Court Opinion

ID: 4333343
Source: CourtListenerOpinion
Date Created: 2018-11-14 01:09:10.248587+00
Date Added: 2024-06-11T10:06:10.060956
License: Public Domain

116 T.C. No. 30

                UNITED STATES TAX COURT

CHRYSLER CORPORATION, f.k.a. CHRYSLER HOLDING CORPORATION,
 AS SUCCESSOR BY MERGER TO CHRYSLER MOTORS CORPORATION
   AND ITS CONSOLIDATED SUBSIDIARIES, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22148-97.                      Filed June 29, 2001.

     P’s 1980, 1981, and 1982 Federal income tax
returns claimed deductions for foreign tax liabilities
which had accrued during those years. On July 24,
1995, P amended those returns to elect foreign tax
credits in lieu of the deductions and amended its 1985
return to claim a refund from a carryover of the
foreign taxes to 1985. R disallowed the claim,
determining in relevant part that P’s change of the
deductions to credits was untimely under sec. 901(a),
I.R.C.
     Held: P’s election to credit the foreign taxes
was untimely under sec. 901(a), I.R.C. The period
specified therein commenced on the due dates of the
returns for 1980, 1981, and 1982, the years for which P
elected the foreign tax credit.
                                - 2 -

     James P. Fuller, Ronald B. Schrotenboer, Kenneth B. Clark,

William F. Colgin, and Barton W.S. Bassett, for petitioner.

     Jeffrey L. Bassin, Nancy B. Herbert, and Bethany A.

Ingwalson, for respondent.

                               OPINION

     LARO, Judge:   Respondent moves the Court for partial summary

judgment.   See Rule 121.   Respondent determined deficiencies of

$593,967, $13,064,705 and $36,102,409 in petitioner’s Federal

income taxes for 1983, 1984, and 1985, respectively.     The

deficiencies are attributable partially to respondent’s

determination that petitioner could not in 1995 amend its 1985

tax return to claim for that year a carryover of foreign tax

credits which accrued in 1980, 1981, and 1982.

     We decide for the first time whether petitioner timely

elected under section 901(a) to credit (rather than deduct) its

1980, 1981, and 1982 foreign taxes.1     We hold it did not.   Unless

otherwise indicated, section references are to the Internal

Revenue Code in effect for the years in issue.     Rule references

are to the Tax Court Rules of Practice and Procedure.

     1
       The parties also dispute whether petitioner timely claimed
a refund under sec. 6511(d)(3)(A). On the basis of our holding
on the issue before us, we need not decide that dispute.
                                - 3 -

                              Background

     All facts were stipulated.    The parties’ stipulation of

facts and the exhibits submitted therewith are incorporated

herein by this reference.    The stipulated facts are found

accordingly.    Petitioner’s principal place of business was in

Auburn Hills, Michigan, when the petition was filed.    Petitioner

is an accrual basis taxpayer that reports its income and expenses

on the basis of the calendar year.

     Petitioner timely filed its 1980 through 1985 Federal income

tax returns on or about September 15 of the appropriate years.

Petitioner deducted on its 1980 through 1983 returns its foreign

taxes that accrued during those years.     Petitioner claimed as a

credit on its 1984 and 1985 returns its foreign taxes that

accrued during those years.    Petitioner reported the information

shown in appendix A on its 1980 through 1985 returns, as

originally filed.

     On July 24, 1995, petitioner amended its 1980 through 1985

returns.   On that date, the period of limitation for assessment,

credit, or refund was closed for 1980, 1981, and 1982 and open

for 1983, 1984, and 1985.    On each of the 1980 through 1983

amended returns, petitioner claimed a credit for its accrued

foreign taxes, rather than the deduction it had reported

originally.    Petitioner’s 1980 through 1985 amended returns

disclose the information summarized in appendix B.
                               - 4 -

     On its original 1980 return, petitioner included $17,945,227

of section 78 gross-up income and claimed a deduction in the same

amount.   Petitioner also deducted $16,610,858 as direct foreign

taxes paid, for a total deduction of $34,556,085.   The 1980

amended return eliminated the foreign tax deduction, claiming in

its place creditable foreign taxes (in the amount of the original

deduction) resulting from direct and deemed paid taxes.   The 1980

amended return also claimed an additional $8,686,479 of deemed

paid taxes, for total creditable foreign taxes of $43,242,564.

