The opinion
F. A. SMITH AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Smith v. Commissioner
Docket No. 12094.
United States Board of Tax Appeals
11 B.T.A. 301 ; 1928 BTA LEXIS 3831 ;
March 29, 1928 , Promulgated
*3831 Taxes imposed by Houston County Levee District No. 1 of the State of Texas for the construction and maintenance of a levee, which were levied against and paid by petitioners in 1923, are not deductible from gross income.
J. W. Young, Esq., for the petitioners.
Bruce A. Low, Esq., for the respondent.
LOVE
*301 This proceeding is for the redetermination of deficiencies in income tax for the calendar year 1923, in the amount of $147.69, asserted *302 against each of the petitioners who made returns for that year under the community property laws of the State of Texas.
The sole issue presented is whether taxes paid, pursuant to levy as prescribed by law, to the Houston County Levee District No. 1, of the State of Texas, are deductible from gross income.
FINDINGS OF FACT.
The petitioners are husband and wife and are residents of the State of Texas. For the year 1923 they made separate returns of income under the community property laws of that State.
Petitioners are and were during 1923 members of a partnership known as Smith Brothers, in which they owned a one-half interest.
In 1921, in accordance with existing law, Houston *3832 County Levee District No. 1 was created. Certain land within this district was owned by the partnership and taxes for the purpose of meeting the bonded indebtedness incurred in constructing and maintaining the levee were assessed on an ad valorem basis.
In the year 1923 there was levied and collected from the partnership by the Houston County Levee District No. 1, taxes in the amount of $7,606.71.
In their returns for the year 1923, each of the petitioners claimed as deductions the proportionate share of the taxes paid by the partnership to the said levee district. Upon audit of the returns the Commissioner disallowed the deductions.
OPINION.
LOVE: The petitioners contend, first, that the taxes in question are constitutional taxes for a public purpose and as such are deductible under section 214(a)(3) of the Revenue Act of 1921; and second, that if they are not such taxes, then the amount thereof used for paying interest on the bonds is deductible under section 214(a)(2) of the 1921 Act as interest paid.
We do not deem it necessary to go into the constitutional and statutory provisions of the law of Texas with reference to the taxes in question. The Supreme Court *3833 of Texas has held the payments to be taxes for local improvements or, in other words, assessments. See ; .
In , the Board construed section 234(a)(3)(c) of the Revenue Act of 1918 to mean special or local assessments as a class and as such not deductible. Our reasoning therein applies with equal force to the provision of section *303 214(a)(3)(c) of the 1921 Act. It is clear, therefore, that petitioners' first contention is unsound and can not be sustained.
However, petitioners contend that that part of the assessment paid in 1923 which was used for the purpose of paying interest on the bonds issued by Houston Levee District No. 1 is deductible as interest paid under section 214(a)(2) of the 1921 Act. With this contention we can not agree.
The bonds were the obligation of the Levee District and not of the individuals. The assessment of the taxes in question can not be said to constitute a payment of interest on a personal obligation.
*3834 The Commissioner's action is, therefore, sustained.
Judgment will be entered for the respondent.