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Written Determination
Number: 8020073
Internal Revenue Service
February 21, 1980
Symbol: T:I:I:3:1
This is in response to your letter dated September 25, 1979, and subsequent correspondence, in which you request a ruling concerning the federal income tax treatment of Chapter 698, Montana Session Law 1979, House Bill No. 925 (the Bill).
The Bill provides for a direct property tax relief payment to persons subject to property tax on their principal residence for the calendar years 1979 and 1980. The State of Montana shall pay all qualified homeowners an amount equal to the property tax actually due on the individual's home or $65, whichever is smaller.
The property tax on an individual's home is due in two equal installments; the first half payment on November 30 and the second half payment on the succeeding May 31.
In order to be eligible to receive the payment, an individual's residence must have been occupied during ten of the twelve months preceding the date the individual makes an application for the relief payment and must be the person to whom the property tax is assessed.
It is not necessary that a person actually pay any part of the real property tax on his home in order to be eligible for a relief payment. The sole criterion in the Bill concerning eligibility for receiving a property tax relief payment is that the property is assessed to the individual; that is, the individual is the owner of record to whom the tax assessment is sent. If a homeowner allows the real property taxes due to lapse for a three year period, local government officials would sell the property for the tax due.
The first year's relief payments will be made in the form of a state warrant which will be mailed to eligible applicants after December 1.
Section 61 of the Internal Revenue Code and the Income Tax Regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived.
Section 164(a) of the Code provides, in part, the general rule that except as otherwise provided, state and local taxes are allowable as a deduction for the taxable year within which paid or accrued.
Section 111 (a) of the Code provides, in part, that gross income does not include income attributable to the recovery during the taxable year of a bad debt, prior tax, or delinquent amount, to the extent of the amount of the recovery exclusion with respect to such debt, tax, or amount.
Section 1.111-1 of the Income Tax Regulations provides, in part, that the term "recovery exclusion" means an amount equal to the portion of bad debt, prior taxes, etc. which, when deducted or credited for a prior taxable year, did not result in a reduction of any tax of the taxpayer.
Section 111(b)(2) of the Code defines the term "prior tax" as a tax on account of which a deduction or credit was allowed for a prior taxable year.
Revenue Ruling 79-15, 1979-1 C.B. 80, illustrates the application of the zero bracket amount in computing the amount of a state income tax refund that is excludable from gross income under the tax benefit rule of section 111 of the Code.
In Revenue Ruling 70-86, 1970-1 C.B. 23, taxpayers received property tax rebates for real property taxes assessed against them. The Revenue Ruling holds that the relief payments received by certain real property taxpayers were recovery of a tax previously paid and excludable to the extent that the underlying real property tax deduction did not result in a tax benefit for the prior year. When real property taxes for a certain year were paid in two installments, one payment in the year of assessment and the other in the next subsequent year, the relief payment was attributed to each such year in a manner proportionate with the installments made during such year. A taxpayer who paid none of his accrued property taxes has the unpaid taxes treated as an lien on his real property. Therefore, the taxpayer who pays no property tax and receives a rebate has this rebate treated as a reduction of the amount of tax to be paid.
In Revenue Ruling 78-194, 1978-1 C.B. 4, taxpayers who receive property tax rebates are not necessarily the taxpayers against whom the real property tax is assessed. The only requirements to receiving a rebate under the New Jersey Statute were to be a citizen and resident of New Jersey and to have treated one's dwelling house as a primary residence on October 1, 1976. Revenue Ruling 78-194 holds that the tax rebate for property tax due and payable on a dwelling house for 1977 was includible in the gross income of a taxpayer for 1977 only to the extent it exceeded the property tax for the dwelling house actually paid in 1977 by the taxpayer.
Under the Bill, we are dealing with a rebate of real property taxes assessed. Accordingly, based on the Code, regulations and revenue rulings cited above, it is concluded as follows:
Situation 1:
A homeowner who receives a rebate of real property tax previously paid, for which an itemized deduction was claimed on a prior year federal income tax return, must include the rebate in gross income in the year received to the extent of any federal income tax benefit, in accordance with section 111 of the Code. In addition, to the extent the rebate exceeds property tax paid, such excess is includible in gross income.
Situation 2:
A homeowner who receives a rebate of real property tax previously paid, for which an itemized deduction was not claimed on a prior year federal income tax return, is not required to include the rebate in gross income, except to the extent the rebate exceeds property tax paid.
Situation 3:
A homeowner who receives a rebate of real property tax in the year the real property tax is paid is not required to include the rebate in gross income in the year received, except to the extent the rebate exceeds property tax paid. However, if the homeowner itemizes deductions on a current year federal income tax return, the amount of the section 164 deduction for property tax paid must be reduced by the amount of the rebate.
Situation 4:
A homeowner who paid none of the assessed real property taxes has the unpaid taxes treated as a lien on the individual's real property. Therefore, the homeowner who pays no property tax and receives a rebate has this rebate treated as a reduction of the amount of tax to be paid. In addition, to the extent the rebate exceeds property taxes assessed, such excess is includible in gross income.
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SEARCHING: All IRS Materials
RESULTS: FOUND: 310 HITS IN 5 DOCUMENTS SEARCHING ON section 111 and tax and refund and homeowner
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Written Determination
Number: 8 01 5 0 99
Internal Revenue Service
January 1 7, 1 98 0
Symbol: T:I:I:3: 1
This is in reply to a letter dated March 1 9, 1 979, and subsequent correspondence, requesting a ruling concerning the federal income tax treatment of payments to be made to certain homeowners and renters by the State of Utah.
