The taxpayer incorrectly took a $5,000 deduction (e.g.,incorrectly calculated depreciation)in 2011 and as a result his taxable income was reduced by $5,000.The taxpayer discovered his error in 2012.The taxpayer must add $5,000 to his 2012 gross income in accordance with the tax benefit rule to correct for the 2011 error.

Question

Quizplus · Accepted Answer

The tax benefit rule requires income inclusion only if a deduction taken in a prior year is later recovered. An incorrect deduction does not result in a recovery, so the taxpayer does not need to add $5,000 to the 2012 gross income. Instead, the taxpayer should amend the 2011 tax return to correct the error.

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