557 F.2d 1379 | Ct. Cl. | 1977
delivered the opinion of the court:
This tax refund action involving the determination of the proper exchange rate at which to convert creditable foreign taxes paid in foreign currency from that currency into a U. S. dollar equivalent is before the court on defendant’s motion for partial summary judgment on Counts I, II, and III of the petition. For the purposes of this motion only, defendant admits the factual allegations contained in plaintiffs petition and pretrial submission; accordingly, no genuine issue exists as to any material fact. Upon consideration of defendant’s motion and plaintiffs opposition thereto and the exhibits of record, after briefing and oral argument, we conclude that plaintiff is required under I.R.C. § 905(c)
Plaintiff ("Citibank”), a national banking association which conducts its banking business in New York State and through branches in many foreign countries, brought this action seeking refund of federal income taxes paid for the calendar years 1953 through 1964, relating particularly to the application of federal income taxes and tax credits to Citibank’s income from its foreign branches.
Plaintiff employs the accrual method of accounting in keeping its books and accounts and in filing its federal income tax returns. Each of Citibank’s foreign branches keeps its books and accounts in the currency of the country where the bank is located.
For federal income tax purposes during the years in question, 1953 through 1964, Citibank reported all of its foreign branch profits as income and claimed credit under §§ 33 and 901 for the foreign income taxes imposed with respect to such foreign branch profits. In computing foreign branch profits and foreign income taxes paid for each of the years in question, Citibank reported its after-foreign-tax branch profits at the actual amounts of U. S. dollars received when the foreign currency was remitted to the United States and converted to U. S. dollars; and Citibank reported the branch profits retained for taxes by translating the foreign currency amounts into U. S. dollars at the average actual remittance rate of exchange
In determining its foreign tax credits, for those branches which retained funds to pay foreign income taxes, Citibank translated its foreign currency income tax payments made after the end of the taxable year into U. S. dollars at the average actual remittance rate of exchange for the taxable year. The instant controversy arises because the Commis
If accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Secretary or his delegate, who shall redetermine the amount of the tax for the year or years affected. * * *7
Defendant, focusing on this sentence, argues that the tax credit claimed by plaintiff for its branches’ accrued foreign tax liability was only a tentative calculation which must be adjusted to the date-of-payment exchange rate whenever the foreign taxes are paid after the end of the year to which those taxes relate. Defendant relies upon case law,
In defense of the method it uses, plaintiff argues that its method of translating foreign income tax payments is reasonable and proper in that foreign tax payments are reported at the same exchange rate as that used in reporting foreign branch profits, that its method satisfies §
Although we agree with the plaintiff that with relation to the exchange rate problem the legislative history cupboard is bare, we do not agree with plaintiff that its method of translating foreign currency payments is proper under the Code.
* * * [Section 238(a) of the Revenue Act of 1918] can mean but one thing, namely, that if upon final determination and payment of the foreign tax it is found that the amount actually paid differs from that accrued, the American tax liability shall be adjusted by allowing as a credit the amount actually paid. And the law having directed the adjustment of the amount accrued to the amount actually paid, the necessary inference is that the amount of the payment if made in Canadian money shall be converted into American money at the rate of exchange as of the date of payment, since this is the only way of arriving at the amount actually paid. * * * The amount of the credit should, therefore, be adjusted to the amount of the actual payment in terms of*593 American dollars at ,the rate of exchange prevailing on the date of payment.15
We presume that Congress was aware of the administrative construction given to the foreign tax credit readjustment provision, and by reenactment of the statutory provision "* * * Congress must be taken to have approved the administrative construction and thereby to have given it the force of law.”
In these circumstances, we consider that Congress, if it had considered the Service’s interpretation erroneous, would have amended the section when it reenacted the statute; its failure to do so implies that the administrative pronouncement was not inconsistent with the intent of the statute. Nevertheless, we need not rest our conclusion solely upon the legislative concurrence doctrine. Two leading commentators
Focusing upon the statutory language of § 905(c) and the purpose of the foreign tax credit, Judge Tannenwald, in a well-reasoned opinion, concluded that a taxpayer who took the foreign tax credit by translating accrued foreign taxes at the rate of exchange prevailing at its fiscal year-end should adjust that credit "to reflect the dollar cost on the payment date of the foreign taxes.”
Plaintiff, in an attempt to distinguish its factual situation from Comprehensive Designers, argues that Comprehensive Designers did not involve a taxpayer who kept in foreign currency the branch profits retained to pay taxes. Plaintiff concedes that if its branches had converted all their profits (including those retained to pay taxes) into U. S. dollars and had subsequently purchased foreign currency at a lower exchange rate in a later year to pay their foreign income tax liability, then, in such a case, it would be proper for Citibank to take credit for the taxes paid at the prevailing rate on the date of payment.
