Court Opinion

ID: 8594678
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:01:44.314193+00
Date Added: 2024-06-11T16:54:50.023634
License: Public Domain

Davis, Judge,
concurring:
In joining the court’s opinion, I wish to stress — on the question dealt with in Part I — that the problem arises solely because of the Treasury’s decided lack of clarity in drafting Treas. Reg. § 301.6611-1. If subsection (b) stood without (h) (2) (v), I would have little doubt, because of the explicit parenthesis in (b), that defendant is correct in its argument here. But (h) (2) (v) is also very explicit, and at the same time is the more specific of the two. All that defendant can do with it is to say that — despite its unqualified language and general context — it has no application to the same tax for the same year. This pushes too far to be an acceptable rationalization of the self-created disharmony in § 301.6611-1. Where the Treasury itself puts contradictions into the same section of a regulation, and it is nearly impossible or at least very hard for a court to read the conflicting provisions together without great strain,1 I would let the Government bear the brunt of its error until the regulation is altered. For that reason I accept the court’s reconciliation of (b) and (h) (2) (v), even though it is not free from difficulties of its own.
*381APPENDIX A
The Facts Material to the Tax Refund Claim of fruehauf corporation v. united states (No. 91-70)
The following is a summary of the material, actual facts underlying the tax refund claim of Fruehauf Corporation (No. 91-70), as agreed upon by the plaintiff and defendant in their Stipulation of Facts filed on December 6,1971, and in their Supplemental Stipulation of Facts filed on May 31,1972.
Plaintiff Fruehauf Corporation, a Michigan corporation, uses the calendar year as a reporting period for its Federal corporate income taxes.
In 1960, Fruehauf received notice from the Commissioner of Internal Revenue of deficiencies in its corporate income taxes for the years 1954, 1955, and 1956, based upon a change in Fruehauf’s method of accounting for used trailer inventories (which had been initiated by the Internal Revenue Service (irs)).
Fruehauf contested the asserted deficiencies before the Tax Court of the United States. On July 24, 1964, the Tax Court entered its judgment that Fruehauf had underpaid its taxes for the years 1954 and 1956 in the amounts of $1,651,-654.58 and $3,176,489.25, respectively. The Tax Court further determined, however, that Fruehauf had overpaid its taxes for the year 1955 in the amount of $1,711,087.39. The decision of the Tax Court was affirmed by the United States Court of Appeals for the Sixth Circuit, and on October 10, 1966, the Supreme Court denied Fruehauf’s petition for a writ of certiorari.
The 1955 overpayment of $1,711,087.39 determined by the Tax Court arose because of the carryback of a 1958 net operating loss to 1955, reduced by an excessive tentative net operating loss carryback from 1957 to 1955 previously taken by Fruehauf. Prior to taking into account the 1957 and 1958 carryback factors, a tentative deficiency existed for 1955 in the amount of $2,193,095.27. That tentative deficiency was increased in the amount of $366,454.28 by reason of an excessive 1955 refund in that amount arising from the excessive 1957 tentative net operating loss carryback. The total tentative deficiency for 1955 of $2,559,549.55 ($2,193,095.27 plus *382$366,454.28) was eliminated by $4,270,636.94 of 1955 tax attributable to the 1958 net operating loss carryback.
On December 9,1966, the Detroit District Director of Internal Revenue assessed Fruehauf for the years 1954, 1955, and 1956 in the following amounts:

1954

Tax_$1,651,654.58
Interest_ 532, 985. 39
Total_$2,184, 639. 97

1955

Interest_ $389, 591. 01

1958

Tax.__$3,176,489.25
Interest_ 1, 852, 284. 85
Total_$5, 028, 774. 10
Of the $389,591.01 of interest assessed for 1955, $367,628.86 represents interest computed from the due date of the 1955 return to the last day of the 1958 loss year on the tentative 1955 deficiency of $2,193,095.27. The remaining portion ($21,962.15) of the $389,591.01 interest assessed for 1955 represents interest computed from January 1, 1958 to December 31, 1958, on the excessive 1955 refund of $366,454.28 attributable to the excessive tentative net operating loss carryback from 1957.
On or about December 13, 1966, a Form 17-A Statement of Tax Due was issued, setting forth for 1954 and 1956 the amounts of tax and interest due as assessed on December 9, 1966, and balances due of $2,184,639.97 and $5,028,774.10, respectively. Also, on or about December 13, 1966, Fruehauf received a Form 1331 Notice of Adjustment detailing the application made by the IRS of the $1,711,087.39 overpayment determined by the Tax Court for 1955. That form reflects that $389,591.01 of the $1,711,087.39 overpayment was credited against the $389,591.01 of deficiency interest assessed against Fruehauf for 1955, and that $1,321,496.38 of the overpayment (i.e., the remainder thereof) was credited against the $1,651,654.58 of tax assessed against Fruehauf for 1954. Thereafter, a Form 17 Corrected Bill was issued *383for 1954 showing that tbe $2,184,639.97 of tax and interest previously assessed as due for 1954 bad been reduced by $1,321,496.38 by reason of tbe crediting of a portion of tbe 1955 overpayment.
Of tbe $1,711,087.39 of 1955 overpayment determined by tbe Tax Court, $389,591.01 ($1,711,087.39 less tbe $1,321,-496.38 credited against the 1954 deficiency) was credited against tbe $389,591.01 of deficiency interest assessed for 1955. No interest was received by Fruehauf on the $389,591.01 portion of tbe 1955 overpayment so credited against the tbe same amount of 1955 deficiency interest.
On December 23, 1966, Fruehauf paid the following amounts to tbe ms:

