Court Opinion

ID: 4485008
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:06.901586+00
Date Added: 2024-06-11T15:03:34.054291
License: Public Domain

Whitaker, J, dissenting: I respectfully dissent. The perspective with which one views the facts is particularly important in this case since in the final analysis we are called upon to determine the standard imposed by Congress on the right of the Commissioner to issue a deficiency notice in rather unique circumstances. We must interpret a post-World War II tax act, the Tax Adjustment Act of 1945 (Pub. L. 172, ch. 340, 59 Stat. 521) which was remedial in nature.1 As the report of the Committee on Ways and Means describes it, the purpose of the legislation was to facilitate reconversion from the war economy "by improving the cash position of business from some of the burdens of the excess-profits tax.”2 One of the five specific purposes was to "Provide for speed-up of refunds resulting from carry-backs of net operating losses and of unused excess-profits credits.” But at the same time, Congress accompanied this speedup relief provision with mechanisms by which the Commissioner could secure repayment of any part of any refund erroneously made. In the case at bar, respondent is simply seeking to utilize the deficiency mechanism adopted as a corollary to the "quickie refund” measure, whereas petitioner is seeking to retain an admittedly erroneous refund. The majority and concurring opinions seem to emphasize that respondent is seeking to reopen a barred year unrelated to the carryback year; that the deficiency involves another tax in another year. I submit that this emphasis is misplaced. True it is that the deficiency is in minimum tax for the year 1972 whereas the carryback was to the year 1971. However, the 1972 adjustment is in fact an automatic mechanical adjustment due directly to the 1971 carryback. Since the 1971 income tax liability was reduced by the refund, the component of the minimum tax liability calculation for 1972 consisting of the 1971 income tax paid obviously required adjustment to conform to the results of the 1971 refund. This is admitted. To avoid repaying to the United States an amount of tax conceded to be due, petitioner has sought an extremely narrow and restrictive interpretation of statutory language which is broadly worded. The majority, in my judgment, misconstrues section 6501(h) and (j)- This decision, if sustained, will force respondent to audit with extreme care future section 6411 refund claims with ensuing delay in order to avoid the possibility of an overpayment such as occurred here. Thus, the congressional intent clearly reflected in the Committee report accompanying the Tax Adjustment Act of 1945 will be defeated. Moreover, under the majority’s rule, there are circumstances where a required automatic carryover reduction in the refund, as here called for, would be barred even though the gross refund must be allowed, an unconscionable result.3  It is my view that the statute of limitations changes which accompanied the "quickie refund” procedure, and those subsequently added, were intended by Congress to enable the Commissioner and the taxpayer, either or both, to recompute the tax liability of the taxpayer for every year affected by a net operating loss or a credit carryback, obviously the proper result. It is incumbent upon this Court to interpret procedural provisions of the Internal Revenue Code so as to achieve a rational result except where we are constrained by the statutory language itself, which is not the case here. This case could in fact be disposed of very simply. Both sections 6501(h) and 6501(j) are involved. Both use identical language, insofar as here pertinent: "In the case of a deficiency attributable to the application to the taxpayer of a * * * carryback.”4 The issue is whether the reduction in the carryover amount of the 1971 income tax to 1972 is "attributable to the application to the taxpayer of’ the net operating loss and investment credit carrybacks, both of which were effective to reduce petitioner’s 1971 tax liability. In Herman Bennett Co. v. Commissioner, 65 T.C. 506 (1975), we concluded that the "attributable to” language of the second clause of section 6501(j) was satisfied where the adjustment "may be traced directly to” the carryback. These words, used in section 6501(h) and in both clauses of section 6501(j), must be construed alike. Even though the facts in Herman Bennett may not be comparable to the instant case, as Judge Feather-ston points out, we are committed to the concept that a deficiency is "attributable to” a carryback if it can be traced to the carryback. Can anyone deny that the 1972 increased tax can be "traced directly to” the carrybacks from 1974? If there were doubt as to the intendment of these words, one has but to look at the nearest dictionary.5 But in the face of this plain statutory language, the majority seeks comfort in legislative history in order to justify the result it reaches. As appellate courts have said: "Resort to legislative history has a place in judicial construction of statutes only when resort thereto is necessary to resolve a patent ambiguity in the language of the statute/’6 "Such aids [to interpretation] are only admissible to solve doubt and not to create it.”7 Moreover, I do not believe that the majority correctly interprets the Committee report. The Adjustment Act of 1945 added to the Code as parts of a single unified package a detailed mechanism for the filing and processing of "quickie” refunds, a procedure for summary reversal by the Commissioner of the allowance of