The essence of plaintiffs assertion is that the consequences of an investment choice to retain foreign currency,
Nevertheless, in another attempt to distinguish its factual situation from Comprehensive Designers, plaintiff contends that that case did not involve a taxpayer who consistently had followed a reasonable method of translating foreign currency payments as plaintiff has done in the instant case. Plaintiff asserts that it has adopted a "method of accounting” for the foreign tax credit by consistently translating its branch’s foreign tax liabilities at an average remittance rate.
Our short answer to plaintiffs assertion is that it is immaterial to plaintiffs case whether the petitioner in Comprehensive Designers consistently followed a method of
For the above reasons, we deem that Comprehensive Designers is applicable to the instant controversy and supports the Government’s position that the foreign tax credit, available to Citibank for the calendar years 1953 through 1964, should be adjusted to reflect the U. S. dollar cost on the payment date of the foreign taxes that plaintiff accrued on its returns. No double taxation occurs to plaintiff, despite the fact that the branch profits retained to pay taxes are converted at a different exchange rate than the taxes themselves.
Although we interpret § 905(c) to require a taxpayer to translate its accrued foreign tax credit at the date-of-payment exchange rate, nevertheless, we must address plaintiffs contention that in the instant case the I.R.S. is estopped from asserting deficiencies against plaintiff for the years in question because the Service accepted plaintiffs translation method.
Plaintiff points to the fact that the I.R.S., for each year 1940 through 1952, audited plaintiffs tax returns. In the course of each such audit, the revenue agents made adjustments to the foreign tax credits claimed by plaintiff. In making those adjustments, the agents had used, until
Essentially, plaintiffs estoppel theory is based upon its assertion that the Service upon audit accepted plaintiffs translation method and embodied the acceptance in plaintiffs 1966 Closing Agreement. Although plaintiffs theory is not supported by the factual allegations on record, even if the court were to conclude that the Service upon audit reviewed and accepted plaintiffs use of the average remittance rate for foreign tax credit purposes for the years 1940 through 1952, the Government is neither estopped nor otherwise barred from applying the date of payment translation rate to the years in issue.
With relation to the 1966 Closing Agreement, plaintiff does not contend that either the Closing Agreement or the controversy leading up to that Agreement is in any way directed to the foreign tax credit or the rate to be used in translating foreign taxes for that purpose. In fact, neither the 1966 Closing Agreement nor any of its exhibits refer to
For the foregoing reasons, we hold that the Government is not estopped from asserting deficiencies against plaintiff for the years in question. Accordingly, we grant defendant’s motion for partial summary judgment on Count I.
Plaintiffs principal position was set forth in Count I of its petition. Since we rejected plaintiffs principal position and hold that taxes paid after year-end should be translated at date of payment rates, we must consider plaintiffs alternative positions.
In Count II plaintiff submits that if foreign taxes paid after year-end should be translated at date-of-payment rates, then payments made prior to year-end should also be translated at date-of-payment rates. We do not agree. The cases and administrative rulings uniformly agree that for purposes of reporting a creditable foreign tax, the exchange rate to be used in claiming the credit should be the same as that used in computing income. While the tax credit is to be claimed in this manner, § 905(c) requires retrospective adjustment using the date-of-payment exchange rate when foreign taxes are paid after the end of the year in which the income is reported. However, this statutory adjustment under § 905(c), in our view, is not applicable to foreign taxes which are paid before the end of the year in which the income is reported. Our conclusion is borne out not only by the statutory heading of § 905(c), which states "Adjustments on Payment of Accrued Taxes,”
CONCLUSION
For the foregoing reasons, we grant defendant’s motion for partial summary judgment and dismiss plaintiffs petition as to Counts I, II, and III.
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954.
For this purpose, all of Citibank’s offices in one foreign country are considered one branch.
The term "after-foreign-tax branch profits” means the "unblocked” profits before foreign income taxes recorded on the books of the foreign branch (called "foreign branch profits”) less the part of Citibank’s foreign branch profits that is retained to pay foreign income taxes (called "branch profits retained for taxes”). The term "unblocked” income refers to income received in foreign countries that Citibank is not prevented under local law from remitting to the home office and on which taxation is not deferred under Mim. 6475, 1950-1 C.B. 50.
The term "average actual remittance rate of exchange” or "average remittance rate” means the rate of exchange obtained by dividing the total U. S. dollars actually received for foreign currency remitted out of foreign branch profits during the year by the total foreign currency which was actually remitted and converted into U. S. dollars during such year.
This question is Count I of plaintiffs petition.
§ 131(c) of the Internal Revenue Code of 1939.
The Tax Reform Act of 1976, Pub. L. No. 94-455, § 1906(b)(13)(A), 90 Stat. 1834 (1976), substituted "Secretary” for “Secretary or his delegate” each place it appeared in the Code for tax years beginning after 1976.
Comprehensive Designers Int’l, Ltd. v. Commissioner, 66 T. C. 348 (1976); Texas Co. (Caribbean) Ltd. v. Commissioner, 12 T. C. 925 (1949).
