SEIBERLING RUBBER COMPANY v. United States
| Decision Date | 07 March 1962 |
| Docket Number | No. 32-58.,32-58. |
| Citation | 156 Ct. Cl. 219,297 F.2d 842 |
| Parties | SEIBERLING RUBBER COMPANY, a Delaware Corporation, v. The UNITED STATES. |
| Court | U.S. Claims Court |
Edward C. Park, Boston, Mass., for plaintiff.
Benjamin H. Pester, Washington, D. C., with whom was Asst. Atty. Gen. Louis F. Oberdorfer, for defendant. Lyle M. Turner and Rufus E. Stetson, Jr., Washington, D. C., on the brief.
This is a suit to recover alleged over-payments of income taxes for the years 1948 and 1950, to which plaintiff claims it is entitled as the result of a net operating loss for the year 1949.
The taxpayer, during all times material to this case, kept its books and records and filed its Federal tax returns on the accrual method of accounting. In the years prior to 1946 it filed its Federal tax return on a fiscal year basis ending October 31. Since 1946, however, it has filed its Federal tax returns on the calendar year basis.
In 1949, taxpayer paid excess profits tax deficiencies imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939, 26 U.S.C.A. Excess Profits Taxes, § 710 et seq. for the years 1941 through 1945. The net amounts of such deficiencies were as follows:
Taxable year ended
October 31, 1941 ............. $ 13,321.24
Taxable year ended
October 31, 1942 ............. 65,637.94
Taxable year ended
October 31, 1943 ............. 92,660.28
Taxable year ended
October 31, 1944 ............. 102,240.15
Taxable year ended
October 31, 1945 ............. 95,029.96
Period Oct. 31, 1945
to Dec. 31, 1945 ............. 31,335.62
___________
Total ..................... $400,225.19
In computing plaintiff's tax liability for the year 1949, the Commissioner did not allow any part of the above-listed deficiencies as a deduction for that year. Since taxpayer is on the accrual method of accounting, any deduction to which it is entitled must be claimed for the year in which it accrued. United States v. Olympic Radio & Television, Inc., 349 U.S. 232, 75 S.Ct. 733, 99 L.Ed. 1024. Defendant does not deny that the accruing of these deficiencies gives rise to a deduction, but contends that the deficiencies in this instance accrued in 1948. Hence, the defendant avers that an accrual-basis taxpayer may not deduct an expense in a year other than the one in which it accrued.
On the other hand, plaintiff contends that either the deficiencies accrued in 1949, in which event it is entitled to a deduction of the full amount for that year, or part of the deficiencies accrued in 1948 and part in 1949, but in either event the result would be substantially similar.
The primary question for our consideration is when did the liabilities accrue. We answer this question in the light of the facts and circumstances of the case.
In 1941 and 1942 taxpayer had income on which excess profits taxes were assessed. The plaintiff contested the amount of the assessments and brought suit in the Tax Court on two counts.1 The opinion is reported at 8 T.C. 467. Plaintiff was unsuccessful in its efforts in the Tax Court on both counts, but appealed to the Court of Appeals for the Sixth Circuit. The Court of Appeals affirmed the Tax Court on one count and reversed that Court on the other count. Seiberling Rubber Co. v. Commissioner, 6 Cir., 169 F.2d 595. On mandate from the Court of Appeals the Tax Court computed plaintiff's taxes for the fiscal years 1941 and 1942. The decision of the Court of Appeals also caused a reduction in plaintiff's equity invested capital as reported on its returns for the fiscal years ending October 31, 1943, 1944, 1945 and the period October 31, 1945, to December 31, 1945, which resulted in determinations of deficiencies in excess profits taxes for those years. No petition for a writ of certiorari was filed with the Supreme Court by either party, the time for filing having expired on October 17, 1948. On November 24, 1948, the Tax Court entered its decision pursuant to the mandate of the Court of Appeals. On December 3, 1948, the Tax Court, on its own motion, modified its decision of November 24, 1948.
