Internal Revenue Code:Sec. 1341. Computation of tax where taxpayer restores substantial amount held under claim of right

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Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter Q - Readjustment of Tax Between Years and Special
              Limitations
          PART V - CLAIM OF RIGHT
        

Statute

    Sec. 1341. Computation of tax where taxpayer restores substantial
        amount held under claim of right
 
    (a) General rule
      If -
        (1) an item was included in gross income for a prior taxable
      year (or years) because it appeared that the taxpayer had an
      unrestricted right to such item;
        (2) a deduction is allowable for the taxable year because it
      was established after the close of such prior taxable year (or
      years) that the taxpayer did not have an unrestricted right to
      such item or to a portion of such item; and
        (3) the amount of such deduction exceeds $3,000,
    then the tax imposed by this chapter for the taxable year shall be
    the lesser of the following:
        (4) the tax for the taxable year computed with such deduction;
      or
        (5) an amount equal to -
          (A) the tax for the taxable year computed without such
        deduction, minus
          (B) the decrease in tax under this chapter (or the
        corresponding provisions of prior revenue laws) for the prior
        taxable year (or years) which would result solely from the
        exclusion of such item (or portion thereof) from gross income
        for such prior taxable year (or years).
    For purposes of paragraph (5)(B), the corresponding provisions of
    the Internal Revenue Code of 1939 shall be chapter 1 of such code
    (other than subchapter E, relating to self-employment income) and
    subchapter E of chapter 2 of such code.
    (b) Special rules
      (1) If the decrease in tax ascertained under subsection (a)(5)(B)
    exceeds the tax imposed by this chapter for the taxable year
    (computed without the deduction) such excess shall be considered to
    be a payment of tax on the last day prescribed by law for the
    payment of tax for the taxable year, and shall be refunded or
    credited in the same manner as if it were an overpayment for such
    taxable year.
      (2) Subsection (a) does not apply to any deduction allowable with
    respect to an item which was included in gross income by reason of
    the sale or other disposition of stock in trade of the taxpayer (or
    other property of a kind which would properly have been included in
    the inventory of the taxpayer if on hand at the close of the prior
    taxable year) or property held by the taxpayer primarily for sale
    to customers in the ordinary course of his trade or business.  This
    paragraph shall not apply if the deduction arises out of refunds or
    repayments with respect to rates made by a regulated public utility
    (as defined in section 7701(a)(33) without regard to the limitation
    contained in the last two sentences thereof) if such refunds or
    repayments are required to be made by the Government, political
    subdivision, agency, or instrumentality referred to in such
    section, or by an order of a court, or are made in settlement of
    litigation or under threat or imminence of litigation.
      (3) If the tax imposed by this chapter for the taxable year is
    the amount determined under subsection (a)(5), then the deduction
    referred to in subsection (a)(2) shall not be taken into account
    for any purpose of this subtitle other than this section.
      (4) For purposes of determining whether paragraph (4) or
    paragraph (5) of subsection (a) applies -
        (A) in any case where the deduction referred to in paragraph
      (4) of subsection (a) results in a net operating loss, such loss
      shall, for purposes of computing the tax for the taxable year
      under such paragraph (4), be carried back to the same extent and
      in the same manner as is provided under section 172; and
        (B) in any case where the exclusion referred to in paragraph
      (5)(B) of subsection (a) results in a net operating loss or
      capital loss for the prior taxable year (or years), such loss
      shall, for purposes of computing the decrease in tax for the
      prior taxable year (or years) under such paragraph (5) (B), be
      carried back and carried over to the same extent and in the same
      manner as is provided under section 172 or section 1212, except
      that no carryover beyond the taxable year shall be taken into
      account.
      (5) For purposes of this chapter, the net operating loss
    described in paragraph (4)(A) of this subsection, or the net
    operating loss or capital loss described in paragraph (4)(B) of
    this subsection, as the case may be, shall (after the application
    of paragraph (4) or (5)(B) of subsection (a) for the taxable year)
    be taken into account under section 172 or 1212 for taxable years
    after the taxable year to the same extent and in the same manner as
    -
        (A) a net operating loss sustained for the taxable year, if
      paragraph (4) of subsection (a) applied, or
        (B) a net operating loss or capital loss sustained for the
      prior taxable year (or years), if paragraph (5)(B) of subsection
      (a) applied.
 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 348; Pub. L. 85-866, title I,
    Sec. 60(a)-(d), Sept. 2, 1958, 72 Stat. 1647; Pub. L. 87-863, Sec.
    5(a), Oct. 23, 1962, 76 Stat. 1142; Pub. L. 88-272, title II, Sec.
    234(b)(7), Feb. 26, 1964, 78 Stat. 116; Pub. L. 94-455, title XIX,
    Sec. 1901(a)(146), Oct. 4, 1976, 90 Stat. 1788.)
 

