CWT Farms, Inc. v. Comm'r of Internal Revenue

• Decision Date: 23 December 1982
• Docket Number: Docket Nos. 16365-80,16367-80.
• Citation: 79 T.C. 1054
• Parties: CWT FARMS, INC., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTCWT INTERNATIONAL, INC., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

79 T.C. 1054

CWT FARMS, INC., PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENTCWT INTERNATIONAL, INC., PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket Nos. 16365-80

16367-80.

United States Tax Court

Filed December 23, 1982.

In CWT Farms, Inc. v. Commissioner, 79 T.C. 86 (1982), we held that I did not qualify as a DISC because its loans to F were not “producer's loans” within the meaning of sec. 993(d), I.R.C. 1954, and were not, therefore, qualified export assets within the meaning of sec. 993(b). I has indicated that it wishes to make a deficiency distribution in accordance with sec. 992(c), I.R.C. 1954, and asks us to decide whether its commissions receivable constitute qualified export assets. Secs. 1.993-2(d)(2) and 1.994-1(e)(3), Income Tax Regs., provide that commissions receivable owed by a related person are not qualified export assets unless they are paid within 60 days after the taxable year, and the commissions receivable of I were not paid within such period. Held, such provisions of the regulations are valid, and accordingly, the commissions receivable of I do not constitute qualified export assets within the meaning of sec. 993(b). W. Woodrow Stewart, T. Treadwell Syfan, and Steven A. Cornelison, for the petitioners.

Bettie N. Ricca, for the respondent.

SUPPLEMENTAL OPINION

SIMPSON , Judge:

On July 19, 1982, this Court filed its findings of fact and opinion in this case (79 T.C. 86), in which we held that petitioner CWT International, Inc. (International), did not qualify as a domestic international sales corporation (DISC) for its taxable years ending in 1975, 1976, and 1977. Our holding was based on the conclusion that certain loans from International to petitioner CWT Farms, Inc. (Farms), were not “producer's loans” under section 993(d) of the Internal Revenue Code of 1954,¹ and that, therefore, such loans were not qualified export assets within the meaning of section 993(b). As a result, International failed to satisfy the requirement that 95 percent of the assets of a DISC must be qualified export assets. Sec. 992(a)(1)(B). In view of that conclusion, we found it unnecessary to decide whether certain commissions receivable held by International were qualified export assets. 79 T.C. at 93, 95. Decisions were to be entered pursuant to Rule 155, Tax Court Rules of Practice and Procedure,² and they have not yet been entered

The petitioners have made a timely motion for reconsideration of our opinion in which they requested us to decide whether the commissions receivable constituted qualified export assets. The Commissioner filed a notice of objection to petitioners' motion and a supporting memorandum. For the reasons set forth in this Supplemental Opinion, we grant the petitioners' motion and decide the commissions issue.

Generally speaking, when a corporation which purports to be a DISC for a taxable year is determined not to have qualified as a DISC in that year for failure to meet the assets test, the corporation may gain DISC status for that year if it makes a deficiency distribution to its shareholders with respect to their stock. Sec. 992(c)(1). Such distribution must be in an amount equal to the fair market value of those assets which are not qualified export assets on the last day of such taxable year. Sec. 992(c)(1)(B). The right to make such a deficiency distribution is not automatic. The corporation must demonstrate that both its failure to meet the assets test and its failure to make the deficiency distribution prior to the date on which it is made were due to reasonable cause. Sec. 992(c)(2)(A). Furthermore, if the distribution occurs more than 91;2 months after the close of the taxable year with respect to which it is made, the corporation must pay interest to the Commissioner. Sec. 992(c)(2)(B). Section 992(c) specifies that the distribution must be made after the close of the taxable year to which it relates, but such section does not prescribe a time period within which the distribution must be made. However, section 1.992-3(c)(3), Income Tax Regs., provides that the distribution must be made within 90 days “from the date of the first written notification to the corporation by the Internal Revenue Service that it had not satisfied * * * the 95 percent assets test * * * for a taxable year.” In any case where the corporation contests the determination of the IRS in the Tax Court, the 90-day period is extended until 30 days after the Tax Court's decision becomes final. Sec. 1.992-3(c)(3)(i), Income Tax Regs. A Tax Court decision will generally become final 90 days after the decision is entered unless a notice of appeal is filed within that time. Secs. 7481(a)(1), 7483.

