Court Opinion

ID: 4485007
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:06.891186+00
Date Added: 2024-06-11T14:53:46.025516
License: Public Domain

Featherston, J., concurring: I concur in both the result reached by the majority and the reasoning supporting its conclusion. I agree with the majority that, although section 6501(h) and (j) extends the statute of limitations to permit the Commissioner to recover an erroneous refund made as a result of the application of a loss or credit carryback, that section is not applicable when a carryback has been correctly computed and applied.1 The result reached by the majority is also supported by legislative history which shows that only the year to which the carryback is applied may be reopened under section 6501(h) and (j). I wish only to add a few observations about this legislative history and mention some additional court decisions. Petitioner sustained a net capital loss and had an unused investment credit in 1974. Under the tentative carryback adjustment procedures of section 6411, the loss and credit were carried back to 1971, and a refund was made for that year. An audit confirmed the correctness of the 1971 refund, but respondent asks us to hold that section 6501(h) and (j) sanctions reopening 1972, a year otherwise closed by limitations to which the loss and unused credit were not carried, for the assessment of a section 56 minimum tax deficiency. To adopt respondent’s argument would, in my opinion, require us to give an expansive interpretation to the "attributable to” language in section 6501(h) and (j) which would disregard explicit legislative history and modify a longstanding interpretation of that section. As I read the legislative history, the purpose of section 6501(h) and (j) is, where an excessive refund has been made pursuant to a tentative carryback adjustment application, to restore the Commissioner and the taxpayer to the same positions that they occupied prior to the approval of the application;2 that section thus does not apply where the taxpayer is entitled to retain the tentative refund. In adopting this legislation, the Congress did not leave it to the courts, as Judge Whitaker suggests, to achieve what they conceive to be a "rational result,” but rather the Congress spoke in precise terms as to the results it wanted achieved and later dealt with specific problems as they arose. The Congress has never, in my opinion, authorized the reopening of an otherwise barred year for which no adjustment was made. Section 276(d) of the 1939 Code provided for an extended period of limitations on the assessment of deficiencies "attributable to” net operating loss carrybacks. Through inadvertence, Congress initially failed to include a successor to section 276(d) in the 1954 Code. This oversight was corrected by section 81(b) of the Technical Amendments Act of 1958, Pub. L. 85-866, 72 Stat. 1606, which added section 6501(h) to the Code. The accompanying Senate report explains: (b) Years to which carrybacks are applied. — A rule in the 1939 code provided that where a net operating loss was carried back to reduce the income of an earlier year, any deficiency for that earlier year attributable to the carryback could be assessed at any time a deficiency for the subsequent year of the loss could be assessed. This rule, which was inadvertently omitted from the 1954 Code, was restored by the House bill. Thus, for example, if a 1956 loss is carried back to offset the income of 1954, a deficiency for 1954 could, in general, be assessed within 3 years after the return for 1956 was filed. Your committee has accepted this provision. [S. Rept. 1983, 85th Cong., 2d Sess. (1958), 1958-3 C.B. 922,1019; emphasis added.] Thus, only the year to which the carryback has been applied is reopened for adjustment by section 6501(h).3  Section 6501(h) initially dealt only with deficiencies attributable to net operating loss carrybacks. When, however, the Tax Reform Act of 1969 amended section 1212(a) to allow corporations to carry back capital losses4 and section 6411(a) to provide for the "same 'quickie’ refund procedure in the case of the 3-year capital loss carrybacks as presently is available in the case of net operating loss carrybacks,”5 a corresponding amendment was made to section 6501(h) making that section applicable to deficiencies attributable to capital loss carry-backs as well as net operating loss carrybacks.6 It is clear that the prior legislative history discussed above applies equally to net operating loss carrybacks and capital loss carrybacks, such as the one concerned in the present case. The premises on which Congress proceeded in enacting section 6501(h) — that the rule of the 1939 Code was restored and that such rule provided for the assessment of a deficiency only for the year to which the loss was carried — cannot be lightly ignored. In addition to a capital loss carryback, this case also concerns an investment credit carryback. Credit carrybacks are the subject of section 6501(j), which was added to the Code by the Revenue Act of 1962, Pub. L. 87-834, 87th Cong., 2d Sess. The accompanying S. Rept. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 870-871, states: Subsection (e) of section 2 of the bill, which was added to the bill by your committee, amends certain provisions of the code relating to statutes of limitations and interest. These amendments were made necessary by the adoption of the provision allowing a 3-year carryback of any unused investment credit. Paragraph (1) of section 2(e) of the bill amends section 6501, relating to limitations on assessment and collection, to provide that in the case of a deficiency attributable to the application of an investment credit carryback, the deficiency may be assessed at any time before the expiration of the period within which a deficiency may be assessed for the taxable year in which the unused investment credit arose (i.e., the unused credit year) which results in such carryback. This provision in effect suspends the statute of limitations on the assessment of a deficiency on account of the disallowance of an erroneous or improper investment credit carryback until the expiration of the statutory period of limitations on assessments attributable to the taxable year from which the. investment credit carryback arose. [Emphasis added.] Again, this section, like section 6501(h), was intended to raise the limitations bar only with respect to "the assessment of a deficiency on account of the disallowance of an erroneous or improper investment credit carryback.” It was not intended to raise the bar with respect to other closed years or even with respect to other adjustments in the same year where, as in the instant case, the refund was correct and proper. In recognition of the precision with which the Congress has spoken in this area, this Court in applying section 6501(h) and its 1939 Code predecessor has held that the period of limitations for the assessment of a deficiency for a year to which a net operating loss has been carried was enlarged only to the extent that the deficiency was based on an error made in the computation or application of the net operating loss carryback. The Court has rejected arguments that the period was enlarged for other adjustments even for the same year. Leuthesser v. Commissioner, 18 T.C. 1112 (1952);7 Bouchey v. Commissioner, 19 T.C. 1078, 1081-1082 (1953); Bunn’s Auto Sales v. Commissioner, 35 T.C. 861, 864 (1961). Respondent here concedes that no error was made in the computation of the carryback from 1974 to 1971. He further concedes that the deficiency he here seeks is not for a year (1971) to which the carryback was applied, credited, or refunded. He seeks a deficiency for a year (1972), not otherwise affected by the carryback, on grounds other than a correction of the amount or application of the carryback adjustment. His position thus cannot be reconciled with the Leuthesser, Bouchey, and Bunn’s Auto Sales cases. The Congress relaxed the rule of these cases in 1966 to some extent by adopting section 6501(m). That section, which is specifically applicable to quick refunds under section 6411 such as the one concerned in the present case, authorizes the Commissioner to assess a deficiency for a year to which a capital loss or investment credit is carried at any time during the period of limitations for the year in which the loss or credit arose, just as he may do under subsections (h) and (j). Unlike assessments under subsections (h) and (j), however, which are limited to deficiencies attributable to the carryback, assessments under subsection (m) may be made for any reason. Jones v. Commissioner, 71 T.C. 391, 397 (1978). The amount of the assessment is, however, limited to the amount of the refund previously granted, less amounts which may be assessed under subsections (h) and (j). Furthermore, section 6501(m) expressly provides that it is only "for such prior taxable year,” i.e., the year to which the carryback is applied, that the statute of limitations is to be extended.8 This is entirely consistent with the interpretation given above of the extension of the period of limitations under subsections (h) and (j). Herman Bennett Co. v. Commissioner, 65 T.C. 506 (1975), provides no support for respondent. There, the taxpayer incurred a net operating loss in 1969 and claimed a carryback adjustment to 1966. The tentative allowance of the 1966 adjustment released a previously allowed investment credit (which audit showed had been earned in 1965 and carried over to 1966). The taxpayer then applied for a refund for 1963 based on having the released 1966 investment credit applied against its 1963 tax. The refund was granted but a notice of deficiency fdr 1963 was later mailed to the taxpayer within the limitations period applicable to 1969. This Court held that the notice of deficiency was timely, applying the specific language of section 6501(j). The facts of Bennett may be interpolated into the section as follows: In the case of a deficiency [for 1963] * * * with respect to any portion of an investment credit carryback from a taxable year [1966] attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year [1969], at any time before the expiration of the period within which a deficiency for such subsequent taxable year [1969] may be assessed. The portion of the statute quoted above was referred to in Bennett as the "second operative clause” of section 6501(j). That clause is not relevant to the present case, because petitioner’s credit carryback from 1974 was not "released” by the allowance of a loss carryback to that year. The credit carryback in this case is, therefore, in no sense "attributable to a net operating loss or capital loss carryback from a subsequent taxable year.” If the period of limitations is to be reopened here under section 6501(j), then it must be under that section’s first