S.M. 4081, IV-2 C.B. 201 (1925), superseded and reaffirmed in Rev. Rul. 73-506, 1973-2 C.B. 268.
Owens, The Foreign Tax Credit, § 7/3 (1961); Ravenscroft, Taxation and Foreign Currency, § 14/3.2 (1973).
SEC. 446. GENERAL RULE FOR METHODS OF ACCOUNTING
"(a) General Rule. - Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.
"(b) Exceptions. - If no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary or his delegate, does clearly reflect income.”
Pub. L. No. 254, ch. 18, 40 Stat. 1057,1073,1080-81 (1919). So far as material to this discussion, § 238 of the Revenue Act of 1918 reads as follows:
SEC. 238. (a)
"If accrued taxes when paid differ from the amounts claimed as credits by the corporation, or if any tax paid is refunded in whole or in part, the corporation shall at once notify the Commissioner who shall redetermine the amount of the taxes due under this title and under Title III for the year or years affected, and the amount of taxes due upon such redetermination, if any, shall be paid by the corporation upon notice and demand by the collector, or the amount of taxes overpaid, if any, shall be credited or refunded to the corporation in accordance with the provisions of section 252.” * * *
Supra note 9.
It should be noted that in 1923 the Service published I.T. 1645, II — 1 C.B. 141 (1923), which stated that:
"A taxpayer who keeps his books and files his returns to the United States on the accrual basis should use the rate of exchange in effect on the last day of his taxable year in claiming a credit for taxes accrued to a foreign country.”
In 1925, however, S.M. 4081 limited that pronouncement:
"* * * the rule laid down in this I.T. [1645] should be limited to the case of a taxpayer filing its original return and estimating the foreign tax for the purpose of taking credit. When the tax is actually paid the rate of exchange to be used in adjusting the tax liability is the rate on the date of actual payment of the tax.”
Supra note 9, at 202-203.
Helvering v. R. J. Reynolds Tobacco Co., 306 U. S. 110, 115 (1939).
Helvering v. Reynolds, 313 U. S. 428, 432 (1941).
Cf. Jones v. Liberty Glass Co., 332 U. S. 524, 533-34 (1947) (where Congress was not expected to make an affirmative move every time a lower court indulged in an erroneous interpretation).
Commissioner v. Glenshaw Glass Co., 348 U. S. 426 (1955).
Although S.M. 4081 was superseded by Rev. Rul. 73-506, supra note 9, the later ruling merely restated under the current statute and regulations the position of the earlier ruling.
Comprehensive Designers Int’l, Ltd. v. Commissioner, supra note 8.
Brown v. Commissioner, 1 B.T.A. 446 (1925).
Mead Cycle Co. v. Commissioner, 10 B.T.A. 887, 896-97 (1928).
Burns v. Commissioner, 12 B.T.A. 1209, 1226 (1928).
Texas Co. (Caribbean) Ltd. v. Commissioner, supra note 8.
See note 10.
See note 8.
Comprehensive Designers Int’l, Ltd. v. Commissioner, supra note 8, at 356.
Plaintiff recognized this fact in a special case involving Brazilian taxes for the year 1962. In that case plaintiff had converted into U. S. dollars the foreign branch profits retained to pay such taxes; as such, plaintiff claimed credit for the taxes when paid, translated at the date-of-payment rate.
Plaintiff alludes to the fact that its branches have idle foreign currency "in hand.” However, its pretrial submission speaks only of "retained profits,” which we deem may be like "retained earnings.” Similarly, the pretrial submission speaks of a "reserve for taxes” but no facts are presented to show if that refers to foreign cash actually set aside, or instead refers to the liability account for foreign taxes. Nevertheless, if the branches are sitting with idle foreign currency "in hand,” it is by their choice that they have not converted that currency into U. S, dollars.
Owens, supra note 10, § 7/3C, at p. 458, and n. 59.
Treas. Reg. § 1.446-1(e)(2)(ii)fW (1970).
See Owens, supra note 10, § 7/3C.
Automobile Club of Mich. v. Commissioner, 353 U. S. 180, 183-85 (1957); Eckstein v. United States, 196 Ct. Cl. 644, 667-68, 452 F. 2d 1036, 1050 (1971); Union Equity Coop. Exch. v. Commissioner, 481 F. 2d 812, 817 (10th Cir. 1973), aff'g 58 T. C. 397 (1972), cert. denied, 414 U. S. 1028 (1973).
we recognize that the title of a section may be considered as an aid to the interpretation of an ambiguous text, but may not be used to limit or set at naught the plain meaning of the text. Knowlton v. Moore, 178 U. S. 41, 65 (1900); Brotherhood of R.R. Trainmen v. Baltimore & O. R.R., 331 U. S. 519, 528-29 (1947); Prudential Ins. Co. of America v. United States, 162 Ct. Cl. 55, 319 F. 2d 161 (1963).
§ 446(e).
Security Flour Mills Co. v. Commissioner, 321 U. S. 281 (1944).