METRO ONE TELECOMMUNICATIONS, INC. v. COMMISSIONER OF INTERNAL REVENUE, 12651-07.

• Decision Date: 15 December 2010
• Docket Number: No. 12651-07.,12651-07.
• Citation: 135 T.C. 573,135 T.C. No. 28
• Parties: METRO ONE TELECOMMUNICATIONS, INC., Petitioner.<BR>v.<BR>COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

135 T.C. No. 28

METRO ONE TELECOMMUNICATIONS, INC., Petitioner.
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 12651-07.

12-15-2010

Neil D. Kimmelfield, Lewis M. Horowitz, and John H. Gadon, for petitioner.

John D. Davis, for respondent.

[135 T.C. No. 2]

OPINION

PARIS, Judge.

Petitioner petitioned the Court to redetermine respondent's determination of a $630,159 deficiency in its 2002 Federal income tax. We decide whether section 56(d)(1)(A)(i)(II) precludes petitioner from deducting an alternative tax net operating loss (ATNOL) that offsets all of petitioner's alternative minimum taxable income (AMTI).^[1] Our decision turns on whether petitioner's carryback of an ATNOL from 2004 is a "carryover" within the meaning of section 56(d)(1)(A)(ii)(I). We agree with respondent that the carryback is not such a "carryover" and that petitioner's ATNOL deduction (ATNOLD) is limited by section 56(d)(1)(A)(i)(II).

Background

This case was submitted to the Court fully stipulated under Rule 122. Our recitations of fact are based upon the parties' stipulations of fact and the exhibits submitted therewith. We incorporate those stipulations herein by this reference. Petitioner is an Oregon corporation, and its principal place of business was in Oregon when its petition was filed.

Petitioner's AMTI for 2002 (2002 AMTI), as determined without regard to the ATNOLD, is $37,540,893. For 2003 petitioner incurred an ATNOL of $37,670,950 (2003 ATNOL).

[135 T.C. No. 4]

Petitioner deducted $15,066,158 of the 2003 ATNOL as a carryback to 2001 and deducted the remaining $22,604,792 as a carryback to 2002. Petitioner also deducted for 2002 $603,295 of ATNOLs carried over from taxable years before 2001.

Petitioner's 2002 AMTI was $14,332,806 after petitioner deducted the $603,295 in carryovers and the $22,604,792 carryback ($37,540,893-$603,295-$22,604,792=$14,332,806). For 2004, petitioner incurred an ATNOL of $29,427,241 (2004 ATNOL). Petitioner then claimed a $14,332,806 deduction for 2002 on account of a carryback of a like amount of the 2004 ATNOL, resulting in an ATNOLD for 2002 that offset all of petitioner's AMTI for that year. Respondent, in the notice of deficiency, determined for 2002 that the 90-percent limitation of section 56(d)(1)(A)(i)(II) applied to petitioner's ATNOLD and reduced the amount of the carryback from 2004 to $11,182,013 (a reduction of $3,150,793). The $3,150,793 reduction, in turn, created the deficiency in petitioner's tax (specifically, its alternative minimum tax (AMT)) for 2002. See sec. 55(b)(1)(B) (imposing a tax rate of 20 percent, which when applied to the $3,150,793 increase in petitioner's 2002 AMTI results in the $630,159 deficiency at issue).

[135 T.C. No. 4]

Discussion

I. AMT

Section 55(a) imposes an AMT for a taxable year where the tentative minimum tax exceeds the regular tax. See also Allen v. Commissioner, 118 T.C. 1, 5 (2002). A corporate taxpayer's tentative minimum tax is "(i) 20 percent of so much of the alternative minimum taxable income for the taxable year as exceeds the exemption amount, reduced by (ii) the alternative minimum tax foreign tax credit for the taxable year." Sec. 55(b)(1)(B). A corporate taxpayer's AMTI equals its taxable income as adjusted for certain items. See sec. 55(b)(2). One of those items, specified in section 56(a)(4), allows a corporate taxpayer to claim an ATNOLD in lieu of a net operating loss (NOL) deduction allowed under section 172.

