Phyllis,a calendar year cash basis taxpayer who itemized deductions,overpaid her 2010 state income tax and is entitled to a refund of $400.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2011.She is required to recognize that amount as income in 2011.

Question

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The overpayment of state income tax is considered income in the year it is refunded, even if the taxpayer chooses to apply it towards future taxes.

Phyllis,a Calendar Year Cash Basis Taxpayer Who Itemized Deductions,overpaid Her