References in Text

                             REFERENCES IN TEXT
      Chapter 1 of the Internal Revenue Code of 1939, referred to in
    subsec. (a), was comprised of sections 1 to 482 of former Title 26,
    Internal Revenue Code. Chapter 1 was repealed by section
    7851(a)(1)(A) of this title.  For table of comparisons of the 1939
    Code to the 1986 Code, see Table I preceding section 1 of this
    title.  See also section 7851(e) of this title for provision that
    references in the 1986 Code to a provision of the 1939 Code, not
    then applicable, shall be deemed a reference to the corresponding
    provision of the 1986 Code, which is then applicable.
      Subchapter E of chapter 2 of the Internal Revenue Code of 1939,
    referred to in subsec. (a), was comprised of sections 710 to 784 of
    former Title 26, Internal Revenue Code. Sections 710 to 736, 740,
    742 to 744, 750, 751, 760, 761, and 780 to 784 were repealed by act
    Nov. 8, 1945, ch. 453, title I, Sec. 122(a), 59 Stat. 568. Section
    741 was repealed by act Oct. 21, 1942, ch. 619, title II, Sec.
    224(b), 228(b), 56 Stat. 920, 925. Section 752 was repealed by act
    Oct. 21, 1942, ch. 619, title II, Sec. 229(a)(1), 56 Stat. 931,
    eff. as of Oct. 8, 1940.
 

Miscellaneous

                                 AMENDMENTS
      1976 - Subsec. (b)(2). Pub. L. 94-455 struck out provision
    relating to the applicability of this paragraph where deduction
    arises out of payments or repayments made pursuant to a price
    redetermination provision in a subcontract entered into before Jan.
    1, 1958.
      1964 - Subsec. (b)(2). Pub. L. 88-272 substituted ''7701(a)(33)
    without regard to the limitation continued in the last two
    sentences thereof)'' for ''1503(c) without regard to paragraph (2)
    thereof)''.
      1962 - Subsec. (b)(4), (5). Pub. L. 87-863 added pars. (4) and
    (5).
      1958 - Subsec. (a). Pub. L. 85-866, Sec. 60(a), inserted ''and
    subchapter E of chapter 2 of such code'' in last sentence.
      Subsec. (b)(2). Pub. L. 85-866, Sec. 60(b), (c), in second
    sentence inserted ''with respect to rates'' and inserted '', or by
    an order of a court, or are made in settlement of litigation or
    under threat or imminence of litigation'' and inserted last
    sentence.
      Subsec. (b)(3). Pub. L. 85-866, Sec. 60(d), added par. (3).
                      EFFECTIVE DATE OF 1976 AMENDMENT
      Amendment by Pub. L. 94-455 effective for taxable years beginning
    after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
    as a note under section 2 of this title.
                      EFFECTIVE DATE OF 1964 AMENDMENT
      Amendment by Pub. L. 88-272 applicable to taxable years beginning
    after Dec. 31, 1963, see section 234(c) of Pub. L. 88-272, set out
    as a note under section 1503 of this title.
                      EFFECTIVE DATE OF 1962 AMENDMENT
      Section 5(b) of Pub. L. 87-863 provided that: ''The amendment
    made by subsection (a) (amending this section) shall be effective
    with respect to taxable years beginning on or after January 1,
    1962.''
                      EFFECTIVE DATE OF 1958 AMENDMENT
      Amendment by section 60(a), (c), (d) of Pub. L. 85-866 applicable
    to taxable years beginning after Dec. 31, 1953, and ending after
    Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a
    note under section 165 of this title.
      Section 60(e) of Pub. L. 85-866 provided that: ''The amendment
    made by subsection (b) (amending this section) shall apply with
    respect to taxable years beginning after December 31, 1957. No
    interest shall be allowed or paid on any overpayment resulting from
    the application of the amendment made by subsection (c) (amending
    this section).''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 5, 67, 6213, 6411 of this
    title.