such refunds, and various extensions of the period of limitations both on taxpayer refund claims and IRS deficiencies. The many cross-references in the Committee report reflect the intended integration of the several parts. If we must look to the report for an indication of congressional intent, we are both entitled and required to construe it as a whole. The refund claim procedure became new Code8 section 3780. Subsection (a) established the refund application and its scope. The report describes the scope of the "attributable to” language as follows: Thus, if a taxpayer has a net operating loss or an unused excess profits credit in any taxable year ending on or after September 30, 1946, he may file an application for a tentative adjustment of the taxes for all prior taxable years affected by the net operating loss carry-back or the unused excess profits credit carry-back resulting from such loss or unused credit. A decrease in excess profits tax resulting from an unused excess profits credit carry-back which itself results from, or is increased in amount by, a net operating loss carry-back shall be considered to be attributable to such net operating loss carry-back. If a corporation has, e.g., a net operating loss in the calendar year 1945 which when carried back to 1943 results in an unused excess profits credit, the decrease in excess profits tax for 1941 resulting from the unused excess profits credit carry-back from 1943 shall be considered to be attributable to the net operating loss carry-back from 1945. * * * [1945 C.B. at 580.] While income and excess profits taxes were principally affected, the report makes it clear that the statute embodies every tax affected by the carryback.9  The obligation of the Commissioner under section 3780(b) is described in pertinent part as follows: Within such period of 90 days the Commissioner is to make such limited examination of the application as he deems practicable for omissions and errors of computation therein. The Commissioner is then to determine the increase or decrease in any tax affected by the carry-back upon the basis of the application and such examination. * * * In determining the increase or decrease in each tax affected by the carry-back, the Commissioner accordingly may correct any mathematical errors appearing on the application and he may likewise correct any adjustments required by law and incorrectly made by the taxpayer in computing its net operating loss, its unused excess-profits credit, the resulting carry-backs, or its net operating loss deduction or unused excess-profits credit adjustment. * * * Thus, if the taxpayer’s application fails to take into account certain tax-free interest which he received in the year of the net operating loss, or in a prior year the taxes for which are affected by the carry-back, the Commissioner, * * * may take such tax-free interest into account in determining the increases and decreases in the taxes affected by the carry-back. * * * [1945 C.B. at 582; emphasis added.] This language very plainly directs the Commissioner in checking the claim for refund based on the tentative carryback to recompute every tax affected by the carryback. The taxes to be recomputed are those of any prior year affected by the carryback. The legislative history could hardly be made clearer. The fact that there was no minimum tax in the 1939 Code and no carryforward provision cannot prevent the 1954 Code equivalent from also reaching that adjustment. In the instant case, the Commissioner should have recomputed petitioner’s 1972 tax liability as well as his 1971 tax liability, for both were directly affected by the carryback, and he should have reduced the refund accordingly. The 1972 adjustment was inevitably mandated by the Code — analogous to the classical mathematical error, which under section 6213(b) the Commissioner has long been authorized to correct by assessment without a statutory notice.10 Petitioner clearly recognized the propriety of this action since petitioner itself in its application for refund reduced the 1971 refund by the 1972 increase in tax.11  Section 3780(c), as added by the 1945 Act, gave the Commissioner a nonexclusive summary procedure for adjustment of any excessive refund allowed. As explained by the report: 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 carry-back 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. Subsection (c) provides that if the Commissioner determines that the amount applied, credited, or refunded with respect to an application for a tentative carry-back adjustment is in excess of the overassessment properly attributable to the carry-back upon which such application was based, he may assess the amount of the excess as a deficiency as if such deficiency were due to a mathematical error appearing on the face of the return. * * * [1945 C.B. at 583.] Application of this summary procedure is illustrated in the report by reference to two partially offsetting adjustments in a single year. However, the example in the Committee’s discussion of section 3780(b), as quoted above, must be considered incorporated by reference. Thus under section 3780(c) the Committee intended that the Commissioner would have the power to correct recalculations of refunds of 1941 and 1943 taxes, all attributable to a 1945 net operating loss. Finally, as again here pertinent the 1945 Act added to the 1939 Code as section 276(d) the predecessor of present section 6501(h), the language of which is instructive: (d) Net OpeRating Loss Carry-Backs and Unused Excess Profits Credit Carry-Backs. — A deficiency attributable to the application to