In the motion for reconsideration, International indicated that it contemplates making a deficiency distribution in an attempt to qualify as a DISC for its taxable years ending in 1975, 1976, and 1977. Since the amount of such distribution is measured by the value of its nonqualified assets, International seeks a determination of how much of its property was not qualified. International requests that we reconsider our opinion and decide whether the commissions receivable were qualified export assets for its taxable years ending in 1975, 1976, and 1977, so that it may distribute the proper amount.

The Commissioner urges that we deny the petitioners' motion for reconsideration. In support of his position, the Commissioner argues that International waived its right to make a deficiency distribution by failing to assert such right prior to the filing of this Court's opinion. The Commissioner also argues that the petitioners have not demonstrated that reconsideration would affect the outcome of the case.

The decision of whether to grant a motion for reconsideration of an opinion rests within the discretion of the Court. Reconsideration of proceedings already concluded is generally denied in the absence of substantial error or unusual circumstances. Haft Trust v. Commissioner, 62 T.C. 145 (1974), affd. on this issue 510 F.2d 43, 45 n. 1 (1st Cir. 1975). It is the policy of this Court to try all the issues raised in a case in one proceeding to avoid piecemeal and protracted litigation. We will generally not grant reconsideration to resolve issues which could have been raised during the prior proceedings ( Stoody v. Commissioner, 67 T.C. 643 (1977); Haft Trust v. Commissioner, supra) because “The parties cannot try their cases with hindsight” ( Long v. Commissioner, 71 T.C. 724, 727 (1979), remanding on another issue 660 F.2d 416 (10th Cir. 1981)). However, in this situation, the issue of whether the commissions receivable were qualified export assets was tried and has been briefed by the parties. Although we considered it unnecessary to decide such issue in our initial opinion, the petitioners have presented persuasive reasons for doing so at this time.

The Commissioner's contention that International waived its right to make a deficiency distribution by failing to assert such right prior to the filing of the Court's opinion is refuted by section 1.992-3(c)(3), Income Tax Regs. This section clearly provides that such distributions may be made within 30 days after the time a Tax Court decision becomes final. Congress intended that a corporation could first litigate the issue of DISC status for a taxable year and then make a deficiency distribution if necessary:

It is understood that the regulations will provide that * * * the period for making the distribution is to be extended in any case where the corporation contests the determination of the Service in the Tax Court. [H. Rept. 92-533 (1971), 1972-1 C.B. 498, 532.]

In addition, no provision in section 992(c) or in section 1.992-3(c)(3) requires that a corporation must assert, prior to the filing of our opinion, its intention to make a deficiency distribution should this Court determine that the corporation was not a DISC for a taxable year. In fact, the language of the committee report, as well as the provisions of section 992(c), strongly suggests a contrary result. A necessary condition to a deficiency distribution under section 992(c) is that the failure to have made such distribution earlier was due to reasonable cause. In some situations, it may be impossible to determine whether such requirement has been satisfied until after the distribution is made. No corporation which is litigating its DISC status in the Tax Court will make such a distribution until the Tax Court determines that the corporation was not a DISC during the years at issue. Therefore, the question of whether a corporation has complied with the conditions of section 992(c), and thus attained DISC status in that manner, will usually not arise until after this Court has determined that such corporation was not a DISC in the first instance. The distribution issue is not “ripe” prior to the filing of our opinion. Compare Adams v. Commissioner, 72 T.C. 81 (1979), affd. without published opinion 688 F.2d 815 (2d Cir. 1982). Section 992(c) and its regulations do not require that the issue be raised prior to that time. This Court will not impose such a requirement when neither Congress nor the Commissioner has done so. Thus, we conclude that International has not waived its rights under section 992(c) merely by failing to indicate prior to this time that it would seek to utilize that section.

It is clear that International, if it satisfies the other conditions of section 992(c), may yet establish that it was a DISC for its taxable years ending in 1975, 1976, and 1977. The Commissioner's contention that our reconsideration of the opinion would not affect the outcome of the case is also without merit.³

Section 992(c) and its accompanying regulations provide no procedure for determining whether a deficiency distribution meets the requirements of such section and thus qualifies the distributing corporation as a DISC. Section 1.992-3(c)(3) of the regulations...