Court Opinion

ID: 4489068
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:01:39.01539+00
Date Added: 2024-06-11T14:54:08.603381
License: Public Domain

Geeen,
dissenting: I am unable to concur in the prevailing opinion. I realize, of course, that section 327 (d) is a relief provision and that, as such, it should be construed strictly, but it seems to me that it is here being so strictly construed as to defeat its very purpose. The petitioner’s productive operations started on March 1, 1920, at which time there had been paid in for stock $1,962,650. During the remainder of its fiscal year, which ended on June 30, there was paid in for stock, $146,750, and the total cash paid in for the year was $2,114,686.81. In the computation of the tax, the Commissioner averaged the invested capital over the entire year, with the result that the tax was computed upon the basis of an invested capital of $1,349,622.11; that is to say, he used in the computation of tax, an amount which was $765,064.70 less than the amount actually invested in the business. As the result of this, the tax is $40,000 more than it would have been if the invested capital had not been prorated. His action in this respect was quite in accordance with the requirements of the statutes. Petitioner’s income for the fiscal year was $769,997.57, which amount, earned during the last three months of its taxable year, is approximately three times its income for the whole of its next taxable year. This abnormally large earning for the short period is, in its self, no ground for special assessment, but it does seem to me that the computation of the tax on such large earnings, using as one of the factors an invested capital greatly reduced by proration, does give rise to the abnormal conditions referred to in the statute. Section 327 (d), in part, reads as follows:
This subdivision shall not apply to any ease (1) in which the tax (computed without the benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital.
*1140It seems to me that the provision quoted is limited in its application to a situation where there is a “ normal invested capital.” The statute prescribes that invested capital shall be averaged, but there is no provision saying that when the invested capital has been thus averaged, it is “ a normal invested capital.” Here we have a “ high rate of profit upon” an abnormal “invested capital,” and I believe that this petitioner is entitled to the benefits of the relief provision. I would not have it thought that what I have just said would be in any way applicable to the situations arising from the proration of the ordinary additions to invested capital, but it does seem to me, where there are sales of the stock of a corporation pursuant to the plan of organization, and the Commissioner, of necessity, has averaged such corporation’s invested capital, and where the earnings of that corporation for the brief period of its existence have been unusually high, that it is manifestly unjust to compute the profits tax without regard to the relief provisions, which it seems to me were written into the statute to care for this and other unfortunate situations, which would make the’application of the statute, without the relief provisions, wholly unfair to the taxpayer.