the taxpayer of a net operating loss carry-back or an unused excess profits credit carry-back, including deficiencies which may be assessed pursuant to the provisions of section 3780(b) and (c), may be assessed at any time prior to the expiration of the period within which a deficiency may be assessed with respect to the taxable year of the claimed net operating loss or unused excess profits credit resulting in such carry-back. [1945 C.B. at 538.] The express cross-reference to section 3780(c) confirms again the obvious scope of the statutory language itself, that this new extension of the deficiency procedure applied not just to the year to which the loss carryback was applied but also any other year to which the quickie refund claim related. Judge Featherston’s concurring opinion seeks support for his and the majority’s unduly narrow interpretation of section 6501(h) and (j) in the language of the 1958 Committee reports12 in that these two reports do describe the 1939 Code provisions in terms of a deficiency of the year to which the loss was carried back, but I construe that language as simply a generalized and abbreviated description of the most obvious application of the 1945 Act provisions. It certainly cannot serve to limit the actual and intended scope of the 1945 Act. Neither does it limit the scope of the 1958 amendment13 which, as Judge Featherston points out, restored the 1939 Code rule. The majority finds that three requirements must support a deficiency under section 6501(h) and (j): (i) The carryback must be erroneously applied, (ii) as a result, too much tax is refunded, and (iii) the deficiency must result from "an error in * * * the amount or existence of the loss or credit giving rise to the carryback.” The authority cited for this interpretation is the legislative history, which offers no such support. Nor is this interpretation permissible under the decisions of this Court and other case law. Under the majority’s interpretation, the Commissioner would have no authority under section 6501(h) and (j) to determine a deficiency in the computation of the tax to be refunded, unless there is an error in the actual amount or existence of the loss or credit giving rise to the carryback or in the application of the carryback to the taxpayer. This result would be clearly erroneous as the majority would probably agree, for section 6501(h) and (j) authorizes the Commissioner, in determining the proper refund or credit, to adjust each tax affected by the carryback and to correct any mathematical errors that thereby arise in order to arrive at the taxpayer’s correct liability.14 See, e.g., DuPont v. United States, 483 F. Supp. 588 (D. Del. 1980). The requirement applied by the majority that the amount or existence of the carryback itself must be erroneous is unfounded. DuPont involved the minimum tax computation in the year to which the carryback was initially carried whereas here the carryback required a recomputation of the minimum tax liability for the succeeding year. It is difficult to visualize Congress’ directing one but not the other. The majority insists that section 6501(h) and (j) does not include deficiencies attributable to carryovers but instead is restricted to deficiencies attributable to carrybacks. Thus, the majority concludes that the "attributable to” language of the two sections does not apply to an automatic adjustment in the minimum tax liability where the carryback causing that adjustment is applied in an earlier year. I suggest that such interpretation is neither required by the legislative history nor permissible under a decision of this Court, viz, Jones v. Commissioner, 71 T.C. 391 (1978). See also Herman Bennett Co. v. Commissioner, 65 T.C. 506 (1975). Jones carried our interpretation of the "attributable to” language a rational step further than our decision in Bennett, in the context of section 6501(h). A 1970 net operating loss carryback to the year 1968 was allowed incorrectly pursuant to a claim filed under section 6411. The deficiency asserted for 1968 sought to recover the entire carryback refund. Petitioner, however, claimed that the 1968 deficiency resulting from the erroneous net operating loss should be reduced so as to take into account an unused 1971 loss carryback which could not have been utilized so long as the 1970 loss carryback had been allowed. The issue before us was not as to the propriety of the deficiency as it related to the erroneous 1970 carryback but rather whether petitioner was barred under these circumstances from taking advantage of the 1971 carryback in the recomputation of his 1968 tax liability. In Jones, after reciting that we had interpreted section 6501(h) as precluding the Commissioner from assessing a deficiency except where it was related to "circumstances giving rise to the carryback or to the statutory machinery making the loss applicable to the year at issue,”15 we said that— Although the 1971 net capital loss is not a part of the losses giving rise to the 1970 net operating loss carryback, it can be considered a part of the statutory machinery generally making losses applicable to the year at issue. The disallowance of the 1970 loss is so interrelated to the allowance of the 1971 loss that we find it difficult to separate the two. * * * And we find no good reason for doing so. * * * [71 T.C. at 399.] Similarly in this case, I find the 1972 adjustment to be inseparably related to the 1971 adjustment, so much so that it should not be, in fact it cannot be, separated therefrom. And I "find no good reason for doing so.” As we said in Jones, this type of automatic