Rev. Rul. 59-59

Advice has been requested concerning clarification of Revenue Ruling 57-105, C.B. 1957-1, 193, regarding the treatment for Federal income tax purposes of increases of State taxes resulting in adjustments of Federal income tax returns filed by taxpayers, computing taxable income under an accrual method of accounting.

Revenue Ruling 57-105, holds that in the case of an accrual method taxpayer, an increase in the amount of the State tax accrues and is allowed as a deduction for Federal income tax purposes when the amount is finally determined by litigation or default, or when the taxpayer acknowledges his liability to the State for the amount of such increase. However, cases closed by audits prior to May 1, 1957, are not to be reopened by the Internal Revenue Service merely to apply this ruling.

In order to clarify this ruling and to remove any ambiguity that may exist as well as to insure a uniform application of the Revenue Ruling, the last paragraph thereof is hereby deleted and the following paragraph substituted therefor:

Where, prior to May 1, 1957, audit has been made of a taxpayer's return and, as a result, there has been an allowance in the deduction for increased State taxes in the year to which such taxes related rather than the year in which they properly accrued under this Revenue Ruling, the Internal Revenue Service will take no affirmative action to reopen such returns. However, should the taxpayer, in returns filed after completion of the audit, claim the benefits of this Revenue Ruling and seek to deduct in the later years the additional taxes previously allowed as a deduction, the Service will, insofar as permitted by the Code, assert deficiencies for the earlier years to the extent that the taxpayer's liability for the earlier years was reduced by the prior allowance.