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Recovering Taxes Paid When Income Is Forfeited: An Analysis of Section 1341  

Author:  Jeffrey J.  Bryant .

Source: Volume 30, Number 03, Spring 2013 , pp.35-52(18)

Journal of Taxation of Investments

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In a variety of circumstances taxpayers may be required to repay amounts that represented taxable income to them in prior years. Tax was paid on this income in the year it was reported. The concern of taxpayers in this predicament becomes how to recover the previously paid tax and be restored to the financial position they held prior to receiving the income. Section 1341 of the tax code provides a unique opportunity to reduce repayment-year taxes by the amount of tax paid on this income in the prior year. As discussed herein, however, taxpayers may encounter myriad complications while trying to procure the benefits of Section 1341.

Keywords: IRC Sec. 1341, claim of right, clawback, Ponzi scheme

Affiliations:  1: Wichita State University.

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