The taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2018 and as a result his taxable income was reduced by $5,000. The taxpayer discovered his error in 2019. The taxpayer must add $5,000 to his 2019 gross income in accordance with the tax benefit rule to correct for the 2018 error.

Question

Quizplus · Accepted Answer

The tax benefit rule requires the taxpayer to include the amount in income only if the deduction provided a tax benefit in the prior year and is later recovered. The taxpayer should amend the 2018 return to correct the error, not add it to 2019 income.

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