Rev. Rul. 73-64

Advice has been requested with respect to the proper accrual date, for Federal income taxes, of real property and personal property taxes of the State of Michigan, and the treatment of a taxpayer using an improper accrual date. N, an accrual basis, calendar year taxpayer, is located in the State of Michigan. Under Michigan law the assessment date with respect to real property and personal property taxes is December 31 of each year and the lien date with respect to the real property taxes is December 1 of the subsequent year. See sections 7.2 and 7.81 respectively of the Michigan Statutes Annotated, as amended. Pursuant to Michigan law there is no personal liability for the nonpayment of real property taxes. In the event of nonpayment a lien attaches to the property and to any chattel thereon. The taxing authority may then sell the property to obtain payment of the real property taxes. The owner of the real property may not be held personally liable, even if a sale of the real property does not satisfy the tax liability. See Opinions of the Michigan Attorney General 1928-1930, p. 426. However, as to personal property there is personal liability, which attaches as of the assessment date. See section 7.81 of the Michigan Statutes Annotated, as amended. Thus, the taxing authority can look to the individual for payment of personal property taxes.

Section 1.461-1(a)(2) of the Income Tax Regulations provides that, under an accrual method of accounting, an expense is deductible for the taxable year in which all the events have occurred which determine the fact of the liability and the amount thereof can be determined with reasonable accuracy.

The Tax Court of the United States in Keil Properties, Inc. v. Commissioner, 24 T.C. 1113 (1955), held that the proper accrual date for real property taxes is the date on which the taxpayer becomes personally liable for the taxes or a lien for such taxes attaches to the property while he is the owner. The decision of the Supreme Court of the United States in Magruder v. Supplee, 316 U.S. 394, 1942-1 C.B. 173, was cited in Keil as a basis for the Tax Court's position. The Keil decision has been followed in other court cases. See, for example, Messer Oil Corporation v. Commissioner, 28 T.C. 1082 (1957).

Prior to 1955, the Service in Revenue Ruling 39, 1953-1 C.B. 79, had held that the "assessment date" was the proper date for the accrual of Michigan property tax. However, in Revenue Ruling 56-145, 1956-1 C.B. 612, Keil was cited as a basis for the holding that Delaware ad valorem taxes accrue on the date a lien attaches to the property. See, also Revenue Ruling 56-392, 1956-2 C.B. 971, for a similar holding with respect to Oregon real property taxes.

In the instant case, while there is no personal liability in Michigan for the payment of real property taxes, a lien does attach to the property on December 1 of the year subsequent to the year of assessment. However, there is a personal liability with respect to the personal property that attaches as of the assessment date.

Accordingly, the proper date for N to accrue the Michigan real property taxes is December 1 (the lien date) of the year subsequent to the year of assessment while the proper date for N to accrue the Michigan personal property taxes is December 31 (the assessment date).

Section 446 of the Code in substance requires the permission of the Commissioner of Internal Revenue before a taxpayer changes his method of accounting for Federal income tax purposes. See section 1.446-1(e) of the regulations, relating to requirements respecting the adoption or change of accounting method. A consistent method for the deduction of State property taxes is considered to be a method of accounting.

Accordingly, it is further held that for Federal income tax purposes a Michigan taxpayer may not change his method of accounting for State property taxes without first obtaining the permission of the Commissioner.

Any Michigan taxpayer who wishes to change his method of accounting for State property taxes to the method prescribed herein must request the permission of the Commissioner.

Furthermore, where a taxpayer, for Federal income tax purposes, has deducted State property taxes under a consistent method of accounting for such items, pursuant to section 446(b) of the Code, the Internal Revenue Service will not change the taxpayer's method of accounting for such additional State taxes unless the method used does not clearly reflect income.

Revenue Ruling 39 is hereby revoked.