Polk v. Comm'r of Internal Revenue, Docket No. 65082.

• Decision Date: 18 November 1958
• Docket Number: Docket No. 65082.
• Citation: 31 T.C. 412
• Parties: FRANK POLK AND MARIE POLK, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

31 T.C. 412

FRANK POLK AND MARIE POLK, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 65082.

Tax Court of the United States.

Filed November 18, 1958.

Ranel Hanson, Esq., for the petitioners.

J. C. Linge, Esq., for the respondent.

Held, that interest paid on an income tax deficiency arising in a prior year, said deficiency being imposed in relation to business income, was properly deductible as an ordinary and necessary business expense for the purpose of computing net operating loss carryover pursuant to section 122 of the Code of 1939. Held, further, that issues not raised in the pleadings will not be considered by the Court.

FISHER, Judge:

The respondent determined a deficiency in income tax for the taxable year 1953 of Frank and Marie Polk in the amount of.$15,599.30. Issues involving medical expenses, taxability of patronage dividends, and the amount of a net operating loss carryback from the year 1955 have been disposed of by stipulation. The only remaining issue presented by the pleadings is whether interest paid on a deficiency in income tax for the year 1948 is deductible as a business expense in the computation of a net operating loss carryover to the year 1953 under section 122(d) of the Code of 1939.¹

FINDINGS OF FACT.

Some of the facts have been stipulated and to the extent so stipulated are incorporated herein by reference.

Petitioners are husband and wife. They filed joint individual income tax returns for the taxable years 1951, 1952, 1953, and 1955 with the appropriate office of the Internal Revenue Service at Oklahoma City, Oklahoma.

During the period of time pertinent to the issue presented, Frank Polk (hereinafter referred to as petitioner) was engaged in the business of raising and producing livestock.

The petitioner's joint income tax return for the taxable year 1953 reported income tax, exclusive of self-employment tax, of $4,578.24.

On August 21, 1956, petitioner filed a claim for refund of income taxes assessed for 1953 in the amount of $4,578.24, based on a net operating loss carryback from the year 1955. The amount of the net operating loss carryback from 1955 available to petitioner for 1953 is $131,807.61.

In their return filed for the year 1953, petitioners claimed a net operating loss carryover from the year 1952 in the amount of $40,763.44.

Respondent, in his statutory notice of deficiency, determined that the net operating loss carryover allowable as a deduction to petitioner in 1953 should be $11,033, computed as follows:

+--------------------------------------------------------------------------+
                ¦Net operating loss deduction claimed in return                 ¦$40,763.44¦
                +---------------------------------------------------------------+----------¦
                ¦Less:                                                          ¦          ¦
                +---------------------------------------------------------------+----------¦
                ¦Interest paid on personal income tax deficiency and deducted in¦          ¦
                +---------------------------------------------------------------+----------¦
                ¦the return filed for the year 1952                             ¦29,730.44 ¦
                +---------------------------------------------------------------+----------¦
                ¦Net operating loss as determined by the notice of deficiency   ¦11,033.00 ¦
                +--------------------------------------------------------------------------+
                

In computing adjusted gross income for the year 1952, petitioner deducted as interest expense the amount of $54,133.95. Included in the interest expense, claimed by petitioner as a deduction for the year 1952, is the amount of $29,730.44 which represents interest paid on an income tax deficiency arising in a prior year, and is the amount above referred to and disallowed by respondent in determining the net operating loss carryover to 1953.

In computing net income in the return filed for the year 1952, petitioner reported no nonbusiness income.

For the taxable year 1948, an income tax deficiency was assessed against petitioner on November 16, 1951, in the amount of $184,214.70. The deficiency resulted from respondent's revaluation of petitioner's livestock inventories.

The additional tax assessed for the year 1948, and interest thereon, was paid or credited as follows:

+----------------------------------------------------------+
                ¦Date       ¦Credited or paid                   ¦Amount    ¦
                +-----------+-----------------------------------+----------¦
                ¦           ¦                                   ¦          ¦
                +-----------------------------------------------+----------¦
                ¦Dec. 3, 1951—Credit for overpayment of 1947 tax¦$10,593.29¦
                +-----------------------------------------------+----------¦
                ¦Dec. 3, 1951—Credit for overpayment of 1947 tax¦13,905.02 ¦
                +-----------------------------------------------+----------¦
                ¦Dec. 3, 1951—Credit for overpayment of 1949 tax¦9,776.82  ¦
                +-----------------------------------------------+----------¦
                ¦Dec. 12, 1951—By transfer                      ¦8.32      ¦
                +-----------------------------------------------+----------¦
                ¦Dec. 20, 1951—Cash payment

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