- 5 -
deductions to further tax rate reductions. See id., 1964-1 C.B.
(Part 2) at 173-174. Accordingly, the Act did not change the
existing law with respect to the deduction of State income taxes.
Section 62(a)(4) provides that, in the case of an
individual, the term "adjusted gross income" means gross income
minus, inter alia, the deductions allowed by part VI (section 161
and following), which are attributable to property held for the
production of rents or royalties. See also sec. 1.62-1T(c)(5),
Temporary Income Tax Regs., 53 Fed. Reg. 9873 (Mar. 28, 1988)
(same); sec. 1.62-1T(d), Temporary Income Tax Regs., 53 Fed. Reg.
9874 (Mar. 28, 1988) (taxes are deductible in arriving at
adjusted gross income only if they constitute expenditures
directly attributable to a trade or business or to property from
which rents or royalties are derived). Petitioners contend that
the State nonresident income taxes they paid were "attributable
to" property held for the production of royalties and are,
therefore, deductible in computing adjusted gross income. We
disagree.
The concept of adjusted gross income was first incorporated
by Congress into the 1939 Code by adding subsection (n) to
section 22, I.R.C. 1939, in the Individual Income Tax Act of
1944, ch. 210, sec. 8(a), 58 Stat. 231, 235.2 See S. Rept. 885,
2Par. (4) of sec. 22(n), I.R.C. 1939, provided that the term
"adjusted gross income" means gross income minus the deductions
(continued...)
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