Source: http://openjurist.org/172/f3d/209
Timestamp: 2015-05-06 03:25:36
Document Index: 530670700

Matched Legal Cases: ['§ 901', '§ 1', '§ 901', '§ 901', '§ 1', '§ 901', '§ 1', '§ 3', '§ 2', '§ 1', '§ 3', '§ 1', '§ 2', '§ 1', '§ 2', '§ 3', '§ 2', '§ 1', '§ 3', '§ 3', '§ 2', '§ 3', '§ 3', '§ 2', '§ 2', '§ 3', '§ 3']

172 F3d 209 Texasgulf Inc and Subsidiaries v. Commissioner of Internal Revenue | OpenJurist
172 F. 3d 209 - Texasgulf Inc and Subsidiaries v. Commissioner of Internal Revenue	Home172 f3d 209 texasgulf inc and subsidiaries v. commissioner of internal revenue
172 F3d 209 Texasgulf Inc and Subsidiaries v. Commissioner of Internal Revenue 172 F.3d 209
83 A.F.T.R.2d 99-1784, 99-1 USTC P 50,403
TEXASGULF, INC., AND SUBSIDIARIES, as successor in interestto Texasgulf, Inc. and Subsidiaries, Petitioner-Appellee,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
Docket No. 97-4202.
Argued Dec. 10, 1998.Decided April 5, 1999.
Richard J. Urowsky, Sullivan & Cromwell, New York City (Willard B. Taylor, Michael Lacovara, C. Barr Flinn, Christopher S. Kippes), for petitioner-appellee.
Jonathan S. Cohen, United States Department of Justice, Tax Division, Washington, DC (Loretta C. Argrett, Assistant Attorney General, Ernest J. Brown), for respondent-appellant.
The Commissioner of Internal Revenue appeals from a decision of the United States Tax Court (John O. Colvin, Judge ) granting the petition of Texasgulf, Inc., and Subsidiaries ("Texasgulf") for a redetermination of tax liabilities for 1978, 1979, and 1980. The Tax Court concluded that for those taxable years, the Ontario Mining Tax ("OMT") is an income tax that qualifies for the foreign tax credit provided by Internal Revenue Code § 901 and Treasury Regulation § 1.901-2. The Commissioner disputes this conclusion, arguing that the OMT as enacted and interpreted during the taxable years at issue does not meet the net income requirement for foreign tax creditability. This is so, the Commissioner asserts, because the OMT neither allows recovery of nor effectively compensates for significant expenses attributable to the gross receipts included in its base. For the reasons that follow, we disagree with the Commissioner and therefore affirm.
Texasgulf is the successor in interest to Texasgulf, Inc., a Texas corporation that filed consolidated federal income tax returns for the taxable years 1978 through 1981 as the common parent of an affiliated group of corporations that included Texasgulf Canada Ltd. ("Texasgulf Canada"). For the years 1968 through 1981, Texasgulf Canada and its predecessor owned and operated the Kidd Creek Mine, a copper, zinc, lead, and silver deposit near Timmins, Ontario. Texasgulf Canada's mining and processing activities at the Kidd Creek Mine made it subject to the OMT. For the years 1978, 1979, and 1980, Texasgulf Canada paid OMT in an aggregate amount of nearly $32 million (U.S.). On its consolidated U.S. income tax returns for those years, Texasgulf claimed foreign tax credits for these OMT payments pursuant to § 901, which, with certain limitations, permits citizens and domestic corporations to claim a foreign tax credit for "any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States." I.R.C. § 901(b)(1).1 Upon the promulgation of § 1.901-2 in 1983, Texasgulf timely elected to apply its provisions retroactively to determine eligibility for credit under § 901 with respect to taxes imposed by Canada and its political subdivisions for the taxable year ended December 31, 1967 and all subsequent taxable years. See Treas.Reg. § 1.901-2(h) (permitting such an election for taxable years beginning on or before November 14, 1983).
Essential to the resolution of this appeal is an understanding of the nature and operation of the OMT during the relevant taxable years. The versions of the OMT at issue impose a graduated tax on every mine in the Province of Ontario to the extent that the mine's "profit," as defined for OMT purposes, exceeds a statutory exemption.3 See Mining Tax Act ("MTA"), R.S.O. ch. 140, § 3(1) (1972), amended by ch. 132, 1974 S.O. 1261, § 2, further amended by ch. 40, 1979 S.O. 225, § 1(1) (Can.); MTA, R.S.O. ch. 269, § 3(1) (1980) (Can.). The tax is generally imposed upon the mine "operator," defined as the party with the right to produce and sell the mine's minerals. See MTA, R.S.O. ch. 140, § 1(g), § 2(2) (1972) (Can.); MTA, R.S.O. ch. 269, § 1(h), § 2(2) (1980) (Can.). During the taxable years at issue, the statutory exemption was first $100,000 (Canadian) and then $250,000 (Canadian). See MTA, R.S.O. ch. 140, § 3(1) (1972), amended by ch. 132, 1974 S.O. 1261, § 2(1), further amended by ch. 40, 1979 S.O. 225, § 1(1) (Can.); MTA, R.S.O. ch. 269, § 3(1) (1980) (Can.). The versions of the OMT in effect between 1978 and 1980 define "profit" as:
(a ) where the mineral substances raised, taken or gained from the mine are sold as such, the amount of the gross receipts from the output during the taxation year;
(b ) where the mineral substances or a part thereof are not sold as such, the amount of the actual market value at the pit's mouth of the mineral substances raised, taken or gained from the mine that are fed into a treatment plant at any mill, smelter or refinery and the product thereof is sold in the taxation year; or
(c ) if there is no means of ascertaining the actual market value at the pit's mouth of the mineral substances referred to in clause b, the amount at which the mine assessor appraises the value of such mineral substances, provided that the mine assessor in appraising such value shall deduct,
(i) the processing costs incurred as prescribed or determined by the regulations, and
(ii) an allowance for profit in respect of processing at a rate or rates prescribed by the regulations or determined by the mine assessor,
and [certain specified] expenses, payments, allowances and deductions....
MTA, R.S.O. ch. 140, § 3(3) (1972), amended by ch. 132, 1974 S.O. 1261, §§ 2(3)-(4) (Can.); accord MTA, R.S.O. ch. 269, § 3(7) (1980) (Can.). In defining the "expenses, payments, allowances and deductions" that may be recovered, the OMT as enacted in 1978, 1979, and 1980 includes mine-related salaries, operating expenses, a depreciation allowance, certain development costs, and expenditures for scientific research conducted in Canada and related to mining in Ontario, but specifically excludes investment interest, cost depletion,4 and royalties paid for production of a mine on privately owned land ("non-Crown royalties"). See MTA, R.S.O. ch. 140 §§ 3(3)-(4) (1972), amended by ch. 132, 1974 S.O. 1261, §§ 2(5)-(8), further amended by ch. 82, 1978 S.O. 609, § 2 (Can.); MTA, R.S.O. ch. 269, § 3(7), § 3(11) (1980) (Can.).
Although the versions of the OMT at issue establish three modes of calculating the appropriate tax, most OMT taxpayers, including Texasgulf Canada, u