Rev. Rul. 56-145

Reconsideration has been given to G.C.M. 23512, C.B. 1943, 134, in view of the recent decision in Keil Properties, Inc. v. Commissioner , 24 T.C. No. 123, acquiescence, page 6, this Bulletin.

G.C.M. 23512, supra , holds that, in Delaware, real estate taxes are considered to be imposed on a taxpayer on the date the assessment becomes final, irrespective of when they are actually paid.

In the Keil Properties case, the petitioner filed its income tax returns on the accrual basis. The Commissioner, under the authority of G.C.M. 23512, supra , contended that the city, school, and county taxes paid by the petitioner in August and September 1949 actually accrued as a liability to the prior owner of the land on April 1, 1949, and April 15, 1949, when assessed, and consequently were not deductible by the petitioner who acquired the property on May 2, 1949, subsequent to the date of assessment. The court held that, in Delaware, county, city, and school taxes accrue on the due date when liens attach to the land. Therefore, the taxpayer was entitled to deduct taxes which became due and payable on July 1, 1949.

The court found that all the reported cases considering the question presented held that where a real estate tax did not become the liability of the seller prior to the date of sale, the purchaser in whose hand the property subsequently became charged with a lien or who became personally liable for payment of the tax was entitled to deduct the taxes paid by him, notwithstanding that he reported income on the accrual basis and the fact that assessment of the property antedated the change of ownership. See, for example, Commissioner v. Adda, Inc. , 9 T.C. 199, affirmed 171 Fed.(2) 367, acquiescence, C.B. 1949-1, 1; Commissioner v. Milner Hotels, Inc. , 173 Fed.(2d) 566; Commissioner v. Lawrence Operating Co. , 152 Fed.(2d) 938 , and Magruder v. Frederick M. Supplee, et ux. , 316 U.S. 394, Ct.D. 1559, C.B. 1942-1, 173.

Accordingly, it is held that, in Delaware, ad valorem taxes on real estate accrue on their due date when liens attach to the property. For taxable years to which the Internal Revenue Code of 1939 is applicable, only the owner of the property at such time is entitled to deduct such taxes when paid or accrued, depending upon the method of accounting employed, irrespective of when the assessment becomes final and whether the assessment antedates a change of ownership.

G.C.M. 23512, C.B. 1943, 134, is revoked.