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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10149
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Recoupment by medicare billing tax deductible, when it was

Customer Question

recoupment by medicare for over billing tax deductible, when it was part of the revenue at an earlier year.the medicare took all money's located in business acounts and also in mutual funds.would these fund be deductible as income loss
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

...

Yes, if I understand your question correctly, that the income was there and taxes paid ON that income previously, then you are entitled to offset the amount of the Medicare tax overpayment against the amount of income tax due under the doctrine of equitable recoupment .

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The Tax Court was authorized by Sec. 6214(b) to make such an offset ... AND IRS has lost in previous litigation on this issue.

Customer: replied 1 year ago.
the mutual funds were in personal account.paid the attorney 10000 legal fee.how to deduct on my tax returns
Expert:  Lane replied 1 year ago.

The Tax Court rejected the IRS’s argument and held that it had jurisdiction to apply the equitable recoupment doctrine to Medicare taxes....

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James Beavers, J.D., LL.M., CPA had the following to say - "Given the clear language of Sec. 6214(b) and the existing Tax Court precedent regarding the doctrine of equitable recoupment, the IRS’s argument in this case would be charitably described as weak. Having already prevailed on the substantive issues in the case and won a judgment for over $6 million in tax and penalties, it is hard to understand why, with less than $200,000 at stake, the IRS litigated the issue of equitable recoupment."

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Hang on there. ... looks like out posts crossed ... let me read

Expert:  Lane replied 1 year ago.

You'll do this under what's called "claim of right."

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You'll need to re-do the return (re-work the return , not file, but simply recalculate for this purpose) for the year the income was received and taxed.

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On the re-work do not include the amount of income that should not have been included and taxed.

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Look at the difference between your re-work and the actual return filed (line 63 total tax)

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If the amount repaid (recovered) was more than $3000, this difference in tax is a tax credit, and you'll report on line 73 checking box D (and you can either write pursuant to IRC § 1341 to the right in the ledger or write see statement in the line next to the box - and add a one page statement that says tax credit pursuant to IRC section 1342, Claim Right.

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Most software will have an input for that line that generates the verbiage for the line next to the box and will generate the statement as well

...

Lane

.

Customer: replied 1 year ago.
what if the income was from a pass through entity
Customer: replied 1 year ago.
do i amend the tax return of the entity
Expert:  Lane replied 1 year ago.

This not an amendment... again you do not file the re-work ... you just do this so that you'll know the amount of the credit.

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But yes, you may need to re-work the 1065, 1120-S or schedule C, to get the number correct

Customer: replied 1 year ago.
the tax year was 2012.the tax was already filed in oct 2013 with an extension and the liability already assessed against me. the repayment transpired in march of 2013
Expert:  Lane replied 1 year ago.

Ok, sorry, then yes you'll have to amend 2013 ... and in that case will need to amend the passthrough entity's return

Expert:  Lane replied 1 year ago.

Just looked at the regs and this IS intended to be taken IN the year of repayment

Expert:  Lane replied 1 year ago.

Here's the legal citation: 26 U.S. Code § 1341

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And here's a link if you'd like to review:

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https://www.law.cornell.edu/uscode/text/26/1341

Expert:  Lane replied 1 year ago.

If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by clicking or touching the stars or smileys on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Thank you,

Lane

Expert:  Lane replied 1 year ago.

Hi,

I’m just checking back in to see how things are going.

Did my answer help?

Let me know…

Thanks

Lane

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