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State and local real property taxes, and therefore must be dealt
with as expenses which are clearly and directly allocable to
portfolio income. Respondent also argues that the attorney's fee
must be dealt with in a similar manner.
We agree with respondent for the reasons which follow.
Under Texas law, there are two distinct constitutional and
statutory provisions concerning the valuation of land devoted to
agricultural use for ad valorem tax purposes. In order to
qualify as agricultural use property under section 1-d, Tex.
Const. Art. 8 (the agricultural use provision), a business
venture for profit is required, and the business must be the
primary occupation and source of income of the owner. To qualify
under section 1-d-1, Texas Const. Art. 8 (the open-space
provision), the property must be currently devoted principally to
agricultural use to the degree of intensity generally accepted in
the area and must have been so devoted for 5 of the preceding 7
years. See also Tex. Tax Code Ann. secs. 23.41-23.46 (West
1992). The principal difference between the two provisions is
that open-space classification does not require that agriculture
be the primary occupation and primary source of income of the
owner.
Section 1.164-3, Income Tax Regs., defines a real property
tax as follows:
(b) Real property taxes. The term "real property
taxes" means taxes imposed on interests in real
property and levied for the general public welfare, but
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