Court Opinion

ID: 4472122
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:17:41.626568+00
Date Added: 2024-06-11T13:17:38.610127
License: Public Domain

Kern, </., dissenting: Since I am convinced that the result reached by the majority and the respondent’s regulation upon the question presented by this case are in conflict with the pertinent statutory provisions, I must respectfully note my dissent. Section 710 (a) of chapter 2 of the Internal Revenue Code imposes a tax upon the adjusted excess profits net income of every corporation. This tax may be computed under either section 710 (a) (1) (A) or section 710 (a) (1) (B), dependent upon which produces the lesser tax. If the tax is computed under section 710 (a) (1) (A), it will be “90 percentum of the adjusted excess-profits net income,” and, in making the computations prerequisite to an ascertainment of what is the corporation’s excess profits net income, it will be necessary to wind through the maze of novel and complicated concepts introduced into the Internal Revenue Code in 1940 by subchapter E of chapter 2. However, if the tax is computed under section 710 (a) (1) (B), the taxpayer will be dealing with familiar and comparatively simple concepts which it has already met in computing its corporation surtax under chapter 1. In computing “Excess-Profits Net Income” as that phrase is used in chapter 2, subchapter E of the Internal Revenue Code, or the excess profits tax representing a percentage of excess profits net income (sec. 710 (a) (1) (A)), or a credit to be subtracted from net income taxable under chapter 1, which, by section 26 (e) is to be “an amount equal to * * * adjusted excess-profits net income,” (a) and (b) of section 736 are to be applied to all steps requiring the ascertainment and use of “net income” as a factor in the determination of “excess-profits net income” under chapter 2, since otherwise neither a correct nor a realistic figure for “excess-profits net income” can be obtained. This would be true of any computations starting with section 710 (a) (1) (A). See West End Furniture Co., 6 T. C. 557. However, section 710 (a) (1) (B) does not require a computation of a tax representing a percentage of excess profits net income. It provides a substitute for a tax thus computed and is written in the familiar terms of chapter 1. Regardless of the amount of excess profits net income or the tax representing a percentage thereof, if a lesser amount would result from subtracting the amount of the tax imposed by chapter 1 from an amount equal to 80 per cent of the corporation surtax net income computed under section 15 of chapter 1, then that lesser amount shall be the excess profits tax. The only way in which section 710 (a) (1) (A) affects the computation of the amount of tax under section 710 (a) (1) (B) is to assure the taxpayer that it is paying a lesser amount of tax under section 710 (a) (1) (B) than it would have paid had its tax been computed under section 710 (a) (1) (A). Only to the extent of thus protecting a taxpayer is any calculation of “excess-profits net income” necessary in computing excess profits tax under section 710 (a) (1) (B). Regardless of whether the “excess-profits net income” of petitioner be computed on the completed contract method or the percentage of completion method, if 90 per cent thereof is greater than the “amount which when added to the tax imposed * * * under chapter 1 * * * equals 80 per centum of the corporation surtax net income computed under section 15 * * then the latter and lesser amount shall be petitioner’s excess profits tax. Only in section 710 (a) (1) (B) does the term “corporation surtax net income” appear in chapter 2, subchapter E. In none of the computations necessary under this subchapter to arrive at the “excess profits net income” upon which the excess profits tax is calculated under section 710 (a) (1) (A) is this term used. In none of the computations is it pertinent. It is used in the section which provides a substitute for and a limitation on the tax computed by the complicated method starting with section 710 (a) (1) (A) and requiring the ascertainment and use of “excess-profits net income.” In my opinion section 710 (a) (1) (B), in using the words and figures “80 per centum of the corporation surtax net income, computed under section 15,” means exactly what it sáys and should not be construed to read “80 per centum of the corporation surtax net income, computed under section 15 and/or section 736 (b) of subchapter E of chapter 2.” ARundell and Black, //., agree with this dissent.