Source: https://www.legalcrystal.com/case/95912/helvering-vs-morgan-s-inc
Timestamp: 2019-04-25 04:17:28+00:00

Document:
1. Where a corporation, without change of its accounting year, filed a separate return for the part of the year 1925 which preceded its affiliation with another corporation, and filed a consolidated return for the remainder of the year, the periods covered by the two returns are not separate "taxable years," but are each a part of the taxable year as previously constituted within the meaning of § 206(b) of the Revenue Act of 1926, which permits a taxpayer to carry over and to deduct during the next two "taxable years" a net loss sustained "for any taxable year." P. 293 U. S. 124 et seq.
2. Section 200(a) of the same Act, in providing that "the term taxable year' includes, in the case of a fractional part of a year, the period for which such return is made," does not compel a different result. Pp. 293 U. S. 124 -126.
3. While the term "includes" may sometimes be taken as synonymous with "means," it may be used also as the equivalent of "comprehends" or "embraces." Therefore, under § 200(a), the phrase "taxable year" may, where the context requires it, be taken to embrace all fractional parts of the taxable year; thus, "loss sustained for any taxable year," which § 206 permits to be carried forward and deducted from gross income for two successive years, includes a loss shown in a fractional part of the first preceding taxable year for which separate returns are filed. Pp. 293 U. S. 124 -126.
in such manner as to restrict the benefits which like sections in earlier revenue acts had extended to taxpayers entitled to enjoy them. P. 293 U. S. 128 .
5. Contemporary Treasury practice and Congressional Committee Reports make it clear that, in enacting § 206(b), the intention was that a taxpayer filing a return for a part of his taxable year should stand on the same footing, with respect to carrying over a loss shown by his return, as the taxpayer who filed a return for the entire twelve months. Pp. 293 U. S. 129 -130.
Certiorari, 292 U.S. 618, to review a judgment reversing a decision of the Board of Tax Appeals which sustained the action of the Commissioner in assessing a deficiency in income tax.
This petition for certiorari, 292 U.S. 618, presents for determination the single question whether the two separate periods in 1925 for which the taxpayer made separate income tax returns constitute two "taxable years" within the meaning of § 206 of the Revenue Act of 1926, c. 27, 44 Stat. 9, 17, which permits the taxpayer suffering a net loss in any taxable year to deduct it from taxable gains in the two succeeding taxable years.
and the two affiliated corporations filed a consolidated return for the last seven months of the year and for the calendar years 1926 and 1927. During the seven months' period of 1925, and in 1926, and 1927, Morgan's, Incorporated, reported net income. In the first five and the last seven months of 1925, and in 1926, the Haines Company suffered net losses. In 1927, it made a net profit. Its net loss in the first five months of 1925, before affiliation, was shown in its separate return for that period. Its net losses for the last seven months of 1925 and for the year 1926 were shown in the consolidated returns of the two corporations for those periods, and were deducted from the net income of Morgan's, Incorporated, in the returns for each of these periods. In the consolidated return for 1927, the Haines Company brought forward its loss for the first five months of 1925 and deducted it from its net income for 1927 under the provisions of § 206(b) of the act. The Commissioner disallowed this deduction, and determined a corresponding deficiency for the taxable year 1927. The order of the Board of Tax Appeals sustaining his action was set aside by the Court of Appeals for the First Circuit. 68 F.2d 325. Like rulings have been made by the Courts of Appeals in other circuits. Arnold Constable Corp. v. Commissioner, 69 F.2d 788; Crossett Western Co. v. Commissioner, 73 F.2d 307; Joseph & Feiss Co. v. Commissioner, 70 F.2d 804. A different conclusion was reached in Wishnich-Tumpeer, Inc. v. Commissioner, 77 F.2d 774, App.D.C., March 12, 1934, under the Revenue Act of 1928, applied in circumstances and under regulations not involved in the present case.
taxable year," referred to in the section as the "third year." In all cases, the deduction is to be made under regulations made by the Commissioner.
"(a) The term 'taxable year' means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under § 212 or 232. The term 'fiscal year' means an accounting period of twelve months ending on the last day of any month other than December. The term 'taxable year' includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the commissioner with the approval of the Secretary, the period for which such return is made. The first taxable year, to be called the taxable year 1925, shall be the calendar year 1925 or any fiscal year ending during the calendar year 1925."
