Olympic Radio & Television v. United States
| Decision Date | 03 March 1953 |
| Docket Number | No. 19-52.,19-52. |
| Citation | 110 F. Supp. 600 |
| Parties | OLYMPIC RADIO & TELEVISION, Inc. v. UNITED STATES. |
| Court | U.S. Claims Court |
Frederick R. Tansill, Washington, D. C., Eugene Meacham, Washington, D. C., on the briefs, for plaintiff.
Elizabeth B. Davis, Washington, D. C., Ellis N. Slack, Acting Asst. Atty. Gen., Andrew D. Sharpe, Washington, D. C., on the briefs, for defendant.
Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and HOWELL, Judges.
In our opinion on plaintiff's and defendant's motions for summary judgment filed November 4, 1952, we held that the words "paid or accrued" in section 122(d) (6) of the Internal Revenue Code, 26 U.S.C.A. § 122(d)(6) must be construed as permitting a deduction for excess profits taxes paid in the taxable year in which a loss had been sustained, although the taxpayer filed its returns on an accrual basis; and we accordingly granted plaintiff's motion for a summary judgment.
Defendant has now filed a motion for a rehearing in which it presents a persuasive argument that our decision is wrong, but after careful consideration of defendant's motion and the authorities cited, we adhere to our former opinion.
However, defendant in its motion for a rehearing calls our attention to the provisions of sections 711(a)(1) and 711 (a)(2) of the Internal Revenue Code, as added by the Second Revenue Act of 1940, § 201, 54 Stat. 976, to which subsections (J) and (L) were added by sections 210(a) and 210(b) of the Revenue Act of 1942, 56 Stat. 907 and 908, which read in part as follows:
In computing the credit which the Act allows to be taken against excess profits net income, subsections (J) and (L) plainly forbid the deduction of the excess profits taxes in question in this case, whether or not they were paid or accrued within the taxable year.
Section 122(d)(6) of the Internal Revenue Code permits a deduction of excess profits taxes paid or accrued within the taxable year in computing the net operating loss deduction, but when a taxpayer comes to compute his excess profits credit against excess profits net income, he is denied this deduction. The result is that the deduction allowed by section 122(d)(6) can be used only in the computation of the ordinary corporate income tax and the corporation surtax net income, but it cannot be used in the computation of the excess profits tax.
Plaintiff seems to admit that this is correct where the excess profits tax is computed under section 710(a)(1)(A) of the Internal Revenue Code, as amended by the Revenue Act of 1942, but it says that it is not correct when the excess profits tax is computed under section 710(a)(1)(B) of the Internal Revenue Code, as amended by the Revenue Act of 1942.
Section 710(a)(1) provides that the excess profits tax shall be the lesser sum computed under subsection (A) and subsection (B). Subsection (A) provides for a tax of 90 per centum of the adjusted excess profits net income, increased to 95 per centum by the Revenue Act of 1943. Subsection (B) provides for a tax which shall be "an amount which when added to the tax imposed for the taxable year under Chapter 1 (other than section 102) equals 80 per centum of the corporation surtax net income, * * *."
Plaintiff says that when it computed its tax under subsection (B), it arrived at a figure which was less than that computed under subsection (A), and, therefore, that the tax to be demanded of it is a tax computed under subsection (B); and then it says that in computing the excess profits tax under subsection (B) it is not prohibited from deducting the excess profits taxes paid or accrued in another year in which it had sustained a loss.
We think this position is sound.
Section 711(a) provides that the excess profits net income, upon which the excess profits tax is levied, shall be the normal tax net income with the following adjustments:
"If the excess profits credit is computed under section 713, the adjustments shall be as follows: * * * subsection (1)."
Subsection (J) (i) provides for the "Net operating loss deduction adjustment." It says, "The net operating loss deduction shall be adjusted as follows:"
"(i) In computing the net operating loss for any taxable year under section 122(a), and the net income for any taxable year under section 122(b), no deduction shall be allowed for any excess profits tax imposed by this subchapter, * * *."
The same restriction is made if the excess profits credit is computed under section 714.
Therefore, when a taxpayer goes to compute his excess profits tax under section 710(a)(1)(A) he cannot take credit for "any excess profits tax imposed by this subchapter"; and he must pay 95 per centum of his excess profits net income, less the adjustments allowed, which exclude an adjustment for excess profits taxes paid in another year.
However, section 710(a)(1) provides that if the amount of the excess profits tax computed under subsection (A) is greater than the amount computed under subsection (B), then the taxpayer is required to pay only the amount computed under subsection (B).
So, the taxpayer proceeds to compute its...
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