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IRS and Casualty Losses - Ancillary Problems and the Tax Benefit Rule


Ancillary problems include delayed damage determinations, and reimbursement claim issues. Do you know how the tax benefit rule can help?

Section 165(a) allows a deduction for “any loss sustained during the taxable year.”  This ordinarily means that the loss is to be deducted in the year of the casualty itself, but there are several qualifications and exceptions to this general principle. Generally, the full amount of any recovery of a previously deducted or credited amount must be included in gross income. However, under the tax benefit rule, a previously deducted or credited amount is not included in gross income to the extent the deduction or credit did not reduce the amount of tax imposed in the prior year.



Gary S. Wolfe

The Wolfe Law Group

Our author, Gary S. Wolfe, has more than 34 years of experience, specializing in IRS Tax Audits and International Tax Planning/Tax Compliance, and International Asset Protection.

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