Fruehauf filed timely refund claims with tbe ms for the years 1954, 1955, and 1956 on March 6, 1968. Fruehauf’s refund claims were disallowed in full for 19'55 on October 17, 1968, and for 1954 and 1956 on October 22,1968.
The $389,591.01 portion of tbe 1955 overpayment determined by tbe Tax Court that was credited against the $389,591.01 of deficiency interest for 1955 would have earned $185,568.07 of interest between January 1, 1959 and December 9, 1966 (the date of tbe assessment of the 1955 deficiency interest) had the ms recognized Fruehauf’s entitlement to interest on that portion of the overpayment over that period of time.
APPENDIX B
The Facts Material to the Tax Refund Claim of metro-goldwyn-mayer, inc. v. united states (No. 191-71)
The following is a summary of the material, actual facts underlying the tax refund claim of Metro-Goldwyn-Mayer, Inc. (No. 191-71), as agreed upon by the plaintiff and defendant in their Stipulation of Material Facts filed on March 30, 1972.
*384Plaintiff Metro-Goldwyn-Mayer, Inc. (mgm) , which, brings this suit on its own behalf and on behalf of its consolidated subsidiaries, filed consolidated Federal income tax returns for the fiscal years ended August 31, 1959 and 1960, and paid the tax liabilities shown thereon.
Thereafter, the Internal Eevenue Service (irs) initiated an audit of mgm’s returns for the fiscal years ended August 31, 1959, 1960, 1961, 1962, 1963, and 1964. By reason of that audit, it was determined that there were potential deficiencies of tax for fiscal years 1959 and 1960, in the amounts of $1,010,129.37 and $1,287,642.52, respectively. The audit also determined that there were net operating losses for mgm’s fiscal years ending August 31, 1961, 1962, and 1963. The audit further determined that by reason of the carryback of the net operating losses from fiscal years 1961, 1962, and 1963, and the application of those losses to the potential deficiencies for fiscal years 1959 and 1960, there was a net overassessment of tax in the amount of $114,430.10 for the fiscal year ending August 31, 1959, and a net overassessment in the amount of $521,816.63 for the fiscal year ending August 31, 1960.
The District Director (for Manhattan, New York City, where the returns were filed) computed deficiency interest in the amount of $223,092.36 on the potential deficiency for fiscal year 1959 from the due date of the return to the last day of the applicable loss year or years in accordance with Section 6601(e) (1) of the Internal Revenue Code of 1954. The District Director likewise computed interest in the amount of $215,847.69 on the potential deficiency for fiscal year 1960. The interest on the potential deficiencies for fiscal years 1959 and 1960 was assessed by the District Director on February 14, 1969.
Also on February 14, 1969, the District Director determined the application of the overassessments for fiscal years 1959 and 1960 as part of the final satisfaction of mgm’s tax liabilities. The net overassessment for the year ending August 31, 1959 in the amount of $114,430.10 was applied to the interest computed on the potential deficiency for the same fiscal year in the amount of $223,092.36. This left a. *385remaining balance of the fiscal year 1959 deficiency interest of $108,662.26.
The net overassessment of $521,816.63 for fiscal year 1960 was applied first against the interest ($215,847.69) computed on the fiscal year 1960 potential deficiency. $108,662.26 of the fiscal year 1960 overassessment was then credited against the remaining balance ($108,662.26) of the deficiency interest computed on the potential deficiency for fiscal year 1959. An additional $80,394.34 of the 1960 overassessment was applied against interest computed on a potential deficiency of mom for fiscal year 1961; and another $80,279.49 of the fiscal year 1960 overassessment was applied against a tax deficiency for the year ending August 31, 1964. The remainder of the 1960 overassessment '($36,632.'85) was refunded.
The irs allowed mom interest on the portions of the 1960 fiscal year overassessment credited against a part of the deficiency interest for fiscal year 1959, and against the deficiency interest for fiscal year 1961, computed from the last day of the applicable loss year (September 1, 1963) to the date of assessment of the deficiency interest for 1959 and 1961 (February 14,1969). mgm was likewise allowed interest on the portion of the fiscal year 1960 overassessment that was refunded computed from September 1,1963 to February 14,1969. mgm was allowed interest on the portion of the 1960 overassessment credited against the 1964 deficiency computed from September 1,1963 to November 15,1964,
However, the IRS did not allow mgm any interest on the overassessment for the year ending August 31,1959, that was entirely offset by the interest computed on the potential deficiency for fiscal year 1959. Similarly, mgm was not allowed any interest on the portion of the overassessment for the year ending August 31,1960, that was credited against the interest computed on the potential deficiency for fiscal year 1960.
On August 7,1969, mgm filed timely claims for refund with the ms to recover interest, computed from September 1, 1963 to February 14, 1969, on the overassessment for fiscal year 1959, and for the portion of the fiscal year 1960 over-assessment credited against the deficiency interest for 1960. More than 6 months elapsed, prior to the filing of mgm’s *386petition in this court, during which mgm received no statutory notice of disallowance.
Plaintiff seeks interest in the amount of $87,453.13 (computed from September 1, 1963 to February 14, 1969) on the 1959 fiscal year overassessment, and interest in the amount of $70,647.24 (also computed from September 1,1963 to February 14, 1969) on that portion of the fiscal year 1960 over-assessment credited against the interest computed on the fiscal year 1960 potential deficiency.

 As in the present case, the resolution of the contradiction can be made very difficult by the opacity of the general Congressional purpose with respect to the particular subject matter and the lack of helpful legislative or administrative background. Defendant emphasizes the Technical Amendments Act of 1958, 72 Stat. 1606, as showing the general Congressional purpose. It is agreed, however, that that statute does not apply of its own terms to the precise issue here, and as the court points out the aim of the provision was to eliminate the running of interest during a period of mutuality of indebtedness. The question then becomes when did such mutuality arise, and we are brought directly back to the contradiction in § 301.6611-1.