Utah Code Ann. Section 59-26- 1 ; The Utah Excess Revenues Return Act (the Section), provides for payments to eligible homeowners and renters from "excess free funds."
To be eligible for a payment, a homeowner or renter must have been domiciled in the state for the entire calendar year for which the claim for payment is made, and must not be claimed as a personal exemption on another individual's income tax return. Only one claimant in a household can receive a payment. Claimants will not be eligible to receive a payment if they receive public funds in the form of rent subsidy or a specific allocation of public funds for the payment of taxes or rents during the one-year period prior to the month during which the claim for payment is filed.
Payments to eligible homeowners are measured by the amount of property taxes levied on their homes. Eligible homeowners receive a payment equal to 27 percent of the property taxes levied for the calendar year for which the claim is made, except that the payment cannot be less than $ 100 or more than $4 00 . The payments to eligible renters are equal to 2.7 percent of the rent paid on their households during the one-year period prior to the month during which the claim is made, or $ 100 , whichever is greater.
Section 6 1 of the Internal Revenue Code and the Income Tax Regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived.
Section 1 64(a) of the Code provides, in part, the general rule that except as otherwise provided, state and local taxes are allowable as deduction for the taxable year within which paid or accrued.
Section 111 (a) of the Code provides, in part, that gross income does not include income attributable to the recovery during the taxable year of a bad debt, prior tax, or delinquency amount, to the extent of the amount of the recovery exclusion with respect to such debt, tax, or amount.
Section 1 . 111 - 1 of the regulations provides, in part, that the term "recovery exclusion" means an amount equal to the portion of bad debts, prior taxes, etc., which, when deducted or credited for a prior taxable year, did not result in a reduction of any tax of the taxpayer.
Section 111 (b)(2) of the Code defines the term "prior tax" as a tax on account of which a deduction or credit was allowed for a prior taxable year.
In Rev. Rul. 7 0 -86, 1 97 0 - 1 C.B. 23, eligible taxpayers in California received rebates of real property taxes assessed against personal residences in the form of relief payment checks issued by the State of California. Rev. Rul. 7 0 -86 concludes that the relief payments were a recovery of property tax previously paid; the relief payments are therefore excludable from income to the extent that an underlying real property tax deduction did not result in a federal income tax benefit for a prior tax year.
Similarly, in Rev. Rul. 78- 1 94, 1 978- 1 C.B. 24, the issue considered was the federal income tax treatment of New Jersey homestead tax rebates and tenants’ property tax rebates. The only requirements for receiving a rebate under New Jersey law were to be a citizen and resident of New Jersey and to have treated one's dwelling house as a primary residence on October 1 , 1 976. Rev. Rul. 78- 1 94 concludes that the rebate of property tax due and payable on a dwelling house for 1 977 was includible in the recipient's gross income for 1 977 only to the extent it exceeded the property actually paid on the dwelling house by the taxpayer in 1 977. Rev. Rul. 78- 1 94 also concludes that a tenant's property tax rebate was not includible in the recipient's gross income because the rebate was in the nature of a return of a previously nondeductible item (rent) paid by the taxpayer. Landlords in New Jersey were required to pass on to tenant rebates received for propety taxes actually paid.
On December 28, 1 979, the Supreme Court of Utah, in Baker v. Matheson , -- Utah 2d --( 1 979), --P.2d --( 1 979), ruled that the Section is constitutional under the Utah and United States Constitutions, concluding that payments authorized by the Section are not real property tax rebates. The court ruled that payments authorized by the Section are not property tax rebates because the payments are made pursuant to the power of the Utah legislature to expend public funds in the interest of the public health, safety, morals and welfare.
Notwithstanding the decision of the Supreme Court of Utah concerning the constitutionality of the Section for purposes of Utah state law, it is the conclusion of the Internal Revenue Service that for federal income tax purposes, the net effect of the Section is to provide eligible Utah taxpayers a rebate of real property taxes and a rebate of rent.
Accordingly, based on the Code, regulations and revenue rulings cited above, it is concluded as follows:
Situation 1 :
A homeowner who receives a rebate of real property tax previously paid, for which an itemized deduction was claimed on a prior year federal income tax return, must include the rebate in gross income in the year received to the extent of any federal income tax benefit, in accordance with section 111 of the Code. In addition, to the extent the rebate exceeds property tax paid, such excess is includible in gross income.
Situation 2:
A homeowner who receives a rebate of real property tax previously paid, for which an itemized deduction was not claimed on a prior year federal income tax return, is not required to include the rebate in gross income, except to the extent the rebate exceeds property tax paid.
Situation 3:
A homeowner who receives a rebate of real property tax in the year the real property tax is paid is not required to include the rebate in gross income in the year received, except to the extent the rebate exceeds property tax paid. However, if the homeowner itemizes deductions on a current year federal income tax return, the amount of the section 1 64 deduction for property tax paid must be reduced by the amount of the rebate.
Situation 4:
A tenant who receives a rebate of rent paid is not required to include the rebate in gross income because the rebate is in the nature of a return of a previously nondeductible item (rent) paid by the tenant.
Rev. Rul. 79- 1 5, 1 979- 1 C.B. 8 0 (copy enclosed), illustrates the computation of the amount of a state income tax refund that is excludable from gross income under the tax benefit rule of section 111 of the code; the computation principle of Rev. Rul. 79- 1 5 is applicable to the rebates ruled on herein.
We regret the delay in responding to your ruling request and apologize for any inconvenience that delay may have caused. If we can be of assistance to you in the future, please do not hesitate to call on us.
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