Charles E. and Sherrie R. Strange - Page 1

                                   114 T.C. No. 15                                    

                               UNITED STATES TAX COURT                                

                  CHARLES E. AND SHERRIE R. STRANGE, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 8602-98.                Filed March 29, 2000.               

                    Ps paid State nonresident income tax to nine                      
               States on net royalty income derived from their                        
               interests in oil and gas wells located within those                    
               States.  Ps reported all their royalty income on                       
               Schedules E, Supplemental Income and Loss, which they                  
               attached to their Federal income tax returns.  In                      
               calculating their total net royalty income, petitioners                
               deducted the State income taxes they paid.                             
               Consequently, petitioners deducted the State                           
               nonresident income taxes in computing their adjusted                   
               gross income for the years at issue.                                   
                    Held, the addition of sec. 164(a)(3), I.R.C., by                  
               the Revenue Act of 1964, Pub. L. 88-272, sec. 207(a),                  
               78 Stat. 19, 40, did not change the existing law with                  
               respect to the deduction of State income taxes.                        
                    Held, further, State nonresident income taxes are                 
               not "attributable" to property held for the production                 
               of royalties and, therefore, are not deductible under                  

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