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78th Cong., 2d Sess. 24-25 (1944), 1944 C.B. 858, 877. The
legislative history to section 22(n), I.R.C. 1939, states:
The proposed section 22(n) of the Code provides that
the term "adjusted gross income" shall mean the gross
income computed under section 22 less the sum of the
following deductions: (1) Deductions allowed by
section 23 of the Code, which are attributable to a
trade or business carried on by the taxpayer not
consisting of services performed as an employee; * * *
(4) deductions allowed by section 23 which are
attributable to rents and royalties; * * *
* * * * * * *
The deductions described in clause (1) above are
limited to those which fall within the category of
expenses directly incurred in the carrying on of a
trade or business. The connection contemplated by the
statute is a direct one rather than a remote one. For
example, property taxes paid or incurred on real
property used in the trade or business will be
deductible, whereas State income taxes, incurred on
business profits, would clearly not be deductible for
the purpose of computing adjusted gross income.
Similarly, with respect to the deductions described in
clause (4), the term "attributable" shall be taken in
its restricted sense; only such deductions as are, in
the accounting sense, deemed to be expenses directly
incurred in the rental of property or in the production
of royalties. * * * [S. Rept. 885, supra, 1944 C.B.
at 877-878; emphasis added.]
See also H. Rept. 1365, 78th Cong., 2d Sess. (1944), 1944 C.B.
821, 839.
The State nonresident income taxes were imposed upon
2(...continued)
(other than those provided in pars. (1) for trade and business
deductions, (5) for certain deductions of life tenants and income
beneficiaries of property, or (6) for losses from sales or
exchange of property) allowed by sec. 23 which are attributable
to property held for the production of rents or royalties.
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