U.S.C.App. Title 26, § 931(a).
context, is not free from ambiguity. It may be admitted that the term "includes" may sometimes be taken as synonymous with "means," and the subsection may be taken to require, as the Government contends, that a fractional part of a normal taxable year of twelve months for which a return is made shall be treated, for all purposes, as a separate taxable year.
here, "the loss sustained for any taxable year," which § 206 permits to be carried forward, would include the loss sustained for the first five months of the taxable year for which the separate return was made, and that loss, as well as any other loss separately reported for the remaining part of the taxable year, not otherwise absorbed, could be carried forward to the taxpayer's next two succeeding taxable years, here the calendar years of 1926 and 1927. This construction finds support in the final sentence of the subsection, which declares that the "first taxable year," which by definition "includes" a fractional part of the year, "shall be the calendar year 1925 or any fiscal year ending during the calendar year 1925." Obviously the first five months of 1925 could not be the calendar year 1925. But a return made for those months, a fractional part of the year, might be treated, within the meaning of the section, as a return for the calendar year of which they are a part. It plainly is not contemplated that the five months are to be treated as a taxable year different from the calendar year.
286 U. S. 326 . The statutes since 1917, and related regulations, have uniformly required the taxpayers' returns to be made on the basis of the twelve months' accounting period shown by the taxpayer's books, whether it be the calendar year or a different fiscal year. The change of this period by the taxpayer from the calendar to a different fiscal year or the reverse, has been permitted only on consent of the Commissioner and upon compliance with appropriate regulations. These dominating features of income tax legislation were incorporated in the 1926 Act by §§ 212, 232, to which § 200(a) expressly refers.
taxpayer's accounting year, and had no effect upon the actual net income of the taxpayer for that year, or on the amount of tax payable except insofar as the provisions for a consolidated return were availed of.
Section 206(b) appeared in the revenue acts prior to the addition, in § 200(a), of the provision that the term "taxable year" includes fractions of a year. See § 204(b) of the Revenue Acts of 1918, c. 18, 40 Stat. 1057, 1060, 1061, and 1921, c. 136, 42 Stat. 227, 231. In the 1921 Act, it allowed to the taxpayer entitled to its benefits two full accounting periods of twelve months each within which he might carry over and deduct losses of an earlier taxable period. In view of the extent to which the practice of fixing the tax with reference to the twelve months' accounting periods of the taxpayer has been recognized and carried into the structure of the revenue acts, only clear and compelling language added to § 200(a) to define the phrase "taxable year" would justify application of that phrase in the remedial § 206 to periods of less than twelve months, in such manner as to restrict the benefits which like sections had previously extended to taxpayers entitled to enjoy them.
loss to be deducted that incurred in the first five months of the calendar year 1925.
that the benefits of such section are denied to taxpayers who are required by law to make a return for a fractional part of a year."
Report 179, Ways and Means Committee, 68th Cong., 1st Sess., p. 10. The report of the Senate Finance Committee uses identical language. Report 398, Finance Committee, 68th Cong., 1st Sess., p. 10.
The 1918 Act had permitted the carrying over of the loss for a single taxable year. The 1921 Act had extended the privilege for a period of two full years. There is no suggestion in the committee reports that, by the 1924 amendment of § 200, in order to extend the benefits, conferred by § 204 in earlier acts, to the taxpayer who makes a return for a fractional part of his taxable year, there was the purpose to withhold from him any of these benefits. The implication is clear that there was not, and that the intention was that a taxpayer filing a return for a part of his taxable year should stand on the same footing, with respect to carrying over a loss shown by his return, as the taxpayer who had filed a return for the entire twelve months of the same taxable year. This intention was made effective by the addition to § 200 of words which, in terms, made the phrase "taxable year" as used in § 206 include "in the case of a return for a fractional part of a year," that part of the taxable year for which the return is made. Thus, under § 206, the loss for a taxable year which may be carried over includes the loss for the fractional part of the taxable year of the taxpayer, for which a separate return is required. The next succeeding taxable years to which the loss may be carried are likewise the taxable years of the taxpayer, here the calendar years 1926 and 1927.
phrase "taxable year" as referring to the taxable year of the taxpayer, and speaks of the fraction of a year for which a separate return is made as "the portion of the taxable year" during which the taxpayers were not affiliated. It does not refer to the return as the return for a taxable year, but only as a return for a fractional part of the taxable year and such returns are required to be made and the tax is required to be paid at the same time as in the case of a return for the entire taxable year.
It is unnecessary to consider the effect to be given to returns required for a fractional part of the year, where the taxpayer changes his taxable year from a calendar year to a different fiscal year, or vice versa, with respect to which different considerations may enter. See Wishnich-Tumpeer, Inc. v. Commissioner, supra.
"The terms 'includes' and 'including,' when used in a definition contained in this title, shall not be deemed to exclude other things otherwise within the meaning of the term defined."
This indicates that the particular is not necessarily a substitute for the general term, excluding more general meanings included within its scope. "Taxable year" is defined in § 200(a) as "meaning" a calendar or fiscal year of twelve months, and "including" a fractional part of a year; it hardly can be said that the words plainly and without ambiguity import that, in § 206(b), the term must be taken to mean only a fractional part of the year, to the exclusion of the alternative definitions of a calendar or fiscal year.

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