operative clause. In Bennett, however, we stated that the first operative clause "deals with the applicable limitations period where an investment credit carryback has been allowed erroneously.” This is manifestly not the case here, because petitioner’s right to carry his unused credit from 1974 back to 1971 is unchallenged. Where Congress speaks in general terms, the courts may have some interpretative liberties to fill in the gaps left open to reach what they conceive to be equitable results in given cases. But where Congress speaks in definite and precise terms, the courts must follow those terms.9 As I read section 6501(h), (i), (j), (m), (o), and (p), relating to deficiencies, and the corresponding provisions of section 6511(d)(2)(A) and (B), (3) and (4), relating to refund claims, Congress has spoken definitely and precisely on the issue here presented. Almost every new carryback authorization (e.g., capital losses, investment credit, work incentive program credit, and new employee credit) has been accompanied by an amendment to these sections.10 If respondent is . correct in the instant case, Congress did useless acts in adopting these amendments, because, under his view, the words "attributable to the carryback” are sufficient in substance to permit the Court to do what it conceives as equity regardless of the otherwise applicable statute of limitations. I agree with the majority that such is not the law. In order for the statute of limitations to be extended as respondent argues it should be in cases like this one, legislation, in my opinion, will be needed. Fay, Dawson, Irwin, Wiles, Chabot, Korner, and Cohen, JJ., agree with this concurring opinion.  Judge Whitaker in his dissent characterizes the refund paid to petitioner as "admittedly erroneous.” This characterization is, in my view, erroneous. The refund for 1971 was correct. As detailed in note 9 infra, the Commissioner failed, while 1972 was open for assessment, to offset or assert separately a 1972 minimum tax deficiency and now, after the limitations period for 1972 has expired, seeks to assert a deficiency for that year. As the majority states, "the carrybacks to 1971 in question were not erroneously applied to petitioner,” and "the refund that resulted from the carrybacks was not improper.” The question here is not the propriety of the refund for 1971, but whether respondent may reach 1972 in order to make petitioner’s tax for that year consistent with the correct refund for 1971, or, in other words, whether 1972 is closed to adjustment by the statute of limitations.   H. Rept. 849, to accompany the Tax Adjustment Bill of 1945, 79th Cong., 1st Sess. (1945), 1945 C.B. 566, 583, explained the provision which became 1939 Code sec. 3780(c) and which authorized the recovery of tentative refunds found on audit to have been erroneously made, in part, as follows: "In recognition of the fact that, due to the short period of time allowed, the Commissioner necessarily will act upon an application for a tentative carryback adjustment only after a very limited examination, subsection (c) of section 3780 provides a summary procedure whereby the Commissioner and the taxpayer each may be restored to the same position occupied prior to the approval of such application. * * * ” Judge Whitaker quotes other excerpts from H. Rept. 849, supra. The "each tax affected by the carryback” language and similar phrases used in those excerpts were needed because both the income tax and the closely related World War II excess profits tax as well as the declared value excess profits tax then in force could be affected by net operating loss carrybacks. I find nothing in the reports or statutes indicating an intent to authorize the Commissioner to reopen any otherwise closed year to which the loss was not carried back.   The technical explanation of this provision makes the same point with equal clarity. It states: "Subsection (b) of this section amends section 6501 of the 1954 Code (relating to limitations on assessment and collection) to provide that a deficiency for any taxable year attributable to the application of a net operating loss carryback to such year may be assessed at any time within the period of limitations on assessment applicable to the taxable year in which the loss arose. This provision, corresponding to section 276(d) of the 1939 Code, was inadvertently omitted from the 1954 Code. [S. Rept. 1983, 85th Cong., 2d Sess. (1958), 1958-3 C.B. 922, 1154; emphasis added.]”   Sec. 512(a), Pub. L. 91-172, 83 Stat. 487,638.   S. Rept. 91-552 (1969), 1969-3 C.B. 423, 549, commenting on sec. 512(d)(1) of the Tax Reform Act of 1969.   Sec. 512(e)(1), Pub. L. 91-172, 83 Stat. 487, 639-640.   In Leuthesser v. Commissioner, 18 T.C. 1112, 1125 (1952), this Court, holding that the predecessor of sec. 6501(h) did not permit the Commissioner "to correct an error in the tax reported for the earlier year to which the carry-back was applied” but came into play only "if the refund were erroneous by reason of an incorrect application of the carry-back adjustments * * * or by reason of an incorrect determination of the amount or existence of losses giving rise to the carry-back,” said: "Neither the language of the statute nor the legislative history supports respondent’s position. Section 3780(c), in providing for assessment of erroneous allowances is specifically limited to the situation where 'the Commissioner determines that the amount applied, credited or refunded under subsection (b) is in excess of the over-assessment attributable to the carry-back with respect to which such amount was applied, credited or refunded * * « .’ (Emphasis added.) And throughout the report of the House Ways and Means Committee which accompanied the bill introducing these provisions, the inference is inescapable that they were intended merely to permit an enlargement of the period of limitations where the error giving rise to the deficiency was 'attributable to the carry-back.’ Nowhere is there any suggestion that liability for the earlier year is to be kept alive for all purposes (limited only by the amount of the refund or credit) for an additional period of years beyond the original period of limitations. [Emphasis added; fn. ref. omitted.]”   The report of the Committee on Ways and Means of the House of Representatives explains: "Provision for quick refunds can, of course, result in the payment of larger refunds than would be paid if the Internal Revenue Service had more time to review the claim. Once refunded, in some instances, because of the 3-year limitation referred to above, these amounts cannot be recovered through deficiency procedures, except to the extent the deficiency is attributable to the carryback. Any amount erroneously refunded which is not attributable to the carryback may be recovered, however, by a suit to recover an erroneous refund. "In light of the situation described above, your committee approved an amendment which extends the period for assessing a deficiency when a quick refund has been made because of a carryback of either a net operating loss or an unused investment credit, even though the deficiency is not attributable to the carryback. Under this provision, a deficiency for a year, with respect to which a quick refund was made because of a tentative carryback, may be assessed at any time up to 3 years after the return is filed for the taxable year in which the carryback arose (provided this period is not further extended by other provisions of sec. 6501; i.e., where there was fraud involved, etc.). However, in such a case the deficiency assessment which may be made as the result of this provision cannot exceed the amount of the quick refund. (The deficiency assessment made as a result of this provision cannot exceed the amount of the original refund reduced by any deficiency attributable to the carryback.) [Emphasis added.]” H. Rept. 2161,89th Cong., 2d Sess. (1966), 1966-2 C.B. 902,904.   It should not be inferred that I think there is anything inequitable about the result reached in this case. Long before the May 17, 1976, expiration of the general 3-year statute of limitations for the taxable year 1972, petitioner, in its Form 1139 filed on July 30, 1975, notified both the Internal Revenue Service Center in Kansas City and the Chicago District Director that the allowance of the investment credit and capital loss carrybacks from 1974 to 1971, which it was claiming in the Form 1139, would have the correlative effect of increasing the 1972 minimum tax because of a reduction in the carryover of regular taxes to 1972 from 1971. Nevertheless, the Service chose to disregard that notice and made a full refund of the 1971 regular tax on Oct. 6, 1975, 7 months before the 1972 statute expired on May 17,1976, and took no action as to the resulting increase in the 1972 minimum tax until it issued the notice of deficiency on June 2, 1978. Furthermore, at the very time it received the notice from petitioner concerning the effect of the 1974 carryback on the 1972 minimum tax liability on July 30, 1975, the Service was auditing the taxable year 1972. In these circumstances, respondent is the victim of his own delay, not of any inequity resulting from petitioner’s insistence upon an application of these highly technical statutory provisions consistent with their language, legislative history, and previous interpretations.   See, for example: (1) The amendment of subsec. 6501© in 1967 by sec. 2(c) of Pub. L. 90-225 to add the second operative clause which allows the application of the extended period of limitations to deficiencies attributable to credit carrybacks which are in turn attributable to net operating loss, capital loss, or other credit carrybacks; (2) Sec. 6511(d)(2)(B)(ii) of the Code, enacted by sec. 232(d) of the Revenue Act of 1964, Pub. L. 88-272, which provides for an extended period for asserting a refund for a year in which a taxpayer averaged his income under sec. 1302 of the Code where such refund is the result of a change in averageable income attributable to a change in the taxpayer’s tax liability for a base period year, which in turn was attributable to a net operating loss or capital loss carryback to such base period year; (3) The second clause of sec. 6501(o), enacted by sec. 601(d)(1) of Pub. L. 92-178 in 1971, creating an extended period of limitations for asserting a deficiency attributable to a work incentive program credit carryback which in turn was attributable to a net operating loss, investment credit, or capital loss carryback; and (4) The second clause of sec. 6501(p) of the Code, enacted by sec. 202(d)(4)(A) of Pub. L. 95-30 in 1976, providing an extended period for assessing a deficiency attributable to a new employee credit carryback, which in turn was attributable to a net operating loss, capital loss, investment credit or work incentive program credit carryback.