Opinion ID: 3052424
Heading Depth: 2
Heading Rank: 3

Heading: claim of right deduction

Text: Kadillak next contends that, even if the § 83(b) election is valid, he was entitled to a “claim of right” deduction under I.R.C. § 1341 because the nonvested shares that were includable in AMT income in 2000 were forfeited in 2001 at an AMT capital loss. He again misapplies the tax code. Section 1341(a) indeed permits taxpayers to compute their tax differently where they reported income on the receipt of property in one tax year and then forfeited that property in a later tax year. But the statute applies only if “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,” among other requirements. I.R.C. § 1341(a)(2) (emphasis added). As clarified in the accompanying regulation, the deduction must be 9614 KADILLAK v. COMMISSIONER OF INTERNAL REVENUE allowable “under other provisions” of the tax code. Treas. Reg. § 1.1341(a)(1). [4] In this case, Kadillak fails to satisfy § 1341(a)(2) because the flush language of § 83(b)(1) expressly disallows any deduction respecting the forfeiture of his nonvested shares that were subject to his valid § 83(b) election. The statute plainly states: “If such election is made, . . . and if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture.” I.R.C. § 83(b)(1). [5] Kadillak therefore could not claim any deduction from the forfeiture of his nonvested shares in 2001. Besides being ineligible for a “claim of right” deduction under I.R.C § 1341, his deduction was also limited under Treasury Regulation § 1.83 2(a) to the excess, if any, of the amount paid for the shares over the amount realized upon the forfeiture. Of course, as Ariba repurchased the shares at cost, there was no excess and therefore no deduction.