adjustment is part of the statutory machinery. The majority makes the point that section 6501(h) and (j) applies literally to "carrybacks” whereas the involvement of 1972 results from a "carryover.” This is, however, a "red herring.” It is immaterial how 1972 is involved or that it is a later year. These two sections refer to carrybacks as the original source of the adjustment only; the requirement is that the deficiency be "attributable to” a carryback. There is simply nothing in the statutory provisions which precludes respondent from predicating the deficiency on a carryforward adjustment so long as it can be "traced directly to” a carryback. Both the majority and Judge Featherston’s concurring opinion accuse respondent of seeking to reopen a closed year for an adjustment not related to the carryback, a proposition which would be foreclosed by decisions of this Court.16 This, too, is a "red herring.” As I have pointed out, the year 1972 requires an automatic adjustment, not of any item of deduction or credit related to 1972 but simply to reduce the 1971 income tax figure incorporated into the 1972 minimum tax calculation to the corrected 1971 amount. That is not a reopening of a year for an adjustment unrelated to the carryback. For the foregoing reasons, I would allow respondent’s motion for partial summary judgment and would deny petitioner’s cross-motion for partial summary judgment. Tannenwald, Simpson, Wilbur, and Parker, J.J., agree with this dissenting opinion.  As the concurring opinion recognizes, the currently applicable Code section was adopted by Congress in 1958 to reenact a 1939 Code provision omitted by oversight from the 1954 Code. S. Rept. 1983, 85th Cong., 2d Sess. (1958), 1958-3 C.B. 922.    H. Rept. 849, 79th Cong., 1st Sess. (1945), 1945 C.B. 566 at 566.   In this case, the 3-year statute of limitations with respect to the year 1972 expired on May 17, 1976, while the Form 1139 seeking the quickie refund was filed on July 30, 1975. Under these facts respondent, at least theoretically, had time within the regular limitation period in which to issue a statutory notice on 1972. However, the majority’s decision is not rested on that fact. Suppose for example, that this taxpayer suffered product liability losses in 1981, which under sec. 172(i) would be carried back 10 years to the year 1971. Under the majority opinion, petitioner would be entitled to a further refund of 1971 taxes, but without any possibility of reduction due to the further automatic 1972 adjustment which the majority holds is outside the sec. 6501(h) and (j) provisions. I do not believe that we are required to interpret sec. 6501 so as to create such a gross legislative oversight when it is clearly not mandated by the actual statutory language.   Sec. 6501(h) applies to a net operating loss carryback and a capital loss carryback whereas sec. 6501(j) applies to an investment credit carryback.   "2. To ascribe (to) as belonging or pertaining; specif: a By way of cause; as, a disease attributed to infection.” Webster’s New International Dictionary 179 (unabridged) (2d ed. 1953).   American Community Builders, Inc. v. Commissioner, 301 F.2d 7, 13 (7th Cir. 1962); see also Warrensburg Board & Paper Corp. v. Commissioner, 77 T.C. 1107 (1981).    Wisconsin R.R. Comm. v. Chicago, B. & Q. R.R. Co., 257 U.S. 563, 589 (1921).    1939 Internal Revenue Code.   Sec. 3780(b) explicitly refers to "any income, war profits, or excess profits tax or installment thereof.”   See, e.g., Beckman v. United States, 396 F.Supp. 44 (D. Kan. 1975), affd. in an unreported opinion (10th Cir. 1977). See also the discussion of the mathematical error correction authority granted to the Commissioner by sec. 6213(b)(3) in the Committee reports accompanying sec. 1206, Tax Reform Act of 1976, Pub. L. 94-455, 90 Stat. 1703; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 412-416; H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 980-984. The 1945 report recognizes this principle.   The year 1972 was open for audit by respondent at this time. Query, whether the majority opinion will create a disincentive to taxpayers to volunteer this adjustment. See note 3 supra.   S. Rept. 1983, 85th Cong., 2d Sess. (1958), 1958-3 C.B. 922; S. Rept. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707.   Technical Amendments Act of 1958, Pub. L. 85-866,72 Stat. 1606.   The report is again instructive in its discussion of new sec. 276(d): "In determining whether there is a deficiency attributable to a carry-back, proper adjustment shall be made in computing the net operating loss or unused excess profits credit, in computing the carry-backs, and in computing the amount of the net operating loss deduction or unused excess profits credit adjustment. It is to be noted that it is immaterial whether the net operating loss or the unused excess profits credit as claimed by the taxpayer is different from or is exactly equal to the amount of the actual net operating loss or unused excess profits credit. Any deficiency attributable to a carry-back resulting from such loss or unused excess profits credit may be asserted at any time prior to the expiration of the period within which a deficiency may be assessed with respect to the taxable year of the claim or actual net operating loss or unused excess profits credit. [1945 C.B. at 588; emphasis supplied.]”   The "statutory machinery” language was first articulated in Leuthesser v. Commissioner, 18 T.C. 1112, 1125 (1952).   See Leuthesser v. Commissioner, supra; Bouchey v. Commissioner, 19 T.C. 1078 (1953); Bunn’s Auto Sales v. Commissioner 35 T.C. 861 (1961).