The 1980 amended return reported total section 78 gross-up income

of $26,631,706, an increase of $8,686,479 over the $17,945,227

reported on the original 1980 return.

     On its 1980 through 1982 amended returns, petitioner

reported that the election of the foreign tax credit generated

increased taxable income from the disallowance of the deduction

for foreign taxes and increased section 78 gross-up income.

Those amended returns reported net operating losses (NOL’s) and

no U.S. tax liability against which to credit foreign taxes;

accordingly, petitioner applied no foreign tax credits on those

amended returns.   Petitioner had no taxable income or U.S. tax

liability for 1978 and 1979 against which a foreign tax credit

from 1980 or 1981 could have been applied by way of a carryback.

     Pursuant to petitioner’s 1985 amended return, the creditable

foreign taxes reported on the 1980 through 1982 amended returns
                              - 5 -

were carried forward and claimed as a credit on the 1985 amended

return, generating a claimed refund of $6,771,601 for that year.

The carryover also “freed up” investment tax credits of

$38,372,409 claimed on the original 1985 return, which petitioner

treated as eligible to be carried forward to later years.

     In the notice of deficiency, respondent denied petitioner’s

refund claim made by way of the 1985 amended return.    Respondent

determined that petitioner’s taxable income for 1980 through

1985, and its NOL carryover deductions for 1982 through 1985,

were as follows:

               Taxable Income Per                 NOL
     Year     Notice of Deficiency         Carryover Deduction
     1980     $(1,073,590,197)                     -0-
     1981        (458,366,008)                     -0-
     1982             -0-                        $1,631,010
     1983             -0-                       527,861,679
     1984         323,669,637                 1,356,138,685
     1985       1,311,979,860                      -0-

Taking into account agreed adjustments, the table in appendix C

shows the result if petitioner is allowed to change its reporting

for foreign taxes accrued in 1980, 1981, and 1982 from a

deduction to a credit.

                            Discussion

     The issue at hand involves three sections of the Code;

namely, sections 901, 904, and 6511.     These sections provide in

relevant part as follows:
                              - 6 -

SEC. 901. TAXES OF FOREIGN COUNTRIES AND OF
          POSSESSIONS OF UNITED STATES.

     (a) Allowance of Credit.–-If the taxpayer chooses
to have the benefits of this subpart, the tax imposed
by this chapter shall, subject to the limitation of
section 904, be credited with the amounts provided in
the applicable paragraph of subsection (b) plus, in the
case of a corporation, the taxes deemed to have been
paid under sections 902 and 960. Such choice for any
taxable year may be made or changed at any time before
the expiration of the period prescribed for making a
claim for credit or refund of the tax imposed by this
chapter for such taxable year. * * * [Emphasis
added.]

SEC. 904.    LIMITATION ON CREDIT.

     (a) Limitation.--The total amount of the credit
taken under section 901(a) shall not exceed the same
proportion of the tax against which such credit is
taken which the taxpayer’s taxable income from sources
without the United States (but not in excess of the
taxpayer’s entire taxable income) bears to his entire
taxable income for the same taxable year. * * *

             *      *    *    *       *   *   *

     (c) Carryback and Carryover of Excess Tax Paid.--
Any amount by which all taxes paid or accrued to
foreign countries or possessions of the United States
for any taxable year for which the taxpayer chooses to
have the benefits of this subpart exceed the limitation
under subsection (a) shall be deemed taxes paid or
accrued to foreign countries or possessions of the
United States in the second preceding taxable year, in
the first preceding taxable year, and in the first,
second, third, fourth, or fifth succeeding taxable
years, in that order and to the extent not deemed taxes
paid or accrued in a prior taxable year * * *

SEC. 6511.       LIMITATIONS ON CREDIT OR REFUND.

