Court Opinion

ID: 4631318
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:09:23.519808+00
Date Added: 2024-06-11T07:57:42.019931
License: Public Domain

INTERNATIONAL REGISTER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.International Register Co. v. CommissionerDocket No. 47084.United States Board of Tax Appeals20 B.T.A. 261; 1930 BTA LEXIS 2170; July 18, 1930, Promulgated *2170  Under the Revenue Act of 1926, section 206(b) and (e), the aggregate of net losses for the calendar years 1923 and 1924 can not be applied against net incomes for the calendar years 1925 and 1926.  Section 206(b) is prospective and the unabsorbed portion of a net loss for the year 1923 can not be applied against net income for the year 1926.  Harry Eugene Kelly, Esq., for the petitioner.  F. R. Shearer, Esq., for the respondent.  SMITH *261  This proceeding is for the redetermination of an alleged deficiency in income tax for the calendar year 1926 amounting to $2,116.48.  The petitioner alleges that the respondent erred in refusing to apply against the net incomes of the calendar years 1925 and 1926 the combined net losses for the calendar years 1923 and 1924.  The respondent answered denying the allegation of error and at the same time filed a motion for judgment on the pleadings.  The facts were stipulated.  *262  FINDINGS OF FACT.  Petitioner is a corporation organized and existing under the laws of the State of Illinois with its principal office at Chicago.  For the calendar year 1923, the petitioner sustained a net loss computed*2171  under the Revenue Act of 1921 in the amount of $32,719.50.  For the calendar year 1924, the petitioner sustained a net loss computed under the Revenue Act of 1924 without reference to the net loss for 1923 in the amount of $1,412.97.  For the calendar year 1925, the petitioner had a net income computed without reference to the net losses for 1923 and 1924 in the amount of $18,903.50.  The Commissioner applied the net loss for the year 1923 against the net income for the year 1925, leaving an unabsorbed net loss for the year 1923 in the amount of $13,816.  The Commissioner applied the net loss for the year 1924 against the net income for the year 1926, thereby allowing a deduction on account of a prior-year net loss in the amount of $1,412.97.  The Commissioner disallowed a claimed deduction from income for the year 1926 of the unabsorbed net loss for the year 1923 amounting to $13,816.  For the year 1926 the petitioner showed a net income on its return amounting to $67.91.  In computing this amount the petitioner took as a deduction on line 22(b), headed "Net Loss For Prior Year," the amount of $12,228.97.  In determining the taxable net income for the year 1926 the Commissioner, *2172  starting with the amount of $67.91, made three adjustments to the petitioner's computation of net income.  Those adjustments were, (1) a restoration to income of the amount of $13,816, which was described as net loss for the year 1923, disallowed; (2) a restoration to income of the amount of $4,509.34, representing obsolescence on tools, which adjustment is not in controversy in this proceeding; and (3) an allowance of a deduction amounting to $715.61, representing additional depreciation.  Those adjustments resulted in showing a taxable income for the year 1926 in the amount of $17,677.64.  OPINION.  SMITH: The only question before us is whether the unabsorbed net loss for the year 1923 can be applied against net income for the year 1926.  Sections 206(b) and 206(e) of the Revenue Act of 1926 provide that: (b) If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), and if such net loss is in excess of such net*2173  income (computed *263  without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called "third year"); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.  (e) If for the taxable year 1923 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1921, or if for the taxable year 1924 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1924, the amount of such net loss shall be allowed as a deduction in computing net income for the two succeeding taxable years to the same extent and in the same manner as a net loss sustained for one taxable year is, under this Act, allowed as a deduction for the two succeeding taxable years.  In construing the foregoing provisions of the Revenue Act of 1926, counsel for the petitioner, after calling attention to the net loss provisions contained in the Revenue Acts of 1918 and 1921, argues that the words "if, for any taxable year, it appears" contained in section 206(b) of the Revenue Act of 1926 make it necessary*2174  to construe the word "or" appearing in subdivision (e) as being in the conjunctive and not in the disjunctive.  He claims that the whole phraseology of subdivision (e) is meaningless if the word "or" is considered in the disjunctive, pointing out that the phrases "such net loss," "one taxable year," and "for the two succeeding taxable years" are meaningless if the word "or" is not considered as having been used in a conjunctive sense.  In the Revenue Act of 1926, section 206(e) represents a consolidation in one subdivision of those provisions of law which were contained in section 206, subdivisions (e) and (f) of the Revenue Act of 1924.  Neither the House Ways and Means Committee Report, the Senate Finance Committee Report, nor the Conference Report on the Revenue Act of 1926 makes any mention of section 206(e).  However, subdivisions (e) and (f) of section 206 of the Revenue Act of 1924 were new matter which had not existed previously in any income-tax act, and with respect to those subdivisions the report of the Senate Committee on Finance, 68th Cong., 1st sess., on the Internal Revenue Bill of 1924, and a statement of the "Changes made in the Revenue Act of 1921 by H.R. 6715*2175  and the reasons therefor," dated March 6, 1924, prepared for the use of the Committee on Finance, state: Section 206(e) and (f): Subdivisions (e) and (f) cover the case in which a taxpayer sustained a net loss for years prior to the effective date of this act and provides that the amount thereof, computed under the Revenue Act of 1921, shall be allowed as a deduction under this act.  Furthermore, section 206(b) of the Revenue Act of 1924 is essentially similar to section 206(b) of the Revenue Act of 1926 and in view of the Senate Finance Committee report as to the reasons underlying the incorporation of subdivisions (e) and (f) in the Revenue Act of 1924, it appears to us that the words "if, for any taxable *264  year, it appears" are wholly prospective and are not to be given any retrospective application.  This interpretation of the words "if, for any taxable year, it appears" when read in conjunction with the explanation for the insertion of subdivisions (e) and (f) as new matter in the Revenue Act of 1924 demonstrates to us that the word "or" in section 206(e) of the Revenue Act of 1926 is to be read in the conjunctive.  Consequently, under the Revenue Act of 1926 a net*2176  loss for the taxable year 1923 can not be carried forward further than the next two succeeding taxable years.  Cf. . Judgment will be entered for the respondent.