Metro One Telecommunications, Inc. v. Comm'r

Decision Date19 December 2012
Docket NumberNo. 11–70819.,11–70819.
PartiesMETRO ONE TELECOMMUNICATIONS, INC., Petitioner–Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent–Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

Neil D. Kimmelfield, Lane Powell PC, Portland, OR, for PetitionerAppellant.

Gilbert S. Rothenberg, Acting Deputy Assistant Attorney General; Bethany B. Hauser (briefed and argued) and Richard Farber (briefed), Tax Division, United States Department of Justice, Washington, D.C., for RespondentAppellee.

Before: BARRY G. SILVERMAN, RICHARD R. CLIFTON, and N. RANDY SMITH, Circuit Judges.

OPINION

N.R. SMITH, Circuit Judge:

Between 2002 and 2009, § 56 of the Internal Revenue Code1 provided tax relief by permitting taxpayers subject to the Alternative Minimum Tax (AMT) to offset up to 100% of their taxable income with net operating losses (NOLs).2 To qualify for this relief, NOLs had to be (1) “carryovers to” the 2001 or 2002 tax years, or (2) “carried back from” the 2001 or 2002 years to a prior tax year. The plain meaning of the term “carryovers” prevents taxpayers from using NOLs that are carried back to 2001 or to 2002 from a later tax year to take advantage of the Relief Rule. Therefore, we affirm the Tax Court's assessment of a deficiency, because Metro One Telecommunications may not take advantage of the Relief Rule with NOLs it carried back from the 2003 and 2004 tax years to 2002.

I. Facts

Metro One Telecommunications was a company based in Beaverton, Oregon that operated call centers throughout the United States. In this case, Metro disputes the determination of a deficiency by the Commissioner of the Internal Revenue Service based on Metro's use of NOLs accumulated in 2003 and 2004 to completely offset its 2002 taxable income.

For the 2002 tax year, Metro was subject to the AMT.3 In 2004, Metro claimed a refund for 2002 by offsetting 100% of its 2002 taxable income with NOLs that it had accumulated in 2003 and 2004. In response, the Commissioner sent Metro a Notice of Deficiency in the amount of $630,159. Metro then filed a petition with the United States Tax Court. Agreeing with the Commissioner, the court imposed the amount of the deficiency.4 Metro then appealed.

II. Standard of Review

We review “the Tax Court's interpretation of the Internal Revenue Code ... de novo.” Adkison v. Comm'r, 592 F.3d 1050, 1052 (9th Cir.2010).

III. AnalysisA. Background

We determine here whether a taxpayer, subject to the AMT in 2002 may (under the applicable version of the Code) reduce its income tax liability by claiming a deduction for NOLs that arose in later years. Section 172 of the Code permits taxpayers to deduct NOLs from taxable income as a net operating loss deduction (NOLD). I.R.C. § 172(a). A “net operating loss” arises in a given tax year, if the sum of the taxpayer's deductions in that year exceeds the amount of the taxpayer's taxable income. § 172(c). Further, § 172 permits taxpayers to apply NOLs that arise in a given tax year as deductions in other tax years. See§ 172(b)(1)(A). Relevant here, § 172(b)(1)(A) specifies that:

a net operating loss for any taxable year—

(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and

(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.

According to this paragraph, a “carryback” is any NOL that is “carried” to one of the 2 years preceding the tax year in which the loss arises. Conversely, a “carryover” (sometimes called a “carryforward”) is any NOL that is “carried” to one of the 20 years following the taxable year in which the loss arises. For a given tax year, the amount of the NOLD is the sum of the amount of NOL carrybacks plus the amount of NOL carryovers that are carried to that year. § 172(a).

If a taxpayer is subject to the AMT, the taxpayer must claim an alternative tax net operating loss deduction (ATNOLD) instead of the NOLD permitted by § 172. § 56(a)(4). Under the Tax Relief Act of 2004, 5§ 56(d)(1) defined ATNOLD as:

the net operating loss deduction allowable for the taxable year under section 172, except that—

(A) the amount of such deduction shall not exceed the sum of—

(i) the lesser of—

(I) the amount of such deduction attributable to net operating losses (other than the deduction described in clause (ii)(I)), or

(II) 90 percent of alternative minimum taxable income determined without regard to such deduction, plus

(ii) the lesser of—

(I) the amount of such deduction attributable to the sum of carrybacks of net operating losses from taxable years ending during 2001 or 2002 and carryovers of net operating losses to taxable years ending during 2001 and 2002....

