Source: http://www.chanrobles.com/usa/us_supremecourt/349/232/case.php
Timestamp: 2019-11-20 15:10:02
Document Index: 659720717

Matched Legal Cases: ['§ 122', '§ 122', '§ 122', '§ 122', '§ 122', '§ 48', '§ 122']

The Court of Claims, by a divided vote, sustained the taxpayer's contention and held that, in computing its net operating loss for 1946, the taxpayer was entitled to include the amount of excess profits tax paid in 1946 on account of its 1945 return. Judgment was accordingly entered for the taxpayer. 124 Ct.Cl. 33, 39, 108 F.Supp. 109, 110 F.Supp. 600. The case is here on a petition for a writ of certiorari which we granted, 348 U.S. 808, because of a conflict between the decision below and Lewyt Corp. v. Commissioner, 215 F.2d 518, decided by the Court of Appeals for the Second Circuit.
Section 23(s) of the Internal Revenue Code provides that, in computing net income, "the net operating loss chanroblesvirtualawlibrary
deduction computed under section 122" shall be allowed as a deduction. Section 122, as applicable here, provides a complicated formula for carrying net operating losses back for two preceding taxable years and over into the two succeeding taxable years, thus taking for the limited purpose of § 122 a five-year period as the accounting unit. The part of § 122 of which the taxpayer seeks to take advantage is (b)(1), relating to the carry-back. * By the express terms of § 122(b)(1), the carry-back provisions are subject to the limitations contained in § 122(d)(6), which provides in part,
The controversy here revolves around the meaning of "paid or accrued." The years 1944 and 1945 were years of profit for the taxpayer. The years 1946 and 1947 were years of loss. The taxpayer kept its books and filed its returns on the accrual basis of accounting. Its 1945 excess profits tax therefore accrued in 1945, though it was paid in 1946. Yet the argument which prevailed below chanroblesvirtualawlibrary
We deal here with a deduction which one obtains not as of right, but as of grace. Deputy v. du Pont, 308 U. S. 488, 308 U. S. 493. The taxpayer has the burden to show that it is within the provision allowing the deduction. But the effort here made, if successful, would cause "paid or accrued," as used in § 122(d)(6), to mean something different than it does in other sections of the same chapter; and that would fly in the face of the express command of § 48. chanroblesvirtualawlibrary
The Court of Claims recognized the force of this analysis, but concluded that Congress could not have meant what it said, because, if so, this particular carry-back provision would have little application. First, most corporations are on the accrual not the cash basis. Second, if an accrual taxpayer is limited in its deductions to excess profits taxes accrued within the taxable year, the provision has little value, since there is "rarely a case when a taxpayer would be liable for any excess profits tax in a year in which it has sustained a net operating loss. . . ." 124 Ct.Cl. at 37, 108 F.Supp. at 111. This taxpayer argues the inequity of the results which would follow from our construction of the Code. But, as we have said before, "general equitable considerations" do not control the question of what deductions are permissible. Deputy v. de Pont, supra, at 308 U. S. 493. It may be that Congress granted less than some thought or less than was originally intended. We can only take the Code as we find it and give it as great an internal symmetry and consistency as its words permit. We would not be faithful to the statutory scheme, as revealed by the words employed, if we gave "paid or accrued" a different meaning for the purposes of § 122(d)(6) than it has in the other parts of the same chapter.
Our construction is in harmony with the general rule that a taxpayer on an accrual basis must take deductions in the year of accrual. See Security Flour Mills Co. v. Commissioner, 321 U. S. 281.