     (a) Period of Limitation on Filing Claim.--Claim
for credit or refund of an overpayment of any tax
imposed by this title in respect of which tax the
taxpayer is required to file a return shall be filed by
the taxpayer within 3 years from the time the return
                              - 7 -

     was filed or 2 years from the time the tax was paid,
     whichever of such periods expires the later, * * *

               *    *    *    *       *      *      *

          (d) Special Rules Applicable to Income Taxes.--

               *    *    *    *       *      *      *

               (3) Special rules relating to foreign
          tax credit.--

                    (A) Special period of
               limitation with respect to foreign
               taxes paid or accrued. If the
               claim for credit or refund relates
               to an overpayment attributable to
               any taxes paid or accrued to any
               foreign country or to any
               possession of the United States for
               which credit is allowed against the
               tax imposed by subtitle A in
               accordance with the provisions of
               section 901 or the provisions of
               any treaty to which the United
               States is a party, in lieu of the
               3-year period of limitation
               prescribed in subsection (a), the
               period shall be 10 years from the
               date prescribed by law for filing
               the return for the year with
               respect to which the claim is made.

     Section 901(a) allows a taxpayer such as petitioner to elect

to credit income taxes owed to a foreign country in lieu of

deducting them under section 164(a)(3).2         Respondent argues that

petitioner’s election was untimely.       Respondent asserts that the

phrases “for any taxable year” and “for such taxable year” that

     2
       While accrued foreign taxes must ultimately be paid to be
eligible for credit, see sec. 905(b); see also sec. 1.901-2(e),
Income Tax Regs., proof of payment is not at issue in this case.
                               - 8 -

appear in section 901(a) refer to petitioner’s 1980, 1981, and

1982 taxable years rather than petitioner’s 1985 taxable year.

Petitioner argues that its election was timely.     Because section

904(c) allows a taxpayer to carry over a foreign tax credit for

up to 5 years, petitioner asserts, section 901(a), when read in

the light of section 6511(d)(3)(A), generally allows a taxpayer

up to 15 years to elect or change its election under section

901(a).   Petitioner concludes that the relevant phrases refer to

the year for which the overpayment is claimed on account of the

foreign taxes; here, 1985.   Petitioner asserts that its

conclusion comports with Congress’ intent for section 901(a),

i.e., to avoid subjecting a taxpayer’s foreign earnings to

taxation by both the foreign country and the United States, and

that its conclusion is consistent with the application of section

6511(d)(3)(A).

     We agree with respondent that the 10-year period under

section 901(a) is measured from the years for which P elected the

foreign tax credits; i.e., 1980, 1981, and 1982.3    We read the

     3
       At the outset, we note that petitioner relies in part on
legislative actions (including the release of committee reports)
that occurred many years after the enactment of sec. 901(a) to
construe the legislative intent underlying that section. We do
not do likewise. As we stated in Central Reserve Life Corp. &
Subs. v. Commissioner, 113 T.C. 231, 238 (1999) (citations and
quotation marks omitted):

     It is emphatically the province and duty of the
     judicial department to say what the law is, and the
                                                   (continued...)
                               - 9 -

phrase “for such taxable year” to refer to the “any taxable year”

specified at the beginning of the same sentence, or, in other

words, to the year for which the election of the foreign tax

credit is made.   The only other time that Congress used the word

“such” in section 901(a) it did so to refer to the “choice” made

by the taxpayer described in the first sentence of section

901(a).   We believe it logical to conclude that Congress’ use of

the second “such”, i.e., the one at issue, refers to the only

“taxable year” described in section 901(a); namely, the year for

which the election of the foreign tax credit is made.