Job Creation and Worker Assistance Act of 2002, Pub.L. 107–147, § 102(c) (2002) [hereinafter Jobs Act of 2002], as amended by Working Families Tax Relief Act of 2004, Pub.L. 108–311, § 403(b) (2004) [hereinafter Tax Relief Act of 2004] (emphasis added). This section limits the amount of the ATNOLD that can be claimed by a taxpayer who is subject to the AMT. In general, this limit is 90% of the taxpayer's alternative minimum taxable income (AMTI), or the amount of NOLs, whichever is lesser. Id. § 56(d)(1)(A)(i). On the other hand, under the Relief Rule, there is no limit (up to the amount of taxable income) on the amount of the ATNOLD that a taxpayer can claim in a given taxable year, if those NOLs are carried from 2001 or 2002 to an earlier tax year (“carrybacks”), or to 2001 or 2002 from an earlier tax year (“carryovers”). Id. § 56(d)(1)(A)(ii).

Ultimately, we address here whether the term “carryovers of net operating losses” in the Relief Rule includes (1) both NOLs that are carried to a later tax year (“carryforwards”) and NOLs that are carried to a preceding tax year (“carrybacks”), or (2) only carryforwards. Metro argues that “carryovers” means both carryforwards and carrybacks, and therefore it was entitled to use NOLs from 2003 and 2004 as “carrybacks” to offset 100% of its taxable income in 2002. The Commissioner disagrees, arguing that, as used in the Relief Rule, “carryovers” is a synonym for carryforwards, so the amount of the 2002 ATNOLD attributable to NOLs that Metro carried back from 2003 and 2004 was, like any other NOL carried under § 172, limited to 90% of Metro's 2002 AMTI.

Thus, under the Commissioner's interpretation, Metro would be able to carry back only $11,182,013.00 of its 2004 NOLs to 2002. That amount would increase to $14,332,806.00 under Metro's interpretation of the Relief Rule, because the ATNOLD would not be limited to 90% of Metro's 2002 AMTI. Therefore, if Metro is correct, it would be able to claim an additional $3,150,793.00 ATNOLD against its 2002 AMTI, reducing its taxable income for that year to $0.00. However, the plain meaning of “carryovers” indicates that the Relief Rule does not apply to NOLs that are carried back under these circumstances. We therefore affirm the Tax Court.

B. The plain meaning of carryovers refers only to items that are carried from an earlier period to a later one.

When interpreting a statute, we must start with the language of the statute. Williams v. Taylor, 529 U.S. 420, 431, 120 S.Ct. 1479, 146 L.Ed.2d 435 (2000). Moreover, [i]n the absence of an indication to the contrary, words in a statute are assumed to bear their ordinary, contemporary, common meaning.” Walters v. Metro. Educ. Enters., Inc., 519 U.S. 202, 207, 117 S.Ct. 660, 136 L.Ed.2d 644 (1997) (internal quotation marks omitted).

The term “carryovers” ordinarily and commonly refers only to something that is carried from an earlier period to a later one—only to carryforwards. To ascertain the plain meaning of terms, we may consult the definitions of those terms in popular dictionaries. Af–Cap, Inc. v. Chevron Overseas (Congo) Ltd., 475 F.3d 1080, 1088 (“When determining the plain meaning of language, we may consult dictionary definitions.”). Black's Law Dictionary defines a “carryover” as [a]n income-tax deduction (esp. for a net operating loss) that ... may be taken in a later period....” Black's Law Dictionary 242 (9th ed. 2009); Electrolux Holdings, Inc. v. United States, 491 F.3d 1327, 1328 n. 2 (Fed.Cir.2007) (defining “carryovers” in § 1212 by reference to Black's ). Likewise, Webster's Third New International Dictionary contains multiple definitions of “carry over,” all of which suggest movement from one period of time to a later period of time. Webster's Third New International Dictionary 344 (1993) ( e.g., “to hold over ... for another season”). Courts also commonly employ “carryovers” for this meaning. E.g., Kansas v. Colorado, 543 U.S. 86, 102, 125 S.Ct. 526, 160 L.Ed.2d 418 (2004); In re Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307, 1312 n. 11 (8th Cir.1996); United States v. Gregory, 871 F.2d 1239, 1243 (4th Cir.1989) (“Of these, 19 were new hires and the remaining 11 were carryovers from the previous administration.”); Hoots v. Pennsylvania, 672 F.2d 1124, 1129 (3d Cir.1982). None of these definitions or usages suggest that the ordinary meaning of “carryover” encompasses movement from a point in time backward to an earlier point in time. Therefore, according to the plain meaning of “carryovers,” the Relief Rule does not apply to carrybacks of NOLs.

It becomes even more clear that Congress used “carryovers” in the Relief Rule as a synonym for “carryforwards” after considering the relationship between § 56 and § 172. See Samantar v. Yousuf, ––– U.S. ––––, 130 S.Ct. 2278, 2289, 176 L.Ed.2d 1047 (2010) ([W]e do not ... construe statutory phrases in isolation; we read statutes as a whole.”) (quoting United States v. Morton, 467 U.S. 822, 828, 104 S.Ct. 2769, 81 L.Ed.2d 680 (1984)). Section 56 is closely related to § 172, because § 56 “define[s] ATNOL by expressly incorporating the definition of...

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