- 8 -
of computing adjusted gross income.3 Finally, in Tanner v.
Commissioner, 45 T.C. 145 (1965), affd. per curiam 363 F.2d 36
(4th Cir. 1966), we held that a taxpayer is not entitled to
deduct, in computing his adjusted gross income, the State income
tax he paid on income he received as his share of the net
business income derived from certain partnerships.4 See also
Lutts v. United States, 15 AFTR 2d 702, 65-1 USTC par. 9313
(S.D. Cal. 1965).
In the instant case, petitioners paid State nonresident
income taxes on their net royalty income, which derived from
their interests in oil and gas wells; the State income taxes were
not expenses attributable to property held for the production of
royalties or expenses directly incurred in the production of
royalties. Accordingly, we hold that the State nonresident
income taxes paid by petitioners are not deductible for the
3Following the enactment of sec. 22(n), I.R.C. 1939, the
Commissioner amended Regulations 111 by adding sec. 29.22(n)-1,
which provided that State income taxes were not deductible in
determining adjusted gross income, even though the taxpayer's
income was derived from the conduct of a trade or business. See
T.D. 5425, 1945 C.B. 10, 16.
4In Tanner v. Commissioner, 45 T.C. 145 (1965), affd. per
curiam 363 F.2d 36 (4th Cir. 1966), the issue was decided
pursuant to the provisions of sec. 62(1), I.R.C. 1954 (as
amended). The provisions of sec. 62 of the 1954 Code are
substantially the same as the provisions of sec. 22(n) of the
1939 Code. See id. at 147. Furthermore, sec. 62(a)(4), which is
in effect for the taxable years at issue, is the same as sec.
62(5), I.R.C. 1954 (as amended).
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