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Rev. Rul. 54-598


Rev. Rul. 54-598; 1954-2 C.B. 121

DATED
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Citations: Rev. Rul. 54-598; 1954-2 C.B. 121

Distinguished by Rev. Rul. 58-25

Rev. Rul. 54-598

City Ordinance No. 83, Series 1950, as amended, of Louisville, Kentucky, provides that every person, association, corporation, or other entity engaged in an occupation, trade, profession, or other activity in the city shall pay into the Sinking Fund of the city an annual license fee for the privilege of engaging in such activities. The fee is measured by 1 percent of all salaries, wages, commissions and other compensation earned by every person who works in the city, and the net profits of all businesses, professions, or other activities conducted in the city. As defined in the ordinance, the term `association' includes a partnership and, with certain exceptions not here material, the term `business' includes an activity of any nature conducted for profit by a partnership. Held, City Ordinance No. 83, supra , actually imposes a tax rather than a `license fee' since it is deemed to be a revenue and not a regulatory measure. See Howard v. Commissioners of the Sinking Fund of the City of Louisville , 344 U.S. 624; City of Louisville v. Sebree , 214 S.W.(2d) 248. Accordingly, the ordinance is a tax law of a political subdivision within the scope of section 55(b)(2) of the Internal Revenue Code of 1939, and, therefore upon compliance with the requirements therein prescribed, information from Federal income tax returns filed under chapter 1 of that Code may be furnished to any officials of the city lawfully charged with the administration of such ordinance, but only for the purpose of the administration of such ordinance.

It is further held that taxes imposed by such ordinance are deductible under section 23(c) of the 1939 Code in computing the taxpayer's net income provided, of course, that they are not deducted as a business expense or otherwise used to reduce net income. Cf. I.T. 3370, C.B. 1940-1, 32. Any such tax imposed upon a partnership is deductible from partnership gross income under section 23(c) in computing its net income but is not allowable as a deduction to the partners. The partners, however, are not precluded from claiming the optional standard deduction under section 23(aa). Cf. I.T. 3766, C.B. 1945, 83, modified by I.T. 3829, C.B. 1946-2, 38. However, any such tax imposed upon salaries and wages is not deductible by an individual in computing his adjusted gross income under section 22(n) of the 1939 Code, inasmuch as such tax is attributable to a trade or business which consists of the `performance of services by the taxpayer as an employee.' But the tax imposed on the net profits of a business or profession operated as a sole proprietorship is deductible in the computation of the taxpayer's adjusted gross income, since it is directly attributable to a trade or business carried on by taxpayer within the meaning of section 22(n). Cf. I.T. 3829, C.B. 1946-2, 38.

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