Court Opinion

ID: 4495798
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:31.259074+00
Date Added: 2024-06-11T08:00:12.858763
License: Public Domain

TcjrneR,
dissenting: The holding of the majority is briefly stated in the concluding paragraph of the opinion, as follows:
Therefore, following our decision in Lefcourt Realty Corporation, supra, which in turn followed the Supreme Court’s decision in Helvering v. Morgan's Inc., as we interpret it, we sustain petitioner on the sole issue involved in this proceeding.
Neither of the cases relied on is in point. The Supreme Court in Helvering v. Morgan's, Inc., supra, specifically stated that the question there under consideration did not come within the regulation involved herein, and it is equally apparent that the question in Lefcourt Realty Corporation, supra, was also outside the regulation. An examination of the facts in the latter case clearly indicates that our discussion of article 41 (d) was not in point and not m any way determinative of the question there before us. There each of the returns covering less than a 12-month period was filed under the provisions of the Revenue Act of 1926 and regulations promulgated thereunder. The application of article 41 (d), by its own terms, is limited to returns filed under article 13 of the same regulations, and article 13 has to do only with returns filed for the year 1929 and subsequent years. I dissented in Lefcourt Realty *1222Corporation, supra, for the reason that on the facts it was governed by the decision of the Supreme Court in Helvering v. Morgans, Inc., supra, in which consideration of the provisions of the Revenue Act of 1928 and the regulations thereunder was specifically excepted. Accordingly, we could not have properly considered the validity of article 41 (d) in Lefcourt Realty Corporation, supra, since the returns there were not filed under the Revenue Act of 1928 but under the Revenue Act of 1926.
Here for the first time we have a case which calls for consideration of the validity of article 41 (d) of Regulations 75. Section 141 (a) of the Revenue Act of 1928 extends to an affiliated group of corporations the privilege of making a consolidated return for the taxable year 1929 or any subsequent taxable year in lieu of separate returns, but allows this privilege only upon the condition that all of the corporations consent to all regulations made under section 141 (b) and prescribed prior to the making of such a return. Under section 141 (b) referred to, it is provided that the Commissioner shall prescribe such regulations as he may deem necessary in order that the tax liability of such an affiliated group, where the privilege of making a consolidated return is exercised, “may be determined, computed, assessed, collected, and adjusted in such manner as clearly to reflect the income and to prevent avoidance of tax liability.” Under this provision of the statute article 41 (d) was promulgated, and our inquiry here is as to whether or not the regulation is unreasonable and inconsistent with the provisions of the statute and therefore invalid.
In the first place it should be remembered that the filing of a consolidated return is not compulsory but voluntary. It is a privilege granted by Congress, and if the privilege is exercised, the return must conform to the regulations promulgated by the Commissioner, full power having been granted by Congress to him to prescribe- such regulations as may be deemed necessary for the determination, computation, assessment, and collection of the tax of the affiliated group, with such adjustments as will clearly reflect the income and prevent avoidance of tax liability. For the purposes of this case, the majority opinion has pointed out the articles of regulations with which we are here concerned. Article 41 (d) states that any period of less than 12 months for which a separate return is filed “shall be considered as a taxable year”, while article 41 (c) permits the net loss of a corporation sustained prior to affiliation to be brought forward and applied against consolidated income instead of limiting the application of such a net loss to the income of the corporation which had sustained the loss. It will be noted that acceptance of these regulations and the filing of a consolidated return thereunder *1223bring about two results that would not be present if tbe returns were filed under a prior revenue act. Helvering v. Morgan's, Inc., supra, and Woolford Realty Co. v. Rose, 286 U. S. 319.
