A whipsaw situation happens when the IRS collects inconsistent claims for the same items in the same transaction and has no consistent way to govern which claim is accurate without additional information.
Probable whipsaw situations can occur in numerous circumstances, such as divorce, when both spouses claim the same child, administrative compensation issues involving limited stock, or when several layers of trusts exist.
In whipsaw situations, the IRS can issue deficiency announcements that are inconsistent, for example, refuting all deductions to each of the taxpayers involved, assigning all income to each of the taxpayers involved, or both.
Receiving these notices does not necessarily mean the income tax due will be collected more than once. The IRS is merely protecting against the likelihood that income could go untaxed or that the same expenses could be deducted on two different returns.
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