Opinion ID: 1918302
Heading Depth: 3
Heading Rank: 2

Heading: As reported on any federal tax return for the same taxable period.

Text: In advancing its argument, the District also relies on a narrow interpretation of the penultimate clause of the statute. The government asserts that appellants cannot satisfy what it reads as the statutory precondition that NOL deductions must be reported on any federal tax return for the same taxable period. Under the District's interpretation, not only must a NOL deduction be reported (which it construes as taken) on a federal return, but such a deduction must also be taken for the same year in the federal system as the deduction is taken in the District. NOL deductions themselves are not actually taken on federal partnership tax returns for entities like School Street, but rather the losses themselves are passed through to be utilized by the individual partners. For corporations, where an NOL is fully consumed as part of consolidated NOL deductions, as is the case with Sovran, no NOL deductions would be taken on the federal consolidated returns after the NOL had been fully utilized in the prior years. Thus, argues the District, in either case the NOL deduction has not been reported on any federal tax return for the same taxable period as required by the statute. This is the District's best textual argument and it is not without some force. When read in its full context, however, as reported might be a referent to either deduction or losses. While the structure of the clause is complex, the latter reading preserves a more harmonious interpretation of the statute in its entirety and fairly apportions NOL deductions to actual losses suffered by the separately taxed District entity. Losses themselves are reported on the federal informational return filed by a partnership as well as the individual returns of the partners. Likewise, losses for the individual affiliates are reported in a federal consolidated return. Interpreting the reporting requirement during the taxable period as a necessity to match the amount of net operating loss carry-forwards and carry-backs relevant to a District return to those losses reported to the federal government gives full effect to all provisions of the statute while providing a fairly straightforward mechanism for policing the deduction. By contrast, reading the phrase as reported on any federal tax return for the same taxable period to apply to NOL deductions, rather than the losses themselves would distort the statute by effectively negating the treatment given to unincorporated businesses and individual corporations as distinct taxable entitles by the District's tax system. Just as an interpretation of as allowed that effectively eliminates the express grant of the NOL deduction to unincorporated businesses is incongruent with logical statutory construction, so too is an interpretation of as reported that produces the same effect. Because partnerships cannot report NOL deductions, as such, the District's argument would eliminate the expressed application to unincorporated businesses  a proposition we find highly implausible, as previously stated. See Thomas, supra, 547 A.2d at 1037. Additionally, when treated as terms of art, deductions typically are allowed or taken, whereas losses, like income gains, are reported. As § 172 makes clear, in the federal system NOL deductions are allowed, not reported. Throughout the District's tax code, these terms are used in accordance with this standard accounting meaning. [18] Ignoring the predominant use of the word reported in this isolated context, with the consequent erasure of the express term unincorporated businesses from the statute and distortion of the subsection as it applies to corporate entities, makes little sense. It is much more reasonable to interpret the last clause to mandate that all net operating losses utilized in the deductions have also been reflected on any federal tax return. In a similar fashion, the District argues that the term taxable period must be restricted to mean only a taxable year, and that thus reported must apply to NOL deductions, because NOLs which form the basis of a deduction would not be reported in the same year as the deduction itself (but would rather be carried forward from a previous year, or carried back from a subsequent year). This argument, however, fails to acknowledge the use of the term taxable period in the tax law. The IRC uses the term taxable period to mean both a taxable calendar year, as well as any length of time during which tax consequences arise. For example, IRC § 4941 imposes a tax on each act of self-dealing between a disqualified person and a private foundation ... equal to 5 percent of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period.  (emphasis added). Thus, the taxable period could constitute more than a single tax year. See IRC § 4941(e)(1) (defining taxable period as the period during which self-dealing occurs); IRC § 6621(c)(3)(B) (defining taxable period as any period to which an underpayment of taxes relate); see also, e.g., IRC §§ 4942, 4944, 4945, 4951. As applied in this subsection of the D.C.Code, we see no persuasive basis for restricting the term to mean a single taxable year, especially when the deduction statute, of which the NOL deduction is a part, explicitly uses the term taxable year in several instances, where that is meant, see, e.g., D.C.Code §§ 47-1803.3(a)(1), (2), (3), (4), (6), (8), (13), (16), and (d)(5), and mentions taxable period only in the subsection in question. On the contrary, reading taxable period to mean the years during which an applicable NOL accrued is not only consistent with one accepted meaning of the term in the tax law phraseology, but also fits logically with the interpretation that the term reported refers to net operating losses, and not NOL deductions. Indeed, when dealing with loss carry-forwards or loss carry-backs, more than one single year is necessarily contemplated. See supra note 2. Thus, in accord with a fair reading of its language, this clause of the statute only requires that net operating losses be reported on the federal level at some point within the relevant carry-back or carry-forward time frame. [19] We make one final observation with respect to the overall construction of subsection (14), and that is with regard to the possible significance of its final clause, (except that no net operating losses may be carried back to any year ending before January 1, 1988), and its relation to the preceding portions of the subsection. The language of the subsection itself appears to distinguish specifically between those deductions that it grants and those that it disallows. The entire provision up to the except clause may readily be read as words of allowance of the deduction, to be fairly read in that light, with only the except clause being the significant clause of limitation. Overall, then, the statute as a whole appears to provide the NOL deduction consistently across the board to all organizations taxed at the entity level, in accord with the District's decision to treat not only individual corporations but also unincorporated businesses as separate tax entities. The District's proposed treatment of NOL deductions as a single exception to that approach is, in our view, a reading too strained to be acceptable. While appellants' interpretation gives effect to each term of the subsection, the District's interpretation, to borrow the phrases of appellants, (1) eliminates the term unincorporated business, (2) substitutes a conditional only if allowed under § 172 in place of in the same manner as allowed under § 172, (3) alters as reported to as allowed (or taken), and (4) changes the term taxable period to read taxable year.