on this issue. Issue 5. Additions to Ta

After concessions by the parties, the issues for decision are: (1) Whether one of petitioner’s subsidiaries is entitled to compute its tax liability for 1987 and 1988 pursuant to section 1341 and (2) whether funds overcollected pursuant to fuel and energy conservation cost recovery rates constitute income under section 61.

the claim. Held, further: The income tax benef t derived by P as a result of the application of sec. 1341(a), I.R.C., is an asset includable in the gross estate. P,'s deduction pursuant to sec.. 2053(a)(3), I.R.C., of its liability to Exxon and its sec. 1341( ), I.R.C., relief based on payment of that liability are so inextricably linked that it would be inappropriate to consider one in the determination of the taxable estate while excluding the other. Michael C. Riddle and Harold A. Chamberla

The District Court stated: “when Congress passed Section 1341 it did not intend to recognize a debt of the Government to the taxpayer during his lifetime and deny the same obligation to his personal representatives and to his estate.” Estate of Good v.

Issues 8 and 9--Claimed Reduction in 1979 Reported Income Under a Claim of Right and Section 1341 Tax Computation for 1981 .

Issues 8 and 9--Claimed Reduction in 1979 Reported Income Under a Claim of Right and Section 1341 Tax Computation for 1981 .

In the Stein case we pointed out that prior to the enactment of section 1341, I.R.C.

n. 3 [*3] After a further exchange of communications with petitioner, the IRS issued him a Notice of Deficiency dated March 15, 2023. The notice disallowed the $46,908 credit, concluding that he had not substantiated an entitlement to relief under section 1341. The notice determined a tax deficiency of $12,507 and an accuracy-related penalty of $2,501 (subsequently conceded). Previous communications between petitioner and the IRS appear to indicate that the remainder of the offset he claimed—$34

§ 1341, and making and subscribing a false tax return for 2003 in violation of section 7206(1). On May 16, 2008, petitioner pleaded guilty to one count of mail fraud and to the false-tax-return count for 2003. Before his guilty plea, on May 13, 2008, petitioner signed a plea agreement and a supporting statement of facts (together, plea agreement) s

§ 1341.3 On July 16, 2013, after a jury trial, the U.S. District Court for the Southern District of New York entered a judgment of guilty as to each count set forth in profitability analyses, (4) updating a trading system for over-the-counter options on government securities for a large brokerage firm, (5) conducting statistical analyses, and (6) a

1341; see also sec. 86(d)(2). Petitioner husband received Social Security benefits in 2014, and petitioners must include those benefits as income in their 2014 Form 1040 to the extent provided in section 86. Petitioners’ repayments in 2017 of benefits received in 2014 do not affect their 2014 tax liability. -8- C. Petitioners’ Other Arguments

The basis for petitioner's income tax evasion conviction was that during 2002 and 2003 he (1) operated a telemarketing business and used nominees, including corporate entities that he created and controlled, to conceal from the IRS his taxable income in the form ofcommissions from this business, (2) used the nominee entities to pa

process (CDP) hearing, petitioner abandoned his argument that the restitution payments he made constituted estimated tax payments. Instead, he argued that the restitution payments should have been reflected as credits against his tax for 2014 under section 1341. The Appeals Office rejected petitioner's argument and issued the notice ofdetermination, sustaining the proposed levy with respect to the unpaid income tax liability for 2014. Petitioner timely filed a petition seeking review ofthe noti

1341 with respect to a fraudulent check that he mailed on June 28, 1991. In that plea agreement, Mr. Garavaglia also pleaded guilty to conspiracy to defraud the U.S. Government under 18 U.S.C. sec. 371 with respect to a false corporate income tax return (i.e., Form 1120, U.S. Corporation Income Tax Return) that he filed on or about March 31, 1

1341; 3 counts ofwire fraud under 18 U.S.C. sec. 1343; 1 count offinancial institution money laundering under 18 U.S.C. sec. 1957; 2 counts offalse statements to a bank under 18 U.S.C. sec. 1014; 1 count oftheft ofhealthcare funds under 18 U.S.C. sec. 669; and 3 counts oftax evasion under section 7201. Count 20 ofthe indictment (for tax evasio

Section 1341 might have allowed him to adjust his tax for the year that he repaid Cigna, ifhe were entitled to a deduction in that tax year under another Code provision. See sec. 1341(a); see also Farahani v. Commissioner, T.C. Memo. 2014-111 (holding that the taxpayerwas not entitled to reliefbecause the taxpayer was not entitled to a deduction fo

1341 for knowingly causing to be delivered by mail a letter to Hadassah which included a material misrepresentation and an omission regarding - 7 - [*7] the distribution to the organization from Mrs. Hersh's adjusted gross estate. Count 2 ofthe information charged petitioner with violating section 7206(1) by filing a false Federal income tax

, in part, stated: - 5 - [*5] 5) Affiants affirm that the $152,705.00 deduction claimed on line 27 ofthe attached U.S. Individual Income Tax Return Form 1040 Schedule A Itemized Deduction [sic] is a claim ofright adjustment founded on USC Title 26, § 1341. 6) Affiants make "the claim ofright" is as [sic] follows: a) The Affiants are claiming a natural right; b) the natural right is a right to make a living; c) The amount being claimed is a compensation for personal labor that was received as rep

655, 664 (1982) (quoting Wootton, "The Claim ofRight Doctrine and Section 1341", 34 Tax L.

