Court Opinion

ID: 9638374
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:42:28.925255+00
Date Added: 2024-06-11T18:10:06.101569
License: Public Domain

LEARNED HAND, Chief Judge
(dissenting) .
A statute so intricate and detailed as this leaves little latitude for interpretation. Moreover, I do not think that it is more consistent with any declared purpose that I can find, to extend the privilege of a “carry-over” to the taxpayer at bar. Indeed, as the decisions cited in my brothers’ opinion show, privileges, closely akin in purpose to this, are ordinarily lost by transfers by one corporation to another; and the form of the transfer cannot be important. We have no warrant for supposing that Congress in general regards such credits as parts of a “universitas juris,” passing, with the chattels, dioses in action and the rest, like good-will or trade-marks. Section 710(a) (1) (A) of the Act imposed a tax of 90 percent of the “adjusted excess profits net income”; it was a tax designed, substantially to confiscate any profits which might be attributable to the war. Section 710(b) defined what the “adjusted excess profits net income” was to be: three items were to be deducted from “excess profits net income,” of which the second was of the “excess profits credit” and the third, the “unused excess profits credit.” It is not relevant here to trace out in detail the provisions which defined the second item; it is enough that the object was to find a standard income, based upon pre-war years, and allow it as a deduction from the income, as ordinarily'computed, before confiscating substantially the whole of any surplus. The third deduction is the one here involved and was an added protection : if in the two preceding years a corporation’s income had not been so high that, in order to escape the excess profits tax, it had to avail itself of the whole second deduction, it might in the succeeding year deduct any part of that deduction which had been left over.
Throughout Part I the assumption was that during the “base years” the corporation had not taken over the business of another corporation, although § 712(d) and § 713(d) (4) did refer to the provisions of “Part II. — Rules in Connection with Certain Exchanges”, which deal with such situations. Section 742 lays down how to ascertain the “Supplement A Base Period Net Income” of a taxpayer which is an “acquiring corporation.” Again, the-details are not important, except that they require the incomes of the “acquiring corporation” and of all “component corporations” during the four “base years” to be added together and divided by four. An “average base period net income” will then emerge, which is the “average base period) net income” on which the “excess profit credit” of the “taxpayer” is to' be computed under § 713. This “excess profits credit” will then become the second deduction of § 710(b), provided it is greater than the income of the “acquiring corporation” alone, as computed under § 713. So far, I think,' we all agree; we differ as to how the third deduction — the “unused excess profit credit” — shall be computed.
As I have said, that deduction is what is left over of the “excess profits credit” aft-' er it has been used in two earlier years upon the taxpayer’s income. In the case at bar the income upon which the credit was used in 1942 had no equivalent in the two earlier years, because the “acquiring” and the “component” corporations were then separate businesses. Each did of course have its own “excess profits credit,” based upon its separate business during the “base years,” and its own separate income in the two years to be deducted from that credit; but that was all. Even though we were to assume that the “excess profit credit” computed under § 742 might be used in 1940 and 1941, we could not use it to establish a “carry-over,” computed by its use upon the separate incomes in those years: Only if we computed a joint income of both corporations, based upon the added fiction that the merger was in existence in 1940 and 1941, could the “excess profits credit,” computed under § 742, become relevant to a “carry-over.” I do not ■ forget that § 742 does contemplate the use1 of a fiction; but it does so *579only as an act oí grace, an option; and in order to ease the burden of the tax. The “acquiring corporation” was free at its election to disregard that fiction; it might state its tax without recourse to an “excess profits credit,” as computed under § 742. I can find no warrant for adding a second act of grace implemented by a second fiction — that the corporations were merged during 1940 and 1941 — in order to grant a “carry-over” in addition to the option given by § 742. Not only is there no language to support such a favor with its appurtenant fiction; but, as I have said, there is nothing in the past treatment of similar taxes that leads me to believe that Congress would have wished it so.
It seems to me so .plain that in this case the combination effected on December 21, 1941, between the parent and the subsidiary was a “merger” within the meaning of § 740(a) (3) and § 740(b) (3) that I shall not labor the point. Nor do I think it necessary to discuss the argument depending tipon the use of. the word, “taxpayer,” or its definition in § 3797(a) (14).