Court Opinion

ID: 4596059
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:16:20.973583+00
Date Added: 2024-06-11T07:51:33.090601
License: Public Domain

C. P. FORD & CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.C. P. Ford & Co. v. CommissionerDocket No. 32292.United States Board of Tax Appeals19 B.T.A. 1010; 1930 BTA LEXIS 2274; May 20, 1930, Promulgated *2274  Petitioner sustained statutory "net losses" for 1922 and 1923 and earned taxable net income for 1924.  The "net loss" for 1922 was in excess of the net income for 1924.  Held, that such excess does not constitute a "net loss" for 1924 which may be used as a deduction in computing net income for any year subsequent to 1924.  H. Earlton Hanes, Esq., for the petitioner.  Arthur Carnduff, Esq., for the respondent.  SEAWELL*1010  This proceeding involves a deficiency in income tax as determined by the Commissioner for the period October 1, 1925, to May 31, 1926, in the amount of $1,041.11.  An error was assigned in the petition with respect to the disallowance of a deduction on account of certain charges for leased machinery, but this issue was abandoned by the petitioner at the hearing.  The other error assigned is the disallowance of a "net loss for the year 1924 and a deduction from net profits for the fiscal period October 1, 1925, to May 31, 1926." The facts were stipulated, from which we make the following findings: FINDINGS OF FACT.  The petitioner is a corporation with its principal office at Rochester, N.Y.For the fiscal years*2275  ended September 30, 1922, and September 30, 1923, the petitioner sustained statutory net losses in the respective amounts of $16,668.40 and $44,259.87.  For the fiscal years ended September 30, 1924, and September 30, 1925, and the period October 1, 1925, to May 31, 1926, inclusive, the petitioner earned taxable net income in the respective amounts of $11,476.72, $39,721.02, and $19,685.32.  The petitioner filed returns for the fiscal years ended September 30, 1922, 1923, 1924, and 1925, and for the period October 1, 1925, to May 31, 1926, inclusive.  The petitioner applied its net loss for the fiscal year ended September 30, 1922, against its net income for the *1011  fiscal year ended September 30, 1924, to the extent of said income and applied its net loss for the fiscal year ended September 30, 1923, against its net income for the fiscal year ended September 30, 1925, to the extent of said income.  The excess of the "net loss" for 1922 over the net income for 1924 is claimed by petitioner as a deduction from gross income in its return for the period October 1, 1925, to May 31, 1926, which deduction has been disallowed by the Commissioner.  OPINION.  SEAWELL: The*2276  error assigned by the petitioner is a disallowance by the Commissioner of a "net loss" for the fiscal year ended September 30, 1924, as a deduction from net income for the period October 1, 1925, to May 31, 1926, but this is hardly a true statement of the issue presented, for the reason that it conveys the impression that there is an admitted "net loss" for the fiscal year ended September 30, 1924, which the Commissioner is refusing to allow as a deduction in computing net income for the period October 1, 1925, to May 31, 1926.  What the petitioner really contends is that since the "net loss" which was sustained in 1922 is an allowable deduction in computing net income for 1924 (there being also a "net loss" for 1923), the excess of such "net loss" for 1922 over the net income for 1924 constitutes a "net loss" for 1924 which may be carried forward and allowed as a deduction in computing net income for the period October 1, 1925, to May 31, 1926.  In other words, this petitioner sustained net losses for 1922 and 1923 and had taxable net income for 1924.  The net loss for 1922 exceeded such net income for 1924 by $5,188.68.  Is this amount of $5,188.68 a statutory "net loss" for 1924? *2277  We think not.  Section 206(a) of the Revenue Act of 1924 states that "As used in this section the term 'net loss' means the excess of the deductions allowed by section 214 or 234 over the gross income," with certain exceptions not here material.  We fail to find among the deductions allowable under section 234 (which is here applicable, since the petitioner is a corporation) any provision for the allowance of a "net loss" as a deduction.  The allowance of a "net loss" as a deduction in computing net income provided by section 206 is entirely different from the deductions provided by section 234.  The fact that a net loss for one year is a deduction in computing net income for certain subsequent years does not necessarily mean that it is also a deduction in computing net losses for these same years.  On the contrary, the statute provides that a "net loss" may be used as a deduction in computing net income and also provides with much particularity how such "net loss" shall be determined, omitting from such latter considerations *1012  any reference to the use of a "net loss" as a deduction in determining a "net loss." *2278  The further consideration exists that the allowance of the petitioner's contention would have the effect of carrying the "net loss" beyond the second and third years after such "net loss" was sustained to the fifth year and if this were permissible we see no reason why the carrying forward could not be continued indefinitely.  Our understanding is that the intent and proper interpretation of the statute is directly opposed to the allowance beyond the third year, which, in this instance, is 1924.  As we said in : Section 206(e) of the Revenue Act of 1924 provides that any net loss sustained for 1922, in excess of the net income for the taxable year 1923, shall be allowed as a deduction in computing net income for the taxable year 1924.  No provision is made for carrying forward a net loss for 1922, as a deduction, beyond the taxable year 1924.  * * * See also ; ; and Senate Report No. 398, Committee on Finance, p. 20.  In view of the foregoing, we are of the opinion that no "net loss" was sustained by the petitioner for the fiscal year*2279  ended September 30, 1924, and therefore the deduction claimed by the petitioner for the period October 1, 1925, to May 31, 1926, must be disallowed.  Judgment will be entered for the respondent.