In 1954 Congress enacted a statutoryremedy, section 1341, to alleviate some ofthe hardship ofthis rule.

1341 (2006); Black v. United States, 625 F.3d 386, 5A fourth Hollinger executive Mark S. Kipnis, was identified as a defendant in the superseding information. Mr. Kipnis has not filed a petition before.this Court. 6The Government indicted petitioner and Messrs. Black, Atkinson and Kipnis in a single charging document. For convenience, we will

Petitioners have failed to convince us that simply by including the claim of right deductions on their returns, they disclosed that the deductions they were claiming were clearly improper. Second, while the U.S. Court ofAppeals for the Eighth Circuit, to which an appeal in this case would lie absent a stipulation to the contrary, see sec

1341 (2006); Black v. United States, 625 F.3d 386, 5A fourth Hollinger executive, Mark S. Kipnis, was identified as a defendant in the superseding information. Mr. Kipnis has not filed a petition before this Court. 6The Government indicted petitioner and Messrs. Black, Boultbee and Kipnis in a single charging document. For convenience, we will

1341, conspiracy to defraud the United States in violation of 18 U.S.C. sec. 371, making and subscribing false individual and corporate income tax returns in violation of section 7206(1), and willful failure to file heavy vehicle use tax forms in violation of section 7203. The indictment also charged that Mr. Garavaglia's fraudulent activities

The Cavarettas say the payments were deductible under section 162 as a business expense, or under section 165(c)(1) as a loss incurred in, a trade or business, or under section 1341 as a payment made under a claim of right .

Petitioner's Federal Tax Returns For taxable years 1995 and 1996, petitioner timely filed self-prepared Forms 1040, U.S. Individual Income Tax Return. Petitioner reported gross income of $61,725 and $61,406 on his 1995 and 1996 tax returns, respectively. He reported none of the payments he had received from the Kieffers. (cid:16)04N2o

[Citations omitted.] Although this doctrine has been applied “in a variety of contexts,” the situations have shared “a common factual element: the receipt of money or other property by a taxpayer with an imperfect right to retain it.” Wootton, “The Claim of Right Doctrine and Section 1341,” 34 Tax Law.

1341 (2000) and aiding and abetting under 18 U.S.C. sec. 2. Pursuant to the judgment imposed against Mr. Wilson in that criminal proceeding, the U.S. District Court ordered Mr. Wilson, inter alia, to pay restitution to certain insurance companies in the amount of $15,000. - 6 - Petitioners’ Fraud Penalty Accuracy-Related Penalty Year Deficien

On February 27, 1996, petitioner pleaded guilty, admitting that no burglary had occurred and that his insurance claim was fraudulent. 7. Petitioner failed to report the illicit insurance recovery on his 1993 Federal income tax return. Respondent may carry his burden by means of facts that are treated as established in instances wh

1341, and four counts of embezzlement from employee pension funds in violation of 18 U.S.C. sec. 664. On May 10, 1989, he was sentenced to consecutive sentences totaling 30 years. He also was ordered to make restitution in the amount of - 17 - $12,903,250, less any recoveries made by the bankruptcy trustee. See infra. The Federal Bureau of In

1341 (1994) (formerly 31 U.S.C. sec. 665). The Antideficiency Act prohibits the executive branch from obligating funds not yet appropriated by Congress. Multiyear contracting is an exception to the full- funding rule. A multiyear contract enabled the Government to provide for up to 5 years of requirements without authorized full funding at the

1341 (1994); (3) twenty-nine counts of aiding and assisting in the preparation of false tax returns in violation of section 7206(2); and (4) one count of knowingly making and subscribing a false and fraudulent personal income tax return in violation of section 7206(1).2 The indictment alleged, 2The charges were summarized by the court that con

4 (payment of correct tax liability before notice of deficiency); Gum Products, Inc. v. - 136 - Commissioner, 38 T.C. 700, 706-707 (1962) (nonfraudulent carryback); Elmbrook Home, Inc. v. United States, 559 F.Supp. 787 (D.R.I. 1983) (nonfraudulent sec. 1341 adjustment). Neither side has cited us to, and our research has not disclosed, any other opinion involving the pattern of events that we find in the instant cases for 1983. Respondent contends that petitioner should bear the consequences of t