United States v. Whitney Land Company
| Decision Date | 01 November 1963 |
| Docket Number | No. 17268.,17268. |
| Citation | 324 F.2d 33 |
| Parties | UNITED STATES of America, Appellant, v. WHITNEY LAND COMPANY, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Richard J. Heiman, Attorney, Dept. of Justice, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, I. Henry Kutz, Attorneys, Department of Justice, Washington, D. C., and Miles W. Lord, U. S. Atty., Minneapolis, Minn., on the brief, for appellant.
John W. Windhorst, Minneapolis, Minn., John S. Hibbs of Dorsey, Owen, Marquart, Windhorst & West, Minneapolis, Minn., on the brief, for appellee.
Before SANBORN and VAN OOSTERHOUT, Circuit Judges, and DAVIES, District Judge.
VAN OOSTERHOUT, Circuit Judge.
This is an appeal by the United States of America from final judgment of the district court in favor of taxpayer, Whitney Land Company, for $14,818.84, plus interest, for recovery of excess corporate income taxes paid for the year 1958. Taxpayer having paid the tax assessed and having filed timely claim for refund, brought this action pursuant to 28 U.S. C.A. § 1346(a) (1). This court has jurisdiction on appeal pursuant to 28 U.S. C.A. § 1291.
The facts are all stipulated and not in dispute. Taxpayer is a Minnesota corporation. It reports its income upon the cash basis method on a calendar year basis. Taxpayer sustained net operating losses for the years 1954 through 1957, inclusive, in the respective amounts of $18,363.14, $37,938.45, $5,063.40 and $3,148.19. In 1958 taxpayer had taxable income of $58,442.03 before application of any carry-over of any loss deduction. It is conceded that the 1956 and 1957 losses are available in full as off-sets against 1958 income. The problem arises with respect to the amount the 1954 and 1955 losses are available for offset against 1958 income.
Taxpayer had profits in 1952 and 1953. It is agreed that the 1954 loss must first be carried back to 1952 and that the 1955 loss must be carried back to 1953. It is clear that the 1939 Code provisions control with respect to the effect of the 1954 and 1955 loss carrybacks on the taxpayer's ultimate liability for 1952 and 1953 income and the amount of the tax due for such years is not here involved.
Taxpayer claims that the 1954 and 1955 net operating losses are to be reduced by the figures at line three in the following table. The Government contends that the net operating losses for the two years are to be reduced by the total of the figures appearing on lines one and four:
Items 1952 1953
1. Net Income ........................ $19,724.16 $26,384.87
2. Dividend Received Credit .......... 16,765.54 22,427.14
__________ __________
3. Normal Tax and Surtax Income
(Item 1 less Item 2) ............ $ 2,958.62 $ 3,957.73
4. Exempt Interest Excluded from above
Figures ......................... $ 68.80 $ 68.80
The problem presented is whether the 1954 and 1955 losses when carried back to 1952 and 1953 are to be reduced by the economic income for 1952 and 1953 under the provisions of the 1939 Code as contended by the Government, or by taxable income as such term is defined in the 1954 Code as contended by the taxpayer, prior to being carried forward to the next profit year which is 1958. There is no dispute as to the figures involved in the computations.
The trial court held that the language of § 172(b) (2) of the Internal Revenue Code of 1954 is clear and unambiguous; that said section is not modified in any relevant context by the other provisions of the 1954 Code; that the amount of taxpayer's net operating losses for 1954 and 1955 must be determined under the 1954 Code net operating loss provisions; that under § 172(b) (2) such net operating losses must first be carried back to 1952 and 1953 respectively; that the amounts of the net operating loss deductions for 1952 and 1953 must be computed under the 1939 Code net operating loss provisions; that for the purpose of computing the amount of net operating loss deduction for 1958, the extent to which the net operating losses for 1954 and 1955 were absorbed by reason of the carryback to 1952 and 1953 respectively, must be determined in accordance with § 172(b) (2); that under § 172(b) (2), taxpayer's net operating losses for 1954 and 1955 must be reduced by the taxable income for 1952 and 1953 respectively, as computed by § 63 of the 1954 Code; that under § 172(b) (2), the excess of net operating losses for 1954 and 1955 over the taxable income for 1952 and 1953 constituted a net operating loss carry over to 1958, and that taxpayer was entitled to the refund it claimed.
The loss years and 1958, the year to which taxpayer seeks to have the unabsorbed losses applied, are all years governed by the provisions of the 1954 Code. Thus the problem presented relates to the interpretation of the 1954 Code provisions with respect to absorption of losses which had been carried back to pre-1954 Code years. The ultimate issue is whether the absorption of such losses on carry back to pre-1954 Code years is to be determined under 1954 Code standards or under 1939 Code standards.
The basis of the trial court's decision in favor of the taxpayer is found in the following excerpt from Judge Larson's opinion (not reported):
We agree with Judge Larson's view that § 172(b) (2), which is quoted in the opinion, is the key statute bearing upon our interpretation problem and we also agree that the term "taxable income", which is defined by § 63 of the 1954 Code, has a clear and definite meaning and that Congress in using the term "taxable income" in § 172(b) (2) intended such words to have their meaning as set forth in the statutory definition.
Neither counsel nor the court has discovered any cases which deal specifically with the problem presented in this case. In our view, the cases of Pacific Rock & Gravel Co. v. United States, 9 Cir., 297 F. 2d 122; Kent v. Commissioner, 35 T.C. 30; and American Bank & Trust Co. v. United States, E.D.La., 212 F.Supp. 148, cited and relied upon by the Government, are factually distinguishable from our present case, deal with a problem different than ours and afford no support for the Government's position. In Pacific Rock & Gravel, the court held that where a 1939 Code year loss is carried to another 1939 Code year, the computation of net operating loss deductions and the amount by which the losses were absorbed in 1939 Code years are all governed by the 1939 Code. Neither party here would dispute the validity of such holding.
In Kent, the net operating loss in 1955 was carried back...
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