## Facts

- Taxpayers were tenant-stockholders in a New York cooperative housing corporation and filed a joint federal income tax return for 2001.
- Their cooperative status required monthly payments that included their proportionate share of the cooperative’s real estate taxes.
- On their 2001 return, they deducted $10,489 as their share of the cooperative’s real estate taxes under I.R.C. § 216.
- They also treated the same $10,489 as deductible when computing alternative minimum taxable income (AMTI).
- The IRS issued a notice of deficiency, determining that the § 216 amount was not deductible for AMT purposes and increasing AMTI accordingly.
- The case was submitted to the United States Tax Court on a fully stipulated record with no material factual disputes.

## Issues

1. Whether a tenant-stockholder’s I.R.C. § 216 deduction for a cooperative housing corporation’s real estate taxes is allowable in computing AMTI.
2. Whether I.R.C. § 56(b)(1)(A)(ii), which disallows deductions for taxes described in I.R.C. § 164(a)(1)–(3) when computing AMTI, applies to a § 216 pass-through deduction measured by the cooperative’s § 164(a)(1) real property taxes.

## Decision

- The Tax Court held for the Commissioner.
- The court sustained the deficiency, concluding that the $10,489 deducted under § 216 must be added back in computing AMTI.
- The court reasoned that the § 216 deduction, to the extent based on the cooperative’s real property taxes, is substantively a deduction for taxes described in § 164(a)(1).
- Because § 56(b)(1)(A)(ii) disallows those taxes for AMT purposes (and no exception applied), the § 216 deduction was not allowable in computing AMTI.

## Legal Principles

- For AMT purposes, I.R.C. § 56(b)(1)(A)(ii) disallows any deduction for taxes described in I.R.C. § 164(a)(1)–(3), including state and local real property taxes, unless a statutory exception applies.
- I.R.C. § 216 permits tenant-stockholders to deduct amounts equal to their proportionate share of real estate taxes that are deductible to the cooperative under § 164(a), effectively passing through the tax burden from the cooperative to the tenant-stockholder for regular tax.
- When a deduction’s measure and character are determined by § 164(a)(1) real property taxes, it is treated as such for AMT computations even if claimed under a different Code provision.
- The AMT disallowance applies based on the underlying nature of the item deducted, preventing taxpayers from obtaining AMT deductibility indirectly through a cooperative pass-through mechanism.

## Conclusion

The Tax Court held that tenant-stockholders may not deduct their § 216 cooperative real estate tax amount in computing AMTI because § 56(b)(1)(A)(ii) disallows deductions for § 164(a)(1) real property taxes for AMT purposes.


Ostrow v. Commissioner, 122 T.C. 378 (2004)