Recovery for Causing Tax Overpayment - Lyeth v. Hoey and Clark Revisited

26 Pages Posted: 4 Dec 2020

See all articles by Douglas A. Kahn

Douglas A. Kahn

University of Michigan Law School

Jeffrey H. Kahn

Harry M. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program

Date Written: October 22, 2020

Abstract

The question has arisen in numerous cases as to the extent to which a settlement between arms’ length parties is dispositive in tax cases of the claims on which the settlement is based. Another issue that often arises is whether the receipt of compensation for a tax payment that was incurred because of the negligence of the payor is excluded from gross income. While those two issues were central to the proper resolution of a recent case in the United States Court of Appeals for the Eleventh Circuit, McKenny v. United States, the court failed even to note one of those issues and did not resolve the other. The court’s failure to deal with those two issues led it to reach an incorrect result.

The two landmark cases establishing the doctrines that should have been applied in McKenny are the Supreme Court’s decision in Lyeth v, Hoey and the decision of the Board of Tax Appeals (now known as the Tax Court) in Clark v. Commissioner. Using McKenny as a springboard, this article reviews the continued misapplication and sometimes disparagement of the Lyeth v. Hoey and Clark v. Commissioner reasonings. Clark, in particular, has been criticized by both academics and the Service. The article reviews those criticisms and argues that they are unpersuasive. The article concludes that both doctrines are valid and should have applied to find for the taxpayer in the McKenny case.

Keywords: Tax, Overpayment, Clark, Lyeth, Hoey, McKenny

JEL Classification: H2

Suggested Citation

Kahn, Douglas A. and Kahn, Jeffrey H., Recovery for Causing Tax Overpayment - Lyeth v. Hoey and Clark Revisited (October 22, 2020). The Tax Lawyer (Forthcoming), FSU College of Law, Public Law Research Paper No. 931, U of Michigan Law & Econ Research Paper Forthcoming, FSU College of Law, Law, Business & Economics Paper No. 20-20, Available at SSRN: https://ssrn.com/abstract=3717227

Douglas A. Kahn

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4043 (Phone)

Jeffrey H. Kahn (Contact Author)

Harry M. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

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