Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 64-47

1964-1 C.B. 98

Sec. 164

IRS Headnote

A corporation, financial or otherwise, paying the taxes levied by the State of Ohio upon its shareholders' shares of stock, pursuant to the provisions of Title 57 of Page's Ohio Revised Code Annotated, may deduct the amount of such payments under section 164(e) of the Internal Revenue Code of 1954, provided that it is not reimbursed by its shareholders for such payments.

However, the taxes levied upon deposits in financial institutions pursuant to Title 57 are not deductible under section 164(e) of the Code by financial institutions paying such taxes, but are deductible under section 164(a) of the Code.

Full Text

Rev. Rul. 64-47

Advice has been requested as to the deductibility, under section 164(e) of the Internal Revenue Code of 1954, of certain taxes imposed by the State of Ohio upon shareholders' stock in corporations and financial institutions and deposits in financial institutions.

The State of Ohio imposes taxes upon shares of stock in corporations and financial institutions and deposits in financial institutions. The provisions relating to these taxes are found in Title 57 of Page's Ohio Revised Code Annotated.

Section 5711.01 of Title 57 provides that shares of stock in corporations are taxable property. Section 5711.03 provides that each taxpayer shall list in his annual return all taxable property which he owns.

Section 5719.09 of Title 57 provides that taxes on all nonwithdrawable shares of stock in a financial institution shall be collected by such institution from its individual shareholders and remitted to the Treasurer of the State.

Section 5701.05 of Title 57 defines `deposits' as including every deposit which the person owning the beneficial interest therein is entitled to withdraw in money whether or not it is evidenced by a checking account, certificate of deposit or certificate of running or other withdrawable stock. Section 5725.07 provides that taxes on deposits shall be assessed in the name of the financial institution. Section 5719.11 provides that a financial institution shall pay to the Treasurer of the State taxes assessed in its name.

Section 164(e) of the Code provides that a corporation will be allowed a deduction for payment it makes of a tax imposed on a shareholder, on account of his interest as a shareholder, where the shareholder does not reimburse the corporation.

Section 1.164-7 of the Income Tax Regulations provides that banks and other corporations paying taxes assessed against the shares of stock issued by such corporations, without reimbursement from such shareholders, may deduct the amount of taxes so paid. In such cases, no deduction is allowable to the shareholders for such taxes and the amount so paid is not includible in the gross income of the shareholder. In general, under the regulations, the tax must be one that is imposed on the shareholder, not the corporation, and it must be imposed on the shareholder on account of his interest as a shareholder.

It is apparent from sections 5711.03 and 5719.09 of Title 57 that the taxes levied upon shares of stock in corporations, financial or otherwise, are imposed upon the shareholder on account of his interest as a shareholder. It is also apparent that the tax levied upon deposits in financial institutions is not a tax imposed upon a shareholder.

Accordingly, it is held that a corporation, financial or otherwise, paying the taxes levied by the State of Ohio upon its shareholders' stock may deduct the amount of such payments under section 164(e) of the Code provided that it is not reimbursed by its shareholders for such payments. In such cases, no deduction is allocable to the shareholders for such taxes and the amount paid by the corporation is not includible in the gross income of the shareholder.

It is further held that taxes levied by the State of Ohio upon deposits in financial institutions are deductible under section 164(a) of the Code by the financial institution paying such taxes. In the event the financial institution is reimbursed for such tax by the depositor, the amount of the reimbursement is includible in the gross income of the financial institution.