Taxation-Federal Income Tax-Accrual of State Property Taxes Paid Under Protest
During the years 1946 to 1950 a local tax upon respondent’s real property was assessed at one hundred dollars. Respondent paid the full assessment to avoid interest penalties and seizure and sale of the property under tax liens, but contested the assessment in the state court, denying any liability greater than eighty-five dollars. In each of the preceding years, complying with a private ruling directed to it by the Commissioner, respondent had deducted the full one hundred dollars, and, when in 1951 the tax was fixed by the state court at ninety-five dollars, respondent included the five-dollar refund in its gross income. Respondent then instituted this action to recover an alleged overpayment of income tax in 1951, claiming that ten dollars of the one hundred-dollar deduction taken in each year should have been deferred until 1951, and that the five-dollar refund should be excluded from that year’s gross income. The district court disagreed with respondent’s contentions and accepted the view of the Commissioner that the whole amount of the assessed tax accrued, and thus was properly deducted, in the year in which it was paid and that the five-dollar refund represented income to the taxpayer in 1951. The Second Circuit reversed on both counts. On certiorari, held, affirmed. The remittance of the property tax, under protest, was not a type of payment which would serve to accrue the contested portion of the tax before respondent’s liability had been determined by the state court. United States v. Consolidated Edison Co., 366 U.S. 380 (1961).