Court Opinion

ID: 4476953
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:17.088456+00
Date Added: 2024-06-11T15:03:27.901736
License: Public Domain

Murdock, /., dissenting: The principal question involved herein, a narrow one, was well settled by our decision in Joe B. Luton, 18 T. C. 1153, recently acquiesced in, and we should not vacillate. Anders sustained a net loss in the operation of the XL Company, a sole proprietorship, in 1949. The net operating loss deduction claimed for 1947 stems from the 1949 XL net operating loss. The majority holds that there can be a net operating loss deduction for 1947 only to the extent that all of the business operations of Anders and his wife in 1949 resulted in a net operating loss, that is, that there must be combined with the XL business any other business which either spouse conducted and particularly the two alleged businesses which the wife is held to have conducted. The only authorities cited for this conclusion are provisions of the regulations. Those same provisions were quoted in James E. Cunningham., 20 T. C. 65, with the thought that they would not support the present holding. We there said: The general effect of the statute is that a loss from the operation of a business is computed without regard to other items properly shown on the return which are not income from or deductions of that particular business, and then the operating loss is reduced to the extent that the other income on the return exceeds the other deductions. The deductions unrelated to the business thus have no effect upon the operating loss except to the extent that there is unrelated income for them to offset which would otherwise reduce the operating loss to be carried back. The salary of the wife in that case was derived, however, from the husband’s business and was held to be income of the spouses from that particular business. We said further: If the salary of the wife had been from some other source, the cases cited by the petitioner would be in point, or if she had filed a separate return for 1949, the present question would not even arise. The cases to which that last' sentence refers were Hughes v. Commissioner, 38 F. 2d 755, and Lawrence J. Montgomery, 17 B. T. A. 1308, both of which dealt with somewhat similar language contained in section 204 (a) of the Revenue Act of 1921. They have not been distinguished in the majority opinion. See also H. J. Schlesinger, 5 B. T. A. 943. The Luton case held, I think properly, that salary of the petitioner from a business not connected with that in which the operating loss occurred should be treated as nonbusiness income first to be offset by nonbusiness losses under section 122 (d) (5) and only the excess used to reduce the net operating loss being computed. The use of the word “such” in section 122 (d) (5) supports that result. A study of the legislative history of the net loss carry-back provisions and consideration of the results of applying the one solution or the other to various sets of possible circumstances also convince me that the present result was not intended by Congress. Arundell, VaN FossaN, HarroN, and JOHNSON, JJ., agree with this dissent.