The Court of Appeals for the District of Columbia, in Wishnick-Tumpeer, Inc. v. Helvering, 77 Fed. (2d) 774, had before it the question we have here, and sustained the respondent, affirming our opinion in the same case at 27 B. T. A. 548. Considering the effect of the decision of the Supreme Court in Helvering v. Morgan's, Inc., supra, the court said:
The ambiguity which the Supreme Court found in the 1926 Act, and resolved in favor of the taxpayer, is wholly absent in the 1928 Act and Treasury Regulations, when considered together; for in the latter there is the express and positive command that the fractional part of the year for which the return is made “shall be considered as a taxable year.” And if Congress had the right to limit or restrict the carry-over privilege, as to which there can be but one answer, it had the same right to confer that power on the Commissioner. Congress unquestionably inserted the new provisions in the 1928 Act to clarify administrative procedure under the former act and to substitute, in place of a definite provision, rules to be made by the Commissioner which would be optional in the case of corporations changing from separate to consolidated returns and, sometimes, involving in the change wholly different tax periods; and, in this view, petitioner’s case is brought precisely within the scope of the purpose. * * *
* * * since the regulation must apply generally, it is not enough to say that in a particular case- — -where it is optional and not coercive — it is invalid because it deprives a taxpayer of something which otherwise he would be entitled to. An occasional hardship is inescapable. It was the recognition of this fact, doubtless, which induced Congress in 1928 to enlarge the power of the Commissioner to make specific rules to apply when a change of accounting period like that involved here is asked as a matter of grace. It is true, that in this case, as was true in Morgan’s case, if Pioneer had not taken advantage of the provision authorizing consolidated returns, it would have' been permitted to carry over its net loss of 1927 for the next two succeeding years; but, even in that event — the two succeeding years would have embraced two full years and not, as in the present case, a materially shorter time.
All of this we mention as giving substance to our assumption that Congress, in the 1928 provisions, had a definite purpose in view. The regulations authorized to carry out the purpose were intentionally made optional. An affiliated corporation could take them or leave them, as appeared to it advantageous. This was as nearly a fair and equitable arrangement as the difficulties inherent in the situation made possible; and we can think of no reason, and certainly can find none in Morgan’s case, to justify our saying that the regulations so made are. invalid.
The majority opinion undertakes to distinguish the instant case from that of Wishnick-Tumpeer, Inc. v. Helvering, supra, by pointing out that there a change of accounting period was involved, while no such change was present in the instant case. Although the Supreme Court in its concluding paragraph in Helvering v. Morgan's, Inc., supra, indicated that it was not deciding a case which *1224involved a change of accounting period and the Court of Appeals, in Wishnick-Tumpeer, Inc. v. Helvering, supra, mentioned that comment of the Supreme Court, there is nothing whatever in either opinion which suggests or points to any distinction between the case we have here and that of Wishnick-Tumpeer, Inc. v. Helvering, supra, in so far as the Revenue Act of 1928 or the regulations thereunder are concerned, and, in my opinion, no such distinction can be made. A change of accounting period is voluntary and where such change is made the filing of a return for a period of less than 12 months is required. This is necessary for the proper reflection of the taxpayer’s income from and after such change. The filing of consolidated returns is also voluntary by specific terms of the statute. But if an affiliated group does file a consolidated return and a member .thereof has become affiliated within the taxable year of the parent corporation, a return is required of such new member for a period of less than 12 months, since only the income received by such new member from and after the date of affiliation may be included in the consolidated return. Summary consideration only of the purpose and effect of consolidated returns is needed to show that a return for less than 12 months, in the case of such a corporation, is also necessary for the proper reflection of income. There is nothing whatever in the language of the revenue act itself or in the language of article 41 (d) of the regulation which suggests or intimates that any distinction is made or intended between returns for periods of less than 12 months in either of the cases just described, and from an administrative standpoint and for the proper reflection of income, no reason has been advanced to indicate that such returns are not as essential in one case as in the other.
Accordingly, in my opinion, the reasoning of the court in Wishnick-Tumpeer, Inc. v. Helvering, supra, is equally applicable to the facts present in this case. I can see no reasonable basis for distinction and think that it should be followed here.
It is my further opinion that if Congress did not and could not confer upon the Commissioner the power to promulgate a regulation such as that found in article 41 (d) and which, as prescribed, provides a departure from the rule under the Revenue Act of 1926, as interpreted by the Supreme Court in Helvering v. Morgan's, Inc., supra, we must also find that Congress did not confer upon the Commissioner the power to promulgate a regulation such as that found in article 41 (c), which grants to affiliated corporations accepting the regulations and filing returns thereunder the privilege of applying the net loss of one of its members against the consolidated income, which is contrary to the rule under the Revenue Act of 1926 as interpreted by the Supreme Court in Woolford Realty Co. v. *1225Rose, supra. Insofar as both of the cases mentioned are concerned the statute is the same in the 1928 Act as in the 1926 Act, except for the power conferred upon the Commissioner by the 1928 Act to make the regulations of which article 41 (c) and article 41 (d) are a part.
For the reasons stated, I respectfully dissent from the opinion of the majority herein.