- 24 -
an acquisition or disposition of property shall be treated
as part of the cost of the acquired property or, in the case
of a disposition, as a reduction in the amount realized on
the disposition.
The parties agree that the intangible personal property
taxes and documentary stamp taxes incurred by REE and ME are
allowable as deductions within the purview of the second sentence
of section 164(a). They disagree, however, as to whether the
last sentence of section 164(a) requires the amounts to be
capitalized.
The last sentence of section 164(a) was added by the Tax
Reform Act of 1986, Pub. L. 99-514, sec. 134(a)(2), 100 Stat.
2085, 2116. According to the conference report, there previously
was uncertainty as to whether certain taxes incurred in a trade
or business or an income-producing activity could be deducted
under section 164 or had to be capitalized under former section
189 or section 263. The new provision was added to make it clear
that State, local, or foreign taxes (other than the taxes
enumerated in section 164(a)) that are incurred in a trade or
business or in an income-producing activity and that are
connected with the acquisition or disposition of property are to
be capitalized. H. Conf. Rept. 99-841 (Vol. 2), at II-20 (1986),
1986-3 C.B. (Vol. 4) 20.
Respondent's position is that the taxes incurred by REE and
ME must be capitalized as part of the cost of the acquired
properties because they were incurred in connection with the
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011