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The Tax Benefit Rule (with Kanner), 26 UCLA Law Review 265 (1978)


When a taxpayer recovers or collects an item that was deducted
in an earlier year, he is ordinarily taxed on the amount
received unless the prior deduction was of no "tax benefit" because
it did not reduce his tax liability.' Because each year's income
tax return must be based on the facts as known during that
year, the deduction in complete good faith of amounts that are
recovered in later years is a familiar phenomenon. Creditors, for
example, often deduct claims against debtors when they appear to
be worthless but subsequently collect part or all of the debt when
the debtor's financial circumstances unexpectedly improve. Another
example is a claim against the taxpayer, such as a local
property tax or an employee's salary, which is deducted when paid
but recovered in part when subsequent events establish that the
taxpayer paid more than he actually owed.

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