115 F. Supp. 310 | S.D.N.Y. | 1953
Both parties move for summary judgment on the complaint as amended,
The facts are not in dispute. Plaintiff is a New York corporation. It keeps its. books of account and files its tax returns-on the basis of cash receipts and dis
In 1949, the Commissioner of Internal Revenue assessed a deficiency of $565,-070.70 in the tax imposed by Sec. 102. The plaintiff having paid the amount assessed plus interest of $104,313.59, duly filed with the defendant a claim, which has not been acted on, for refund of $266,061.41, the total of the alleged over-assessment plus the interest paid thereon.
Sec. 102 imposes on business corporations “improperly accumulating surplus”, a surtax the amount of which is determined by applying the several prescribed rates respectively to specified portions “of the undistributed section 102 net income” [emphasis supplied], ' “Section 102 net income” is defined so far as here relevant as “the net income * * * minus the sum of * * * Federal income * * * taxes * * * paid or accrued during the taxable year * * * ”
In computing the amount of the plaintiff’s “section 102 net income” for 1946, the.Commissioner deducted from its “net income” the income tax of $142,660.64 paid in 1946 on 1945 income. The plaintiff contends that the Commissioner should have deducted instead, the income tax of $726,036.46 which “accrued” in 1946 on that year’s income. The defendant replies that since the plaintiff’s accounts are kept on a cash basis, deduction of taxes “accrued” in 1946 is prohibited by Sec. 43 of the Code.
I think the defendant’s view of the law is incorrect. In order to compute the tax here involved, the taxpayer’s “net income” must first be determined according to the taxpayer’s basis of accounting, i. e., whether “cash” or “accrual.” But then, taking the “net income” thus arrived at as a base figure, it is also necessary to compute and “clearly reflect” the undistributed Sec. 102 net income to which the rates are to be applied. And in order to do that for any year, it seems to me to be necessary, regardless of the taxpayer’s basis of accounting, to deduct from that year’s “net income” the amount of “Federal income tax * * * accrued” on that year’s “net income.”
The precise point involved here seems not to have been judicially decided. But the Courts of Appeal for the District of Columbia
The plaintiff’s motion for summary judgment on the complaint as amended is granted. The defendant’s motion is denied.
Settle order.
. The original complaint contained 3 “counts.” On previous motions count 3 was dismissed with leave to amend and summary judgment sought by both parties on count 2 was denied because the pleadings as they then stood raised an issue of fact as to whether the plaintiff was liable to any tax under § 102. The plaintiff has not amended count 3. It has stipulated to a dismissal of count 1 with prejudice and amended count 2, to-eliminate the issue of fact.
. 26 U.S.C.A. § 102.
. 26 U.S.C.A. § 102(d) (1) (A).
. 26 U.S.C.A. § 43.
. See Aluminum Castings Co. v. Routzahn, 282 U.S. 92, 98, 51 S.Ct. 11, 75 L.Ed. 234; Rodney, Inc., v. Hoey, D.C., 53 F.Supp. 604, 608.
. Commissioner of Internal Revenue v. Clarion Oil Co., 80 U.S.App.D.C. 41, 148 F.2d 671, certiorari denied 325 U.S. 881, 65 S.Ct. 1575, 89 L.Ed. 1997.
. Aramo-Stiftung v. Commissioner, 2 Cir., 172 F.2d 896; Joan-Carol Corporation v. Commissioner, 2 Cir., 180 F.2d 751.
. Birmingham v. Loetscher Corp., 8 Cir., 188 F.2d 78.
. Ways and Means Committee-HR R. No. 704, 73d Cong. 2d Sess. § (4).
. 26 U.S.C.A. § 500 et seq.