Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-157

1975-1 C.B. 66

Sec. 164
Sec. 461

IRS Headnote

Massachusetts real property tax; accrual date. An accrual method fiscal year Massachusetts corporation that did not elect under section 461(c)(1) of the Code to accrue Massachusetts real estate taxes ratably over the period to which they apply but rather accrued them as of January 1 of each year, the date they are assessed and become liens, must continue to accrue them as of January 1 despite a legislative change in the billing period from a calendar to a fiscal year.

Full Text

Rev. Rul. 75-157

Advice has been requested concerning the Federal income tax treatment of deductions for real estate taxes by an accrual method taxpayer under the circumstances described below.

The taxpayer, a Massachusetts corporation, computes taxable income under the accrual method of accounting and files its Federal income tax returns on the basis of a fiscal year ending April 30. The taxpayer did not elect under section 461(c)(1) of the Internal Revenue Code of 1954 to accrue real estate taxes ratably over the period to which they apply, but rather deducted the taxes in the year in which they accrued.

In Massachusetts, real property is assessed as of January 1, and a lien for the tax assessed attaches as of that same date. Although the Massachusetts legislature recently changed the billing period for real property tax from a calendar year to a fiscal year ending June 30, no change was made to the assessment and lien date which remains January 1st.

The recently enacted legislation, Mass. Ann. Laws. Ch. 60, sec. 3, note (1973), provides for changes in billing of taxes for the 18-month fiscal period beginning January 1973. In general, the changes require two assessments and two bills for the 18-month period. The first bill is based upon property assessed as of January 1, 1973, at a rate of two-thirds of the amount required to be assessed by law for the 18-month fiscal period. The second bill is based upon property assessed as of January 1, 1974, at a rate of one-third of the amount required to be assessed by law for the 18-month fiscal period.

Section 1.461-1(a)(2) of the Income Tax Regulations states, in part, that under an accrual method of accounting, an expense is deductible for the taxable year in which all the events have occurred that determine the fact of the liability and the amount thereof can be determined with reasonable accuracy. Section 1.461-1(c)(1) provides certain general rules in connection with the accrual of real property taxes that are not applicable here. It also provides that for general rules relating to deductions for taxes section 164 of the Code and the regulations thereunder should be consulted.

Section 164(a) of the Code provides, in part, that state and local, and foreign, real property taxes shall be allowed as a deduction for the taxable year within which paid or accrued.

Massachusetts real property taxes levied as of January 1st, the lien date, have been held to be accruable on that date. See George E. Warren Corporation, 11 P-H B.T.A. Mem. 806 (1942) and Harbor Building trust, 11 P-H B.T.A. Mem. 850 (1942).

Accordingly, it is held that since the lien and assessment date for Massachusetts real property taxes has not changed despite the new billing periods, the taxpayer must continue to accrue Massachusetts real property taxes as of January 1 of each year based upon the amount of taxes that are assessed as of and become a lien on such date.