95 T.C. 257 (1990), 4580-87, Calumet Industries, Inc. v. C.I.R.
|Citation:||95 T.C. 257|
|Opinion Judge:||GERBER, JUDGE:|
|Party Name:||CALUMET INDUSTRIES, INC. AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||Larry D. Blust, Paula Cozzi Goedert, and Kenneth L. Harris, for the petitioners. William G. Merkle and Judith M. Picken, for the respondent.|
|Case Date:||September 13, 1990|
|Court:||United States Tax Court|
P carried back 1981 and 1980 NOL deductions to 1979. The assessment period for 1981 expired on June 30, 1985. The assessment period for 1979 was extended by agreement to June 30, 1987. On Nov. 26, 1986, R mailed P a statutory notice of deficiency in which he determined a deficiency in P's 1979 taxable year. A portion of the 1979 deficiency determination is attributable to R's adjustment of the 1981 NOL deduction. R disallowed the accrual and deduction in 1981 (and 1980) of certain rent-related expenses. Separate1y, R disallowed a 1980 bad debt deduction.
Relying on sec. 6501(h), P argues that because the 1979 deficiency is attributable, in part, to an NOL carryback from 1981, the assessment period for that part of the 1979 deficiency expired when the assessment period for 1981 expired -- June 30, 1985. Thus, according to P, the notice, as it relates to that portion of the 1979 deficiency attributable to the NOL carryback, is untimely. R argues that the assessment period for the 1979 deficiency has not expired because it was sufficiently extended by agreement. R recomputed P's 1981 NOL only for the purpose of determining P's income tax liability for 1979.
HELD: 1979 is an open year and respondent is not time barred from assessing a deficiency in that year even though it resulted from the disallowance of an NOL carryback from 1981, an otherwise closed year. Sec. 6501(h) is not applicable here. Pursuant to sec. 6501(c)(4), the parties agreed to extend the assessment period for 1979, and sec. 6501(h) does not nullify or preempt the parties' agreement or shorten the period agreed upon. Held further: The deficiency, as it relates to the rent deductions, is redetermined. Held further: The deficiency, as it relates to the bad debt deduction, is redetermined.
Respondent, in a statutory notice of deficiency dated November 26, 1986, determined income tax deficiencies for petitioners' 1976 and 1979 taxable years in
the respective amounts of $24,461.00 and $141,451.20. The deficiencies concern the carryback of 1980 and 1981 net operating losses (NOL's) that resulted from deductions that have now been disallowed by respondent. After concessions, the issues remaining for our consideration are as follows: (1) Whether respondent is barred from assessing a deficiency attributable to an NOL carryback adjustment where the assessment period for the year to which the loss is carried back, and for which the deficiency was determined, is open by agreement, but the assessment period for the year in which the loss arose expired; (2) whether Calumet Industries Works, Inc. (Calumet Works), a subsidiary of petitioner Calumet Industries, Inc. (Calumet or petitioner), properly accrued in 1980 and 1981 expenses for real and personal property taxes in the total amount of $182,127; and (3) whether petitioner is entitled, under section 166,  to a $284,569 business bad debt deduction for 1980 which is attributable to certain payments made to or on behalf of its subsidiary, Stabiflex, Inc.
FINDINGS OF FACT
The parties' stipulation of facts is incorporated by this reference.
Calumet is a corporation organized and existing under the laws of the State of Indiana which, at the time the petition in this case was filed, had its principal place of business in Gary, Indiana. Prior to December 31, 1980, petitioner was owned 20.079 percent by Philip Graziani and 79.921 percent by Graegin Industries, Inc. (Graegin Industries). Graegin Industries was owned, directly or indirectly, by Cecil Graegin and his son, Paul Graegin, who were also officers and directors of petitioner. Cecil Graegin was also Philip Graziani's uncle.
For the years 1976, 1977, 1978, and 1979 petitioner filed separate, nonconsolidated U.S. Corporation Income Tax Returns, Forms 1120. In those years, petitioner was engaged
in the business of fabricating steel products and performing steel mill maintenance.
On December 26, 1979, two corporations, Calumet Works and Calumet Industries Construction & Maintenance Corporation (Calumet Construction), were incorporated as wholly owned subsidiaries of petitioner to assume its major business activities. Calumet Works assumed petitioner's steel fabrication business and Calumet Construction assumed petitioner's steel mill maintenance business. Thereafter, and for all relevant periods herein, Calumet was engaged predominantly in the activity of providing administrative and management services.
For the taxable year 1980, petitioner and its subsidiaries, Calumet Works and Calumet Construction, filed a consolidated U.S. Corporation Income Tax Return, Form 1120, on a calendar year basis. Thereafter, petitioner and its subsidiaries became affiliated, for tax purposes, with the affiliated group of petitioner's parent, Graegin Industries, and its other subsidiaries, filing on a fiscal year ending June 30. For the short period from January 1, 1981, to June 30, 1981, petitioner, Calumet Works, and Calumet Construction were included in the consolidated U.S. Corporation Income Tax Return, Form 1120, of petitioner's parent, Graegin Industries, and its other subsidiaries for their fiscal year ended June 30, 1981.
PERIOD FOR ASSESSMENT
On November 30, 1981, Graegin Industries and its subsidiaries filed a U.S. Corporation Income Tax Return, Form 1120, for the fiscal year ended June 30, 1981. This return reported a consolidated NOL in the amount of $436,793, allocable to the members of the Graegin affiliated group as follows:
|Taxable income (loss)|
|Correct Piping Co., Inc||317,011.24|
|CAP Construction, Inc||(48,487.90)|
|Area rented||Annual rent/||Initial date||Period|
|(in sq. ft.)||sq. ft.||of rent||at 50% rent|
|a. Machine shop||3 73,680||$1.50||10/1/80||3 months|
|b. Portion of||314,000||1.50||4/1/81||6 months|
|c. Balance of Premises|
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