Joseph Weidenhoff, Inc. v. Comm'r of Internal Revenue
| Decision Date | 23 September 1959 |
| Docket Number | Docket Nos. 60793-60796. |
| Citation | 32 T.C. 1222 |
| Parties | JOSEPH WEIDENHOFF, INCORPORATED, ET AL.,1 PETITIONERS. v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Bernard Hoban, Esq., for the petitioners.
Robert E. Johnson, Esq., for the respondent.
1. In computing the amount of net operating loss for the year 1947 absorbed by carryback to the year 1945 under section 122(b)(1) and (2), I.R.C. 1939, the net income for the year 1945 against which the carryback is applied is to be reduced under section 122(d)(6) by the excess profits tax accrued for the year 1945, which is the excess profits tax computed to be due less the deferral in payment provided under section 710(a)(5) and less the 10 per cent credit provided under section 784.
2. That portion of the consolidated net operating losses of the affiliated group for the years 1948 and 1949 attributable to the Fostoria Screw Company, a member of the affiliated group which sold its operating assets and ceased operations in 1949 but was not dissolved until 1952, is includible in the consolidated net operating loss deduction available to the affiliated group in computing its consolidated income and excess profits taxes for the years 1950, 1951, and 1952.
(a) Fostoria, which joined in the consolidated returns for the years 1950, 1951, and 1952, was not de facto dissolved, for the purpose of computing the consolidated net operating loss deduction of the affiliated group, prior to July 31, 1952, when it filed a certificate of dissolution with the secretary of state of Ohio.
3. Regulations 129, section 24.31(b)(24), limiting the consolidated excess profits credit for the taxable year of an affiliated group formed subsequent to March 14, 1941, held, not to be applicable.
This consolidated proceeding involves deficiencies in income and excess profits taxes determined against petitioners as follows:
+-------------------------------------------------------------------------+
¦Docket¦Petitioner ¦Year ¦Deficiency ¦
+------+--------------------------------------------+------+--------------¦
¦No. ¦ ¦ ¦ ¦
+------+--------------------------------------------+------+--------------¦
¦60793 ¦Joseph Weidenhoff, Incorporated ¦1946 ¦$16,788.46 ¦
+------+--------------------------------------------+------+--------------¦
¦60794 ¦Johnson Fare Box Company, Alleged Transferee¦1946 ¦11,890.58 ¦
+------+--------------------------------------------+------+--------------¦
¦60795 ¦Bowser International, Inc. ¦1947 ¦344.81 ¦
+------+--------------------------------------------+------+--------------¦
¦60796 ¦Bowser, Inc. and its ¦( 1951¦1 711,316.80¦
+------+--------------------------------------------+------+--------------¦
¦ ¦Subsidiaries, et al ¦( 1952¦92,492.36 ¦
+------+--------------------------------------------+------+--------------¦
¦ ¦ ¦ ¦ ¦
+-------------------------------------------------------------------------+
These cases were submitted on a stipulation of all facts under Rule 30. The facts are found as stipulated and the stipulation, together with the exhibits attached thereto, is incorporated herein by reference.
Petitioners are corporations, all members of an affiliated group of which Bowser, Inc., is common parent. For the years 1943 through 1945, and 1948 through 1952, consolidated income and excess profits tax returns were filed for the group by Bowser, Inc.; for 1946 and 1947, the individual affiliates filed separate returns. Petitioners all maintained their books and records and filed their tax returns on an accrual basis of accounting.
A number of issues were raised by the pleadings, but after concessions by both parties there are three basic issues remaining for decision, which are:
(1) Whether in computing operating loss carrybacks and carryovers under section 122(b)(1) and (2), I.R.C. 1939,2 the deduction for accrued excess profits tax, allowed under section 122(d) (6), is the excess profits tax for the year without reduction for the 10 per cent credit allowed under section 784, and for the deferral in payment allowed under section 710(a)(5), or whether it is the net amount after such reductions; (2) whether the consolidated returns for Bowser, Inc., and its affiliated group may include and carry forward past 1949 the 1948 and 1949 operating losses of the Fostoria Screw Company, an affiliate, which had in 1949 ceased production and sold its operating assets;3 and (3) whether Regulations 129, section 24.31(b)(24), is applicable to limit the amount of the affiliated group's consolidated excess profits credit for the years 1951, and 1952. The first issue is common to three dockets, Nos. 60793, 60794, and 60796; the other two issues involve only Docket No. 60796. Docket No. 60795 will not require separate consideration as the issue raised therein is a matter of computation which may be settled under Rule 50 on the basis of our resolution of the primary issues.
