Category: Deductions & Credits Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Real property taxes assessed against local benefits are not deductible taxes. IRC Section 164(c)(1). Regulation Section 1.164-4(a) provides inter alia that taxes for local benefits "...are imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied." Normally, taxes assessed against local benefits are easily identifiable because the tax in question is levied against something less than the entire jurisdiction of the taxing authority in question (e.g., a certain neighborhood benefiting from a new sidewalk, street lights, etc.) In this case, the tax in question is levied against the entire jurisdiction of the taxing entity. Private Letter Ruling 8830001 deals with a private residential community which established a special taxing district pursuant to state law and assessed each owner for the funds needed to provide common area maintenance and security. The ruling holds that the so-called taxes are not deductible real property taxes because of the private and special nature of these levies. While private rulings cannot be cited as precedent either by the IRS or taxpayers under Section 611(j)(3), it seems likely that this ruling sets forth the position likely to be taken by the Government should this matter come under scrutiny or if the taxpayers in question seeks a private ruling of their own. A variety of published rulings and cases speak to the issue of purported real estate taxes directly traceable to some specified benefit.
The common themes running through the citations set forth above are A) the so-called taxes were levied to provide some special service or privilege; and B) the services provided tend to increase the value of the affected property owners. It seems to me the prospects for success in this matter are grim. 1. It seems inescapable that the assessments in question would tend to enhance property values. I think the fact that the whole taxing jurisdiction is affected does not negate this issue. If these assessments do increase values, this tax would be squarely at odds with the regulations under Section 164. 2. It seems clear that the so-called tax in this case is directly traceable to certain benefits which fall outside of what appears to be the general welfare of the residents of the taxing jurisdiction. If that is so, the tax is at odds with the list of cases and published rulings set forth above. 3. I would be very uncomfortable advising the taxpayers in this case
to go forward without a private ruling Since there is already a negative
ruling on very similar facts, I think the odds of success are very low. |
