In Uncategorized on 07/19/2017 at 16:07

If you, the cash-basis type, got income but have to give it back, make sure it’s given back the same year. Or, if you don’t, at least, recognize you have to pay and make provision to pay (whatever that means). I’ve blogged this before. See my blogpost “The Course of True Love,” 1/4/16.

And that case, the name of which I’ll spare here, is cited in Michael S. Yoklic and Kay E. Ross, 2017 T. C. Memo. 143, filed 7/19/17, the end of this year’s Palindrome Week.

Mike got unemployment that he wasn’t entitled to. And he didn’t bother to include it in his 1040, because shortly after he got the unemployment, he got a couple letters (hi, Judge Holmes) from the State saying he wasn’t entitled.

But he did nothing else until the following year, when he paid back the money he got plus interest. He claims rescission.

No good, says Judge Ashford.

“The doctrine of rescission represents an exception to the claim-of-right doctrine.  Pursuant to this exception, income received under a claim of right need not be included in gross income if, in the year of receipt, the taxpayer (1) recognizes an existing and fixed obligation to repay the amount received and (2) makes provisions for repayment. 

“On the basis of the record before us, we find that petitioner’s obligation to repay the unemployment compensation he received from DES in 2012 became fixed in that same year.  However, petitioners do not contend, nor is there any evidence in the record indicating, that they made provisions for repayment also in that same year.” 2017 T. C. Memo. 143, at pp. 5-6. (Citations omitted).

If you got to give it back, make sure you do something to show you’re giving it back.



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