The taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2017 and as a result his taxable income was reduced by $5,000. The taxpayer discovered his error in 2018. The taxpayer must add $5,000 to his 2018 gross income in accordance with the tax benefit rule to correct for the 2017 error.

Question

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The tax benefit rule requires inclusion in income only if a deduction taken in a prior year is later recovered. The taxpayer should amend the 2017 return to correct the error, not adjust the 2018 income.

The Taxpayer Incorrectly Took a $5,000 Deduction (E