     Our reading comports with the Commissioner’s regulations

prescribed under section 901(a).   Section 1.901-1(d), Income Tax

Regs., provides that “The taxpayer may, for a particular taxable

year, claim the benefits of section 901 (or claim a deduction in

lieu of a foreign tax credit) at any time before the expiration

of the period prescribed by section 6511(d)(3)(A)”.   Here,

petitioner aims to “claim the benefits of section 901” for 1980,

1981, and 1982 and not for 1985.   The benefits which petitioner

     3
      (...continued)
     views of one Congress as to the meaning of prior
     legislation have little bearing on a court's
     furtherance of that duty. Such is especially true in
     the instant case where few of the legislators who voted
     on the subsequent legislation * * * were members of
     Congress * * * [at the time of the original
     legislation].
                                - 10 -

is attempting to avail itself of in 1985 are the benefits of

section 904(c).

     We are mindful that the Court of Claims entered an order in

the case of Allatt v. United States, 218 Ct. Cl. 694 (1978), that

effectively allowed the taxpayer to make an election under

section 901(a) outside the 10-year period discussed herein.      It

does not appear, however, that in that case the Commissioner

raised, or the court addressed, an argument comparable to the one

made by respondent here.    In fact, the underlying opinion in

Allatt addresses only the Commissioner’s motion for summary

judgment in which he sought (but the court rejected) an

interpretation of section 901 that would limit to 3 years the

time to make an election under section 901(a).

     We hold that petitioner’s elections for 1980, 1981, and 1982

were untimely.    Accordingly, we will grant respondent’s motion

for partial summary judgment.

                                An appropriate order will be issued

                           granting respondent’s motion for partial

                           summary judgment.
                             - 11 -

APPENDIX A--Information Shown on Original Returns

            Reportable          NOL       Sec. 78       Foreign
  Year    taxable income   carryforward   gross-up    tax deducted

  1980   ($1,060,731,645)      -0-      $17,945,227   $34,556,085
  1981      (489,345,867)      -0-           -0-        7,020,844
  1982           -0-        $58,634,098      -0-        3,631,958
  1983           -0-        331,319,906      -0-           -0-
  1984           -0-      1,381,445,931      -0-           -0-
  1985       918,244,402    197,091,387      -0-           -0-
                              - 12 -

APPENDIX B--Information Shown on Amended Returns

            Reportable           NOL       Sec. 78         Foreign
  Year    taxable income    carryforward   gross-up      tax deducted

  1980   ($1,017,489,081)      -0-      $26,631,706           -0-
  1981      (476,743,564)      -0-        5,581,459           -0-
  1982           -0-        $29,960,453   4,225,518           -0-
  1983           -0-        328,059,940      -0-              -0-
  1984           -0-      1,381,295,514      -0-              -0-
  1985       951,917,484    129,375,575      -0-              -0-

              Creditable      Sec. 901       Sec. 902
  Year      foreign taxes    direct tax     deemed tax

  1980       $43,242,564    $16,610,858    $26,631,706
  1981        12,602,303      7,020,844      5,581,459
  1982         7,857,476      3,631,958      4,225,518
  1983            -0-            -0-            -0-
  1984            -0-            -0-            -0-
  1985            -0-            -0-            -0-
                                 - 13 -

APPENDIX C--Result If Petitioner Is Allowed To Change Its
    Reporting for Foreign Taxes Accrued in 1980, 1981,
            and 1982 From a Deduction to a Credit
                                                         Total     Sec. 78
          Sec. 901      Sec. 902      Total creditable deduction    income
 Year   direct taxes   deemed taxes    foreign taxes   decreased   increase

 1980   $14,997,403    $26,631,706     $41,629,109   $34,556,085   $8,686,479
 1981     6,901,732      5,581,459      12,483,191     7,020,844    5,581,459
 1982     3,631,958      4,225,518       7,857,476     3,631,958    4,225,518