Source: https://case-law.vlex.com/vid/333-u-s-496-606495206
Timestamp: 2020-04-06 22:14:57
Document Index: 519880927

Matched Legal Cases: ['§ 44', '§ 714', '§ 29', '§ 44', '§ 29', '§ 115', '§ 710', '§ 712', '§ 713', '§ 714', '§ 718']

333 U.S. 496 (1948), 384, Commissioner of Internal Revenue v. South Texas Lumber Co. - Federal Cases - Case Law - VLEX 606495206
Docket Nº: No. 384
Citation: 333 U.S. 496, 68 S.Ct. 695, 92 L.Ed. 831
Party Name: Commissioner of Internal Revenue v. South Texas Lumber Co.
333 U.S. 496 (1948)
68 S.Ct. 695, 92 L.Ed. 831
1. A corporate taxpayer which filed its federal income and excess profits tax return on the accrual basis, but elected to report income from certain installment sales on the installment basis, as authorized by § 44 of the Internal Revenue Code, may not, in computing its excess profits tax credit under § 714, include in "invested capital" (as "accumulated earnings and profits") the unrealized and unreported profits from such installment sales. Pp. 497-506.
2. The provision of § 29.115-3 of Treasury Regulations 111, applicable to excess profits tax as well as to income tax, that "a corporation computing income on the installment basis as provided in § 44 shall, with respect to the installment transaction, compute earnings and profits on such basis," is valid. Pp. 500-503.
3. Treasury Regulations constitute contemporaneous constructions of the revenue statutes by those charged with the administration of these statutes, and should not be invalidated except for weighty reasons. P. 501.
4. The provision of § 29.115-3 of Treasury Regulations 111 here in question is not in conflict with §§ 115(1), 111, 112, and 113 of the Internal Revenue Code. Pp. 504-506.
The Commissioner's redetermination of respondent's income and excess profits tax was sustained by the Tax Court. 7 T.C. 669. The Circuit Court of Appeals reversed. 162 F.2d 866. This Court granted certiorari. 332 U.S. 829. Reversed, p. 506.
This case raises a question as to respondent's liability for the taxable year 1943 under the Excess Profits Tax of 1940, as amended. 54 Stat. 975, 26 U.S.C. § 710 et seq. The law was passed to tax abnormally high profits due to large governmental expenditures about to be made from appropriations [68 S.Ct. 697] for national defense.1 The excess profits tax was a graduated surtax upon a portion of corporate income, and was imposed in addition to the regular income tax. It applied to all corporate profits and gains over and above what Congress deemed to be a fair and normal return for the corporate business taxed.
Under the controlling 1943 law, the amount of income subject to this excess profits tax is computed by subtracting from the net income subject to regular income tax the amount of earnings Congress deemed to be a taxpayer's normal and fair return.2 This deductible amount, called the excess profits credit, was to be computed in one of two ways, whichever resulted in the lesser tax. § 712. The first, not used here, permits a deduction of an amount equal to the company's average net income for the taxable years 1936 to 1939, inclusive. § 713. The second, used here, permits a deduction of an amount equal to 8 percentum of the taxpayer's invested capital for the taxable year.3 § 714. An includable element of the "invested capital" is the "accumulated earnings and profits as of the beginning of such taxable year." § 718. It thus appears that, by this method, Congress intended, with minor exceptions not here relevant, to impose the excess profits tax on all annual net income in excess of 8% of a
that proportion of the installment payments actually received in that year which the gross profit realized or to be realized when payment is completed, bears to the total contract price.
[68 S.Ct. 698] On its 1943 excess profits tax return, respondent nevertheless reported as "accumulated earnings and profits" the amount of "Unrealized Profit Installment Sales" shown on its books at the end of 1942,4 and included this amount in "invested capital." It thus sought to deduct 8% of its theretofore designated "unrealized profit" in computing its excess profits tax. The Commissioner redetermined the tax for 1943 after eliminating this item from "invested capital." The Tax Court sustained...