©THEBRIGHT EXAM SOLUTIONS
11/05/2024 12:06 PM
Tax Benefit Rule, Assignment of Income
Doctrine Exam Questions With Correct
Answers
-TBR Code: IRC §111 - answer✔if the taxpayer (TP) recovers an item that was previously deducted & if
the prior deduction reduced the tax payers tax liability in the year of deduction, then the recovery is
included in gross income.
TBR has Two Faces:
1. Exclusionary Aspect (codified §111): that the recovery is not taxable unless the prior deduction
yielded a tax savings that year.
Inclusionary Aspect (common law): is that the recovery is gross income, b/c the prior deduction was
ultimately incorrect
§111(a) (TBR) - answer✔Gives taxpayer authority for excluding refund related to the corresponding
payment in prior year which gave rise to a deduction that did not reduce the TP's tax liability for the
prior year.
Alice Phelan Sullivan Corporation v. United States - answer✔Should the TP be required to pay tax on a
recovered item that exceed the amount of the tax benefit received when the item was initially used as a
deduction?
Contributed charitable property that was then returned in a different tax year.
o Since the TP in this case did obtain full tax benefit from its earlier deductions, those deductions were
properly classified as income upon recoupment and must be taxed as such. This can mean nothing less
than the application of the tax rate which is in effect during the year in which the recovered item is
recognized as a factor of income.
Lucas v. Earl - answer✔Should the respondent be taxed on the whole of his earnings or just half in light
of the contract with his wife?
11/05/2024 12:06 PM
Tax Benefit Rule, Assignment of Income
Doctrine Exam Questions With Correct
Answers
-TBR Code: IRC §111 - answer✔if the taxpayer (TP) recovers an item that was previously deducted & if
the prior deduction reduced the tax payers tax liability in the year of deduction, then the recovery is
included in gross income.
TBR has Two Faces:
1. Exclusionary Aspect (codified §111): that the recovery is not taxable unless the prior deduction
yielded a tax savings that year.
Inclusionary Aspect (common law): is that the recovery is gross income, b/c the prior deduction was
ultimately incorrect
§111(a) (TBR) - answer✔Gives taxpayer authority for excluding refund related to the corresponding
payment in prior year which gave rise to a deduction that did not reduce the TP's tax liability for the
prior year.
Alice Phelan Sullivan Corporation v. United States - answer✔Should the TP be required to pay tax on a
recovered item that exceed the amount of the tax benefit received when the item was initially used as a
deduction?
Contributed charitable property that was then returned in a different tax year.
o Since the TP in this case did obtain full tax benefit from its earlier deductions, those deductions were
properly classified as income upon recoupment and must be taxed as such. This can mean nothing less
than the application of the tax rate which is in effect during the year in which the recovered item is
recognized as a factor of income.
Lucas v. Earl - answer✔Should the respondent be taxed on the whole of his earnings or just half in light
of the contract with his wife?