The examination of plaintiff's tax liabilities for the years 1943, 1944, and 1945 was delayed pending the Tax Court's decision for the years 1941 and 1942. This examination was conducted by a revenue agent and extended from about August 2, 1948, until the latter part of December of that year. During this period, many additions to income were proposed by the agent and many deductions he proposed to disallow. The agent completed his examination and left a form 874, "Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment", with plaintiff's representatives. Plaintiff's representatives did not agree to sign form 874, nor did they agree to accept the agent's determinations. They told the agent that they would wait until the final report was received and that the report would be submitted to plaintiff's auditors before a decision would be made. Although the agent's report was dated December 27, 1948, the final corrected copy was not mailed to plaintiff until February 15, 1949. However, on January 13, 1949, plaintiff signed form 874, accepting the deficiencies and overassessments for the years 1943, 1944, and 1945. It is the amount of the deficiencies, as determined by the Tax Court for the years 1941 and 1942, and as agreed upon by the waiver for the years 1943, 1944, and 1945, that the plaintiff alleges was illegally and erroneously disallowed as a deduction in the computation of its net operating loss for 1949. The Commissioner has recognized a net operating loss for that year to the extent of $627,252.51, which amount does not include any of the tax deficiencies discussed above.
The plaintiff was permitted to carry back $441,136.87 of its loss to 1947 which completely relieved plaintiff of any tax liability for that year and all taxes paid by plaintiff for that year were subsequently refunded. The difference between the net operating loss recognized by the Commissioner in 1949 and that allowed as a carry back to 1947 was applied against plaintiff's income for 1948. As a result, the plaintiff's tax liability was reduced to $123,464.50 and all amounts in excess of that figure paid by taxpayer for 1948 have been returned to it. Any additional deduction granted plaintiff for 1949 will increase its net operating loss for that year, which in turn will be carried back to further reduce plaintiff's tax liabilities for 1948. If the full amount of the tax deficiencies is recognized as a liability for 1949, it will completely wipe out gross income for 1948 and leave a credit which may be carried over to 1950 and reduce plaintiff's tax liability for that year. The deductions sought by plaintiff are provided for under pertinent provisions of the Internal Revenue Code of 1939.2 The issue is whether plaintiff is entitled to the deductions sought.
Since the considerations which determine when the 1941 and 1942 deficiencies accrued are not identical with those applicable to the 1943, 1944, and 1945 deficiencies, we shall discuss the two periods separately.
The 1941 and 1942 deficiencies accrued in the year the decision of the Tax Court became final. Commissioner of Internal Revenue v. Fifth Avenue Coach Lines, Inc., 2 Cir., 281 F.2d 556. Both parties regard this to be the law, but they disagree as to when the decision of the Tax Court became final. Section 1140(c) (2) of the Internal Revenue Code of 1939 provides:
The statute provides that the decision of the Tax Court becomes final 30 days from the time the decision was rendered. However, the statute recognizes an exception; i. e., when the Commissioner or the taxpayer has instituted proceedings to have such decisions corrected it shall become final when so corrected. Since this is the only exception provided for, it is reasonable to assume that it was the only exception intended. Neither the Commissioner nor the taxpayer instituted proceedings to correct the Tax Court's decision of November 24, 1948. We conclude from this that a correction initiated on the Court's own motion will not render its decision immediately final, thus cutting off all rights of the parties to seek review. But it does not follow that the correction creates a new 30-day period before finality is secured. The statute clearly provides for a 30-day period during which time an appeal may be taken, but on the expiration of that period the court is without jurisdiction. Crews v. Commissioner, 10 Cir., 120 F.2d 749. Under the statute the court on its own motion by merely correcting its judgment can neither extend nor contract the period during which it maintains jurisdiction. Furthermore, the correction by the Tax Court of its decision of November 24, 1948, did not alter the net result, it merely increased the amount of the tax imposed from $65,637.94 to $68,760.06, but made the...
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