Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:
A)Tax refund rule
B)Constructive receipt
C)Return of capital principle
D)Tax benefit rule
E)None of the choices are true

Question

Quizplus · Accepted Answer

The tax benefit rule determines whether a taxpayer must include in income a refund of an amount deducted in a previous year. This rule states that if a taxpayer received a tax benefit from a deduction in a prior year and then receives a refund of that same deduction in a later year, the refund must be included in income to the extent that the deduction reduced the taxpayer's tax liability in the prior year.

Identify the Rule That Determines Whether a Taxpayer Must Include