A military taxpayer received a "certificate for income tax adjustment" DFAS Form 705 stating that they were previously overpaid by the Department of Defense. It said that the overpayment was established as a debt and reported as income in that year. Now in 2004 it says that $225.00 was repaid by taxpayer towards that debt. It says that according to revenue ruling 79-311, the $225.00 may be claimed as a miscellaneous deduction on for schedule A. Two questions: Does anyone have experience with this and can advise? Does anyone know how to look up those revenue rulings on line? Thanks.
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Snow White, EA -
Why?
A couple comments, Snow White - from "Grumpy" down in Tennessee.
It appears you are operating entirely from information statements, and I didn't hear anything from what the client is reporting. If the clients books differ from the information statements, this entire complexion changes, and you must posture yourself with facts and deal with the information statements differently, and dependent upon what the facts really are.
However, if the DoD information statements are correct, establish the relationship between your client and the DoD. Was he a contractor? a consultant under a personal services contract? A recipient of back-payments or benefits?
There is an overwhelming chance that your client was a contractor of some sort. If so, the repayment (if on a cash basis) should reduce his sales on a schedule C (or 1120S, 1120, etc.) If there is no other activity, he should do this even if it creates a single line-item loss for reporting a business. The information return suggests this be an itemized deduction? If so, it probably won't help him at all -- that would be the LAST place to go with it.
Good Luck- Ron Jordan -
Actually, Rev. Rul. 79-311 is specific to employees. This does not indicate an independent contractor situation.
You can find Revenue Rulings by going to "Links" above, then "Tax Research Links."
This is a claim of right situation. If you included an amount in gross income in a prior taxable year because you thought you had an unrestricted right to the income, then had to repay it in a subsequent year, you have to deduct it on Schedule A, unless the amount is in excess of $3,000, in which case it is deducted above the line as an adjustment to income. IRC section 1341.Comment
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Taxpayer was and is Employee
of the United States Government. He has not been a contractor. Amount is small and won't affect Schedule A as he won't be over the 2% of AGI for miscellaneous deductions. I am thinking the overpayment was included in some kind of W-2 in the past. I am sure that the taxpayer has never given any mind to how he was overpaid or when it was included in income.Snow White, EAComment
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Links
Lance,
Thanks for the tip on the links. That's handy information. I like it.Snow White, EAComment
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