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Las Vegas, Nevada, at the time they filed their petition in this
case.
During the years at issue, petitioners owned interests in
oil and gas wells (the properties) located in the States of
Alabama, California, Colorado, Louisiana, Michigan, Mississippi,
New Mexico, Oklahoma, and Utah (the nine States).
Each of the nine States imposed an income tax on
nonresidents who derived income from an income-producing activity
within that State. Petitioners received royalties from the
properties and paid a nonresident income tax to each State on the
net royalty income (gross royalty income minus production taxes,
overhead and operating expenses, and allowances for depletion)
derived from the properties located only within that State.
Petitioners reported all their royalty income on Schedule 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 in addition to the expenses that they deducted in
calculating their State nonresident incomes. Consequently,
petitioners deducted the State nonresident income taxes in
computing their adjusted gross income for the years at issue. In
computing their taxable income, petitioners elected to take the
standard deduction allowed by section 63 instead of itemizing
their deductions.
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Last modified: May 25, 2011