Taxing Definitions

Whipsaw

Thanks for sharing!
1 minute read

A whipsaw situation occurs when the IRS receives conflicting claims for the same items in the same transaction and has no reliable way to determine which claim is correct without additional information.

Potential whipsaw situations can occur in various circumstances, such as divorce, when both spouses claim the same child, executive compensation issues involving restricted stock, or when multiple layers of trusts exist.

In whipsaw situations, the IRS can issue deficiency notices that are inconsistent, for instance, denying all deductions to each of the taxpayers involved, assigning all income to each of the taxpayers involved, or both.

The issuance of the notices does not mean the income tax due will be collected more than once. The IRS is simply protecting against the possibility that income could go untaxed or that the same expenses could be deducted on two different returns.

***

Other posts you might enjoy

Definition — Collecting the debt   Image source: Kody Gautier on Unsplash   Have you heard about the guy who walked into an accounts receivable department to pay a compliment? The old joke may be a possibility for the private debt collection agencies hired by the government to collect delinquent tax debts. A cus...
Definition — Losing the deduction   Image source: Dawid Zawiła on Unsplash   One casualty of the December 2017 federal tax law was the personal casualty and theft loss deduction (section 165 of the internal revenue code). With a few exceptions, as of January 1, 2018, nonbusiness losses from sudden, unexpected, or...
Definition — Stirring up the salt   Image source: openclipart.org     Are you watching your sodium levels by limiting your salt intake? The IRS says the time has come to limit the SALT on your tax return too—including the SALT you may be treating as charitable deductions under programs run by your state. ...
Definitions — Proposing a deduction   Image source: wpclipart.com   In the language of math, 199 is an odious number. In the language of tax, 199 was an internal revenue code section for the domestic production activity deduction that was repealed with the Tax Cuts and Jobs Act of 2017. That tax law also created...
Tagged , , , ,