Respondent has, on brief, conceded the ‘tax benefit’ issue raised by the pleadings in Docket Nos. 60793, 60794, and 60796. Petitioners have on reply brief conceded two other issues joined in the pleadings in Docket Nos. 60794 and 60796 involving (1) the carryover of a 1948 net operating loss of Briggs Filtration Company in determining the 1950 consolidated income of the Bowser, Inc., affiliated group; and (2) the liability of Johnson Fare Box Company as transferee for the 1946 income tax liability of Johnson Consumer Industries, Inc., if any. Petitioners did not argue on brief the issue of whether Bowser Inc., is entitled to a loss in the year 1949 or 1952 on its investment in the stock of the Fostoria Screw Company, but take the position in their reply brief that respondent's disallowance of the investment loss can result only through allowance of the operating loss of Fostoria for the years 1948 and 1949 to the affiliated group for subsequent years. Under the provisions of the consolidated Regulations 129, section 34.34, it would reduce the investment cost to zero if the operating losses are allowed.
Inasmuch as the parties are agreed on all essential facts, the details of which are complex, we will recite herein only the facts we deem essential to a conclusion of the remaining legal issues involved. The amounts to be entered as our decision can be computed by the parties from the stipulated facts under Rule 50.
Issue 1.
The first issue is whether an accrual basis taxpayer in computing the amount of 1947 net operating loss available for carryback to 1946 or carryover to subsequent years may deduct from 1945 net income the gross amount of the excess profits tax computed for the year 1945, or may deduct only the gross amount of tax less (a) the 10 per cent credit provided in section 784,4 and less (b) the deferral in payment provided in section 710(a)(5)5 of the Code. In other words, is the deduction allowed by section 122(d)(6) 6 the excess profits tax for the year before allowance of the credit and the deferral in payment provided where section 722 relief is claimed, or is it the excess profits tax actually shown to be due and payable on the return as of the end of the year 1945, after reduction thereof by the credit and the deferral above mentioned?
Joseph Weidenhoff, Incorporated, an Illinois corporation with principal office at Algona, Iowa, filed its separate income tax return for the calendar year 1946 with the former collector of internal revenue for the first district of Illinois.
In 1946, the corporation had net income of $318,795.57 before net operating loss deduction, and in 1947 a net operating loss of $187,564.74 before net operating loss deduction.
For the purpose of applying the net operating loss carryback and carryover provisions of section 122, the amount of excess profits tax accrued on December 31, 1945, before credit under section 784, was $79,300.24. The 10 per cent credit provided by section 784 was $7,930.03.
Johnson Fare Box Company, a Delaware corporation with principal office in Chicago, Illinois, is the transferee of the 1946 income tax liability of its subsidiary Johnson Consumer Industries, Inc., which in 1948 was merged into its parent. (Petitioner no longer contests its liability as transferee.) Johnson Consumer Industries, Inc., was a Delaware corporation with principal office in Maspeth, Long Island, New York, and filed its 1946 income tax return with the former collector of internal revenue for the first district of New York.
Johnson Consumer Industries, Inc., had net income for 1946 of $101,934.65 before net operating loss deduction, and for 1947 had a net operating loss of $65,541.65 before net operating loss deduction.
For the purpose of applying the provisions of section 122, the excess profits tax of Johnson Consumer Industries, Inc., accrued on December 31, 1945, before credit under section 784, was $5,832.98; the credit was $583.30.
The Fostoria Screw Company, an Ohio corporation with principal office at Fostoria, Ohio, filed its separate income tax return for the calendar year 1946 with the former collector of internal revenue at Toledo, Ohio.
The corporation sustained a net operating loss of $296,907.71 in 1946, and in 1947 had a net income of $165,989.70.
For the purpose of applying the provisions of section 122, the excess profits tax of the Fostoria Screw Company accrued on December 31, 1945, before credit under section 784, was $193,957.22; the credit was $19,395.72.
Bowser, Inc., an Indiana corporation with principal office at Fort Wayne, Indiana, filed as common parent of an affiliated group consolidated income and excess profits tax returns for the calendar years 1943-1945 and 1948-1952 with the former collector of...
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