Charles E. and Sherrie R. Strange - Page 4




                                        - 4 -                                         
                                     Discussion                                       
               Section 164(a)(3) provides inter alia that State income                
          taxes are allowed as a deduction for the taxable year within                
          which they are paid or accrued.  This section was added to the              
          Code by the Revenue Act of 1964 (the Act), Pub. L. 88-272, sec.             
          207(a), 78 Stat. 19, 40.  Before the Act, the Code did not                  
          specifically list the deductible taxes.  Thus, according to                 
          petitioners, the preexisting law was changed by the Act to                  
          provide "unequivocally"  for the deduction of the State income              
          taxes for the purpose of calculating adjusted gross income, and,            
          when read together, sections 62(a)(4) and 164(a)(3) "specifically           
          provide that state [sic] income taxes attributable to property              
          held for the production of royalties are deductible from an                 
          individual's gross income to compute the individual's adjusted              
          gross income."  We disagree.                                                
               The general rule under the law before the Act was that State           
          and local income taxes paid or accrued by an individual were                
          deductible as itemized deductions for Federal income tax                    
          purposes.  See H. Rept. 749, 88th Cong., 1st Sess. (1963), 1964-1           
          C.B. (Part 2) 125, 171-172.  The Act specifically provides for              
          the continued deductibility of State and local income taxes in              
          this manner, while, in the interest of tax equity and ease of               
          compliance, denying the deduction of certain other taxes,                   
          devoting any revenue gain from the denial of those other                    






Page:  Previous  1  2  3  4  5  6  7  8  9  Next

Last modified: May 25, 2011