Rev. Rul. 60-133

Inquiries have been received from South Carolina and West Virginia property owners relating to the effect, for Federal income tax purposes, of certain changes, made by their respective state legislatures, in assessment and lien dates for property taxes. Specifically, the question is whether the change of assessment and certain lien dates from January 1 to December 31 would result into accrual dates for property taxes in 1959, thus requiring calendar-year, accrual-method, taxpayers to deduct twenty-four months' property taxes in their 1959 Federal income tax returns.

Many of these taxpayers desire to continue their consistent practice of deducting twelve month's property taxes each year for Federal income tax purposes. Such practice clearly reflects their income and a deduction of two years' taxes in one year would tend to distort income. In addition, it was indicated that there would be a problem, procedurally, resulting from the inability of taxpayers to ascertain before the due date of their tax return the amount of the state property tax which will be later assessed and become a lien as of December 31st. Most accrual-method taxpayers would be required, for financial accounting and financial statement purposes, and in some cases by certain regulatory bodies, to take only one deduction in order to conform to established financial accounting principles. There is also the principle, spelled out in Income Tax Regulations, that generally items shall be treated for Federal income tax purposes in the same manner as in the books of account.

The change of assessment or lien dates does not affect the taxpayer who employs the ratable accrual method and, accordingly, taxpayers who accrue on their books one twelfth of the property tax each month over the period of time covered by the assessment are not concerned with this problem. They are deemed to be on the ratable accrual method described in Revenue Ruling 57-539, C.B. 1957-2, 303. Section 461(c) of the Internal Revenue Code of 1954 relating to the ratable accrual of real property taxes and Revenue Ruling 59-285, C.B. 1959-2, 458, are pertinent. This is a method of accounting and may not be changed without securing the prior consent of the Commissioner of Internal Revenue.

Under the provisions of section 446 and 461 of the Code and the regulations thereunder, the Commissioner of Internal Revenue is given authority to require the determination of taxable income by accounting methods which in his opinion clearly reflect income. Section 1.446-1(a) of the Income Tax Regulations provides, in part, that no method of accounting is acceptable unless, in the opinion of the Commissioner, it clearly reflects income.

Based upon a careful consideration of the factors involved herein, it is concluded that taxpayers are not required, for Federal income tax purposes, to deduct two years' taxes in 1959 by reason of changes in assessment and lien dates. Therefore, in order to clearly reflect income, they should continue their consistent practice of deducting twelve months' property taxes for their calendar year period.

It is further concluded that, in the interest of a uniform and orderly administration of the revenue laws and because of the distortion of income inherent in any other treatment, this rule, permitting a deduction for only twelve months' taxes in any taxable year, is applicable to all accrual-method taxpayers. Therefore, no such taxpayer will be permitted to take a deduction for more than twelve months' taxes in any one taxable year. Thus, in addition to West Virginia and South Carolina property owners, taxpayers owning property in other jurisdictions are governed by these rules. For example, only one deduction for property taxes is allowable to accrual-method, calendar-year, Michigan taxpayers for their taxable year ended December 31, 1958.

Since the past position of the Internal Revenue Service has not been entirely consistent with the foregoing, these rules will not be applied in the cases of taxpayers who have specifically been permitted by letter or Revenue Ruling to accrue and deduct more than twelve months' specific property taxes in a particular year. Thus, in the case of Ohio property owners who acted in accordance with Revenue Ruling 57-616, C.B. 1957-2, 305, relating to personal property taxes accrued in 1957, no change will be required by reason of these principles.

¹ Based on Technical Information Release 214, dated March 4, 1960.