- 61 -
and -9T(b)(1)(i), Temporary Income Tax Regs.
b. A Conclusion Either Way Is Reasonable
Prior to the War Revenue Act, ch. 63, 40 Stat. 300 (1917),
Federal income taxes were deductible. See, e.g., sec. 5(a) of
the Revenue Act of 1916, ch. 463, 39 Stat. 756, 759; Seidman,
Seidman's Legislative History of Federal Income Tax Laws 1938-
1861, 943-944 (1938) (re: 1917 Act). Before 1917, Federal income
taxes allocable to a business reasonably could be considered a
cost of that business, and both any deficiency interest allocable
to such taxes and any interest on indebtedness incurred to pay
such taxes likewise could be considered a cost of business.
Congress, however, has not allowed a deduction for Federal income
taxes since such deduction was eliminated by the War Revenue Act,
ch. 63, sec. 1201(1), 40 Stat. 300, 330 (1917).1 By not allowing
a deduction, Congress has signaled that money expended for
Federal income taxes constitutes a consumption expenditure, and
not a cost of earning income.
Congress’ present treatment of Federal income taxes is
1 See sec. 275(a)(1) (no deduction for Federal income
taxes); Seidman, Seidman's Legislative History of Federal Income
Tax Laws 1938-1861, 943-944 (1938) (re: 1917 Act). Sec.
275(a)(1) was added to the Code by section 207 of the Revenue Act
of 1964, Pub. L. 88-272, 78 Stat. 19, 40. Sec. 275(a)(1) merely
restates preexisting law (which was contained in sec. 164(b)(1)).
Both the Committee on Ways and Means and the Committee on Finance
had the following to say about preexisting law: "Under present
law, certain taxes, largely Federal taxes, may not be deducted in
any case either as taxes, or as business expenses or as expenses
incurred in the production of income.” (Emphasis added.)
H. Rept. 749, 88th Cong., 1st Sess. (1963), 1964-1 C.B. (Part 2)
125, 174 (that report accompanied H.R. 8363, 88th Cong.,
1st. Sess., which was enacted as the Revenue Act of 1964, Pub. L.
88-272, 78 Stat. 19); S. Rept. 830, 88th Cong., 2d Sess. (1964),
1964-1 C.B. (Part 2) 505, 560 (similar).
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