Court Opinion

ID: 4499506
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:29.181376+00
Date Added: 2024-06-11T14:54:17.425251
License: Public Domain

*794OPINION.
Trussell:
When the petitioner, in conjunction with its associated organizations, joined in a consolidated excess-profits-tax return for the calendar year 1917, it was then for all income and profits-tax purposes upon a calendar year basis and its liability for the year 1917 was thus closed and settled. The Eevenue Act of 1918 required corporations to make income-tax returns on the basis of their established accounting periods. It was, therefore, necessary for this petitioner to make an income-tax return for the six months from January 1 to June 30, 1918, and such return should be made as a return separate and distinct from any prior year or period, in accordance with decisions of the Board in the Appeals of Henry D. Weed, 2 B. T. A. 84, and Coghlin Electric Co., 3 B. T. A. 1071, and during the same six-month period it should have its income and profits taxes computed on the basis of a return consolidated with the Atlantic Realty Corporation.
Petitioner’s returns for the six months ended June 30, 1918, and the following six months ended December 31, 1918, appear to have been properly made in accordance with its then established periods of accounting, and there is no provision of law or of Department regulations which can be interpreted to require the combination of such separate returns into one calendar-year return.
The Revenue Act of 1918 was enacted on February 24, 1919, a little more than three months after the practical closing of the World War. During the period of that war substantially all commodity prices had risen to heights theretofore unknown in this country, and it was the general belief that such conditions could not continue and that there would quickly follow a great deflation in commodity values. In recognition of this situation, and conscious of the fact that all manufacturing and mercantile businesses had closed the year 1918 with inventories valued at war prices, and anticipating that the coming deflation would result in severe losses, Congress put into the Revenue Act of 1918 section 204, defining the term “ net loss ” and providing, in subdivision (b) thereof, as follows:
If for any taxable year beginning after October 31, 1918, and ending prior to January 1, 1920, it appears upon tbe production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount of such net loss shall under regulations prescribed by the Commissioner with the approval of the Secretary be deducted from the net income of the taxpayer for the preceding taxable year; and the taxes imposed by this title and by Title III for such preceding taxable year shall be redetermined accordingly. * * *
*795We are here concerned with the application of the provisions last above quoted to the situation in which this petitioner finds itself. The purpose of Congress in enacting this provision seems too obvious to be a matter of debate; its purpose was to provide that taxpayers suffering losses during the period between November 1, 1918, and December 31,1920, were to be allowed relief from taxation by crediting such losses first against 1918, when taxpayers were believed to have enjoyed the benefit of war prices and to have made large profits and carried proportionately heavy burdens of income and profits taxes, and, in the event that profits of 1918 were insufficient to absorb the loss, the balance thereof, or so much of it as possible, should be absorbed by profits of the year 1920, when it was expected that business conditions and commodity prices might again become normal.
The petitioner’s net loss was sustained during the calendar year 1919, which was all within the period prescribed by the Act, and we are of the opinion that a proper application of said Act to this petitioner’s situation requires that so much of the 1919 net loss as can be absorbed by the net profits of the six months from July 1 to December 31, 1918, should be so allocated, and that the balance of said net loss should be credited against the gains and profits of the period from January 1 to June 30, 1918.

The deficiency, or overassessment, as the case may be, will be determined upon 15 days’ notice pursuant to Rule 50, and judgment will be entered thereon in due course.