26 C.F.R. § 1.164-2

Deduction denied in case of certain taxes

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This section and § 1.275 describe certain taxes for which no deduction is allowed. In the case of taxable years beginning before January 1, 1964, the denial is provided for by section 164(b) (prior to being amended by section 207 of the Revenue Act of 1964 (78 Stat. 40)). In the case of taxable years beginning after December 31, 1963, the denial is governed by sections 164 and 275. No deduction is allowed for the following taxes:

(a) Federal income taxes. Federal income taxes, including the taxes imposed by section 3101, relating to the tax on employees under the Federal Insurance Contributions Act (chapter 21 of the Code); sections 3201 and 3211, relating to the taxes on railroad employees and railroad employee representatives; section 3402, relating to the tax withheld at source on wages; and by corresponding provisions of prior internal revenue laws.

(b) Federal war profits and excess profits taxes. Federal war profits and excess profits taxes including those imposed by title II of the Revenue Act of 1917 (39 Stat. 1000), title III of the Revenue Act of 1918 (40 Stat. 1088), title III of the Revenue Act of 1921 (42 Stat. 271), section 216 of the National Industrial Recovery Act (48 Stat. 208), section 702 of the Revenue Act of 1934 (48 Stat. 770), Subchapter D, Chapter 1 of the Internal Revenue Code of 1939, and Subchapter E, Chapter 2 of the Internal Revenue Code of 1939.

(d) Foreign income taxes. Except as provided in § 1.901-1(c)(2) and (3), foreign income taxes, as defined in § 1.901-2(a), paid or accrued (as the case may be, depending on the taxpayer's method of accounting for such taxes) in a taxable year, if the taxpayer chooses to take to any extent the benefits of section 901, relating to the credit for taxes of foreign countries and possessions of the United States, for taxes that are paid or accrued (according to the taxpayer's method of accounting for such taxes) in such taxable year.

(e) Real property taxes. Taxes on real property, to the extent that section 164(d) and § 1.164-6 require such taxes to be treated as imposed on another taxpayer.

(f) Federal duties and excise taxes. Federal import or tariff duties, business, license, privilege, excise, and stamp taxes (not described in paragraphs (a), (b), (c), or (h) of this section, or § 1.164-4) paid or accrued within the taxable year. The fact that any such tax is not deductible as a tax under section 164 does not prevent (1) its deduction under section 162 or section 212, provided it represents an ordinary and necessary expense paid or incurred during the taxable year by a corporation or an individual in the conduct of any trade or business or, in the case of an individual for the production or collection of income, for the management, conservation, or maintenance of property held for the production of income, or in connection with the determination, collection, or refund of any tax, or (2) its being taken into account during the taxable year by a corporation or an individual as a part of the cost of acquiring or producing property in the trade or business or, in the case of an individual, as a part of the cost of property held for the production of income with respect to which it relates.

(g) Taxes for local benefits. Except as provided in § 1.164-4, taxes assessed against local benefits of a kind tending to increase the value of the property assessed.

(h) Excise tax on real estate investment trusts. The excise tax imposed on certain real estate investment trusts by section 4981.

(i) Applicability dates. Paragraph (d) of this section applies to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021.

[T.D. 6780, 29 FR 18145, Dec. 22, 1964, as amended by T.D. 7767, 46 FR 11263, Feb. 6, 1981; T.D. 9959, 87 FR 317, Jan. 4, 2022]

Notes of Decisions

Cited in 16 cases, 1968–2002 · leading case: Perry v. Comm'r, 92 T.C. 470 (Tax Ct. 1989).

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Perry v. Comm'r, 92 T.C. 470 (Tax Ct. 1989). · cites it 2× “Perhaps it was not controverted before, because the answer seemed to be so clear.”

Schultz v. Comm'r, 50 T.C. 688 (Tax Ct. 1968). · cites it 2× “Such being the case, the standards against which deductibility should be measured are the same as those applicable to the expenditures for insurance *698 and storage charges.”

Hudlow v. Comm'r, 30 T.C.M. 894 (Tax Ct. 1971). · cites it 2× “With respect to Jefferson's liability for withholding taxes, we note that even if the corporation had paid over such taxes to the respondent in the ordinary course of business, it would not have been entitled to a deduction by reason of such transmittal.”

McCabe v. Comm'r, 46 T.C.M. 390 (Tax Ct. 1983). · cites it 2× “164-2(f), Income Tax Regs. ↩ Also portions of the utility and telephone taxes may already have been deducted as home office expenses.”

Grothues v. Comm'r, 2002 T.C. Memo. 287 (Tax Ct. 2002). · cites it 4× “Commissioner, 59 T.C. 37 , 45 (1972) ; sec. 1.164-2(a) , (f), Income Tax Regs.”

Campbell v. Comm'r, 39 T.C.M. 676 (Tax Ct. 1979). · cites it 2× “164-2(a), Income Tax Regs. Petitioners alternatively contend that section 678(c) exempts them from the coverage of section 678(a)(1) .”

Pollak v. Comm'r, 49 T.C.M. 78 (Tax Ct. 1984). · cites it 2× “Accordingly, we hold that the petitioner has failed to prove that no part of his underpayment of tax for 1978 was due to negligence or to an intentional disregard of rules and regulations.”

Summers v. Comm'r, 42 T.C.M. 1195 (Tax Ct. 1981). · cites it 2× “No deduction is allowable under Section 164 for Federal import duties or tariffs. Sec. 1.164-2(f), Income Tax Regs.”

Lapin v. United States, 655 F. Supp. 1344 (D. Haw. 1987). “26 C.F.R. § 1.164-2 . Section 265 operates as an exception to amounts otherwise deductible.”

White v. Comm'r, 52 T.C.M. 702 (Tax Ct. 1986). · cites it 4× “Consequently, the claimed real estate taxes as an itemized deduction would amount to allowing petitioners a double deduction for real estate taxes in 1980.”

Paal v. Comm'r, 37 T.C.M. 252 (Tax Ct. 1978). · cites it 4× “The retirement plans are comparable in all respects to the civil service retirement system applicable to Federal employees. 1. Held, petitioners are not entitled to a deduction for payment of a Federal excise tax on their car used solely for personal purposes.”

Di Lucente v. Comm'r, 40 T.C.M. 489 (Tax Ct. 1980). · cites it 2× “Similarly, sections 3502(a) and (b) provide that the FICA tax and the taxes withheld from wages are nondeductible under subtitle A to the taxpayer or his employer.”

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