(a) Nondeductibility of expenses allocable to exempt income. (1) No amount shall be allowed as a deduction under any provision of the Code for any expense or amount which is otherwise allowable as a deduction and which is allocable to a class or classes of exempt income other than a class or classes of exempt interest income.
(2) No amount shall be allowed as a deduction under section 212 (relating to expenses for production of income) for any expense or amount which is otherwise allowable as a deduction and which is allocable to a class or classes of exempt interest income.
(b) Exempt income and nonexempt income. (1) As used in this section, the term class of exempt income means any class of income (whether or not any amount of income of such class is received or accrued) wholly exempt from the taxes imposed by Subtitle A of the Code. For purposes of this section, a class of income which is considered as wholly exempt from the taxes imposed by subtitle A includes any class of income which is:
(i) Wholly excluded from gross income under any provision of Subtitle A, or
(ii) Wholly exempt from the taxes imposed by Subtitle A under the provisions of any other law.
(2) As used in this section the term nonexempt income means any income which is required to be included in gross income.
(c) Allocation of expenses to a class or classes of exempt income. Expenses and amounts otherwise allowable which are directly allocable to any class or classes of exempt income shall be allocated thereto; and expenses and amounts directly allocable to any class or classes of nonexempt income shall be allocated thereto. If an expense or amount otherwise allowable is indirectly allocable to both a class of nonexempt income and a class of exempt income, a reasonable proportion thereof determined in the light of all the facts and circumstances in each case shall be allocated to each.
(d) Statement of classes of exempt income; records. (1) A taxpayer receiving any class of exempt income or holding any property or engaging in any activity the income from which is exempt shall submit with his return as a part thereof an itemized statement, in detail, showing (i) the amount of each class of exempt income, and (ii) the amount of expenses and amounts otherwise allowable allocated to each such class (the amount allocated by apportionment being shown separately) as required by paragraph (c) of this section. If an item is apportioned between a class of exempt income and a class of nonexempt income, the statement shall show the basis of the apportionment. Such statement shall also recite that each deduction claimed in the return is not in any way attributable to a class of exempt income.
(2) The taxpayer shall keep such records as will enable him to make the allocations required by this section. See section 6001 and the regulations thereunder.
Notes of Decisions
Manocchio v. Comm'r, 78 T.C. 989 (Tax Ct. 1982).
· cites it 4× “Under this provision, an amount cannot be deducted if it is "allocable to" a class of tax-exempt income other than interest.”
Metzger v. Comm'r, 88 T.C. 834 (Tax Ct. 1987).
· cites it 2× “, provides as follows: Expenses and amounts otherwise allowable which are directly allocable to any class or classes of exempt income shall be allocated thereto; and expenses and amounts directly allocable to any class or classes of nonexempt income shall be allocated thereto.”
Induni v. Comm'r, 98 T.C. 618 (Tax Ct. 1992).
· cites it 12× “Held, Ps' mortgage interest and real property tax are indirectly allocable to their tax-exempt LQA, and therefore, the portion of each deduction allocable to their LQA is disallowed under sec.”
Stocks v. Comm'r, 98 T.C. 1 (Tax Ct. 1992).
· cites it 2× “, provides as follows: Expenses and amounts otherwise allowable which are directly allocable to any class or classes of exempt income shall be allocated thereto; and expenses and amounts directly allocable to any class or classes of nonexempt income shall be allocated thereto.”
Rickard v. Comm'r, 88 T.C. 188 (Tax Ct. 1987).
· cites it 4× “Held , as petitioners' farm income is exempt from tax by virtue of Squire v. Capoeman , 351 U.S. 1 (1956) , petitioners are denied their farming expense deductions.”
Fabens v. Comm'r, 62 T.C. 775 (Tax Ct. 1974).
· cites it 12× “In addition, respondent disallowed a portion of the paying and receiving commissions in the ratio of tax-exempt income to total income, including capital gains, realized over the life of the trust.”
Deason v. Comm'r, 41 T.C. 465 (Tax Ct. 1964).
· cites it 4× “265-1(b)(1)(i) defines wholly exempt income as income which is wholly excluded from *171 gross income under any provision of subtitle A.”
Synanon Church v. Comm'r, 57 T.C.M. 602 (Tax Ct. 1989).
· cites it 2× “265-1, Income Tax Regs. We have previously held, however, that the gifts and inheritances included in petitioner's income by respondent are taxable and are not to be excludable under section 102 .”
Micorescu v. Comm'r, 1998 T.C. Memo. 398 (Tax Ct. 1998).
· cites it 2× “Petitioners want the Court to allocate most "room and board" expenses to "room and board" income and almost none of it to "service" income.”
Goeden v. Comm'r, 1998 T.C. Memo. 18 (Tax Ct. 1998).
· cites it 2× “Petitioners contend that they are not liable for the addition to tax because (1) there was substantial authority for reporting as taxable only part of the settlement payments received in that year, and (2) their Federal income tax return adequately disclosed the settlement with…”
Noel v. Comm'r, 1997 T.C. Memo. 113 (Tax Ct. 1997).
· cites it 2× “Section 265 precludes a deduction for legal expenses attributable to a class of income that is exempt from taxation.”
Tinnerman v. Comm'r, 2010 T.C. Memo. 150 (Tax Ct. 2010).
· cites it 2× “Petitioner acquired citizenship without legislative act, and Petitioner was domiciled within one of the 50 United States), the corporation classified the distribution for federal income tax purposes as items of exempt income subject to the expense provisions of I.”
Annotations are extracted automatically from the opinions in the
Syfert caselaw corpus and ranked by authority, recency, and
treatment. Dots show Syfertize treatment of the citing case itself.