OAR 150-316-0537: Adjustment of Federal Tax Liability

The federal tax liability accrued shall be the correct federal tax based on all information on the return. If, during processing, the Department recomputes and adjusts the federal tax liability, the adjusted tax shall be the amount accrued for that year. Example 1: Because of a computation error on their joint federal return, A and B overstated their federal tax liability on both their federal and Oregon returns. When the Department processed the return, the federal tax liability was recomputed and reduced from the $500 reported on the return to $300. The $300 is the 1979 tax accrued and deducted in 1979. If the taxpayers receive a federal refund for the same $200, that amount should not be added to income in the year received. Example 2: On their 1979 return, A and B claimed a federal tax subtraction of $1,000, which was the amount of federal tax withheld from their wages. Their federal tax liability was actually $2,500. When the Department processes the return, the federal tax deduction shall be increased to $2,500. Example 3: A and B claimed a federal tax deduction of $5,000 for 1979. When their Oregon return was processed, the Department computed their correct federal tax liability to be $6,000. Their 1979 federal tax accrued in 1979 is $6,000. In 1980, they are required to pay the additional federal tax of $1,000. Since the taxpayers have already received a benefit for the additional 1979 tax, they cannot deduct it in 1980.