The United States Tax Court has released an opinion regarding a dispute between taxpayers and the IRS regarding whether non-need-based, excess refundable state tax credits are taxable income under federal law. The Tax Court sided with the IRS in finding that such excess credits are taxable. Moreover, such excess credits are taxable in the year they are earned, even if the taxpayer would be willing to carry them forward to offset future taxable income. This was a case of first impression, neither side disputed the facts.
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