II. Section 56(d)(1)

Section 56(d)(1) defines the term "alternative tax net operating loss deduction" for purposes of section 56(a)(4). As enacted by the Tax Reform Act of 1986, Pub. L. 99-514, sec. 701(a), 100 Stat. 2320, section 56(d)(1) provided in relevant part:

SEC. 56(d). Alternative Tax Net Operating Loss Deduction Defined.—

(1) In general.—For purposes of subsection (a)(4), the term "alternative tax net operating loss deduction" means the net operating loss deduction allowable for the taxable year under section 172, except that—

[135 T.C. No. 5]

(A) the amount of such deduction shall not exceed 90 percent of alternate minimum taxable income determined without regard to such deduction * * *

This version of section 56(d)(1) was later amended three times to arrive at the version applicable here.

First, the Omnibus Budget Reconciliation Act of 1990 (1990 Act), Pub. L. 101-508, sec. 11531(b)(1), 104 Stat. 1388-490, amended section 56(d)(1)(A) to conform to the 1990 Act's enactment of section 56(h) (providing an adjustment relating to "Energy Preferences"). Following this amendment, which was effective for taxable years beginning after December 31, 1990, see 1990 Act sec. 11531(c), 104 Stat. 1388-490, section 56(d)(1) provided in relevant part:

SEC. 56(d). Alternative Tax Net Operating Loss Deduction Defined.—

(1) In general.—For purposes of subsection (a)(4), the term "alternative tax net operating loss deduction" means the net operating loss deduction allowable for the taxable year under section 172, except that—

(A) the amount of such deduction shall not exceed the excess (if any) of—

(i) 90 percent of alternative minimum taxable income determined without regard to such deduction and the deduction under subsection (h), over

(ii) the deduction under subsection (h), * * *

Second, the Job Creation and Worker Assistance Act of 2002 (2002 Act), Pub. L. 107-147, sec. 102(c)(1), 116 Stat. 26,

[135 T.C. No. 6]

amended section 56(d)(1)(A) to let "carrybacks" of ATNOLs from 2001 and 2002 offset AMTI of previous years without regard to the 90-percent limitation. The 2002 Act also amended section 56(d)(1)(A) to let "carryforwards" of ATNOLs from years before 2001 offset AMTI for 2001 and 2002 without regard to the 90-percent limitation. See id. The amendments in the 2002 Act affected taxable years ending before January 1, 2003. See id. sec. 102(c)(2), 116 Stat. 26. Following those amendments, section 56(d)(1) provided in pertinent part as follows:

SEC. 56(d). Alternative Tax Net Operating Loss Deduction Defined.—

(1) In general.—For purposes of subsection (a)(4), the term "alternative tax net operating loss deduction" means the net operating loss deduction allowable for the taxable year under section 172, except that—

(A) the amount of such deduction shall not exceed the sum of—

(i) the lesser of—

(I) the amount of such deduction attributable to net operating losses (other than the deduction attributable to carryovers described in clause (ii)(I)), or

(II) 90 percent of alternative minimum taxable income determined without regard to such deduction, plus

(ii) the lesser of—

(I) the amount of such deduction attributable to the sum of carrybacks of net operating losses for taxable years ending during 2001 or 2002 and carryforwards of net operating losses to

[135 T.C. No. 7]

taxable years ending during 2001 and 2002 * * * [Emphasis added.]

Third, in "Title IV—Tax Technical Corrections", the Working Families Tax Relief Act of 2004 (2004 Act), Pub. L. 108-311, sec. 403(b)(4), 118 Stat. 1187, specified "clerical changes" to the NOL and ATNOL provisions set forth in 2002 Act section 102. H. Conf. Rept...