Kurtzon v. Comm'r of Internal Revenue, Docket No. 29746.
| Decision Date | 21 March 1952 |
| Docket Number | Docket No. 29746. |
| Citation | 17 T.C. 1542 |
| Parties | MORRIS KURTZON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. A partnership had to refund excessive profits under the Renegotiation Law. Petitioner, a partner, included in his 1945 income a part of his share of these excessive profits. Held, petitioner is entitled to a tax credit under section 3806.
2. Because of a net operating loss deduction from a loss incurred in 1947, petitioner had received refunds of all 1945 income taxes before the renegotiation tax credits were applied. The Commissioner has determined a deficiency which petitioner alleges is contrary to the definition of deficiency contained in section 271 of the Internal Revenue Code. Held, the method used by the Commissioner in his determination of the deficiency complies with the definition of deficiency contained in section 271 of the Code. Lee Winfield Alberts, Esq., for the petitioner.
Paul Levin, Esq., for the respondent.
Respondent determined a deficiency of $7,055.19 in petitioner's income tax for the taxable year 1945. In the deficiency notice respondent adjusted net income and computed the tax as follows:
By stipulation, adjustment (a) is no longer contested since the respondent concedes error to the extent of $10,165.80 salary income, thereby eliminating all taxable net income as to the petitioner for the year 1945. By stipulation, the petitioner has waived and withdrawn an assignment of error to increase adjustment (d), the amount of net operating loss deduction.
Now the only remaining issue relates to the respondent's determination of a deficiency due to a contract renegotiation credit. Petitioner contests this computation of a deficiency by an appropriate assignment of error as follows:
Increase of deficiency in the amount of $5,007.60, representing contract renegotiation tax credit under section 3806 of the Internal Revenue Code.
FINDINGS OF FACT.
Most of the facts have been stipulated and are found accordingly.
Morris Kurtzon, hereinafter called the petitioner, resides in Highland Park, Illinois. His income tax return for the calendar year 1945 was filed with the collector for the first district of Illinois.
Petitioner was one of four partners in Garcy Lighting Company, a copartnership which commenced business on March 3, 1941, hereinafter called the partnership. Petitioner's share of the profits and losses was 20 per cent. During 1945, the partnership derived income from contracts and subcontracts with the United States Government subject to renegotiation.
On January 9, 1945, petitioner filed a complaint in the Circuit Court of Cook County, Illinois, for dissolution of the partnership and the appointment of a receiver. On June 12, 1947, the court appointed Frank J. Murnighan, receiver, and he took possession of the partnership assets and business.
In compliance with the Renegotiation Act, as amended, proceedings were conducted by the War Contracts Price Adjustment Board, hereinafter called the Contracts Board, to determine the amount of excessive profits realized by the partnership during 1945 under its contracts and subcontracts subject to renegotiation. By an order dated June 12, 1947, the Contracts Board made a unilateral determination that the war profits realized by the partnership were excessive by $120,000 during the year ending December 31, 1945. Based upon the proposed elimination of excessive profits of $120,000 for the year ended December 31, 1945, the tax credits were computed under the provisions of paragraph 1 of subsection (a) of section 3806 as follows:
+-----------------------------------------------------------------------------+
¦ ¦ ¦C. Kenneth¦Morris ¦Albert J. ¦Albert R. ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦ ¦Total ¦Kurtzon ¦Kurtzon ¦Kurtzon ¦Cohen ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Excessive profits ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦reported on the ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦1945 returns ¦$44,258.80 ¦$17,703.52¦$8,851.76 ¦$8,851.76 ¦$8,851.76 ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Less: tax credit ¦31,983.64 ¦14,419.30 ¦5,007.60 ¦6,335.88 ¦6,220.86 ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Refund due ¦12,275.16 ¦3,284.22 ¦3,844.16 ¦2,515.88 ¦2,630.90 ¦
¦Renegotiation Board ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Add: Excessive ¦75,741.20 ¦30,296.48 ¦15,148.24 ¦15,148.24 ¦15,148.24 ¦
¦profits not reported ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Total to be refunded ¦$88,016.36 ¦$33,580.70¦$18,992.40¦$17,664.12¦$17,779.14¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Excessive profits ¦$120,000.00¦$48,000.00¦$24,000.00¦$24,000.00¦$24,000.00¦
¦determined ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Eliminated from 1945 ¦75,741.20 ¦30,296.48 ¦15,148.24 ¦15,148.24 ¦15,148.24 ¦
¦individual returns ¦ ¦ ¦ ¦ ¦ ¦
+---------------------+-----------+----------+----------+----------+----------¦
¦Net income reported ¦$44,258.80 ¦$17,703.52¦$8,851.76 ¦$8,851.76 ¦$8,851.76 ¦
+-----------------------------------------------------------------------------+
Morris Kurtzon was mailed a letter dated July 31, 1947, signed by O. W. Olson, acting internal revenue agent in charge, which, omitting formal parts, reads as follows:
Reference is made to the renegotiation of contract in the case of GARCY LIGHTING COMPANY, 4234 North Lincoln Avenue, Chicago, Illinois, a partnership, involving an offsetting tax credit as provided by section 3806(b) of the Internal Revenue Code, with respect to the proposed elimination of excessive profits in the amount of $120,000.00, for the year ended December 31, 1945, to the extent by which the taxes of the individual partners are to be decreased by reason of the application of the provisions of paragraph 1 of subsection (a) of section 3806.
The excessive profits, determined to be $120,000,00, were reported to the extent of $44,258.80 on the partnership return for the year 1945.
Upon the basis of the original income tax return for the year ended December 31, 1945, and upon the understanding that of the taxpayer's proportionate share in the amount of $24,000.00 of the partnership profits determined to be excessive, $8,851.76 was included in income in such return, the amount by which the tax for the taxable year 1945 is decreased by reason of the application of paragraph 1 of subsection (a) is as follows: Income Tax $5,007.60.
On January 30, 1948, the United States filed a claim against the partnership with the receiver for $88,016.36 for the net amount of the...
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