Lead Opinion
OPINION
Respondent determined a deficiency of $59,863.57 in petitioner’s income tax for the taxable year ended January 31,1969.
The facts of the case have been stipulated.
Petitioner is a Delaware corporation engaged in the business of farming. Its principal place of business was in Middletown, Del., at the time the petition was filed in this case. Petitioner filed its Federal income tax return for 1969 with the Internal Revenue Service Center at Philadelphia, Pa.
The table below shows petitioner’s taxable income before any net operating loss deduction and its net operating losses for the taxable years 1965 through 1970:
Taxable income before net Year operating loss deduction Net operating loss
1965_ $8, 207. 60
1966_ 30, 124. 62
1967_ $259, 621. 12 ___
1968_ 30, 529. 78
1969__-.. 135, 130. 89 _
1970_ 23, 490. 08
In 1967 petitioner liad a net long-term capital gain of $813,531.39, no net short-term capital loss, and deductions in excess of ordinary income (exclusive of any net operating loss deduction) of $53,910.27.
In 1969 petitioner had a net long-term capital gain of $227,576.32, no net short-term capital loss, and deductions in excess of ordinary income (exclusive of any net operating loss deduction) of $92,445.43.
Petitioner filed a timely Federal income tax return for 1967. In computing its tax liability for that year, рetitioner used both the “regular” and “alternative” methods of computation. The regular method is prescribed in section 11 and the alternative méthod for corporations is prescribed in section 1201 (a).
Taxable income before net operating loss deduction_$269, 621. 12
Less: Net operating loss deduction:
Net operating loss carryover for 1965_$8, 207. 60
Net operating loss carryover for 1966_ 30, 124. 62 38, 332. 22
Taxable income_ 221, 288. 90
Normal tax (sec. 11(b)(2)): 22% X $221,288.90_ • 48, 683. 56
Surtax (sec. 11(c)(3)):
Taxable income_221, 288. 90
Less: Surtax exemption (sec. 11(d))_ 25, 000. 00
26% X___196, 288. 90 51, 035. 11
“Regular” tax_ 99, 718. 67
The alternative method produced the following result:
Taxable income_$221,288. 90
Less: Excess of net long-term capital gain over net sbort-term capital loss_ 313, 531. 39
Balance_ 0
Sec. 1201(a) (1) : 22% x 0_ 0
Sec. 1201(a) (2) : 25% X $313,531.39_ 78, 382.'85
Alternative tax_ 78,382. 85
Because the alternative tax thus computed ($78,382.85) was less than the regular tax thus computed ($99,718.67), petitioner reported the former amount on its return as its income tax liability for 1967 and paid that amount less allowable credits.
Petitioner filed a timely Federal income tax return for 1969. On that return, petitioner determined its tax under section 11 and claimed a net operating loss deduction of $122,772.27, consisting of the following items:
Net operating loss carryover from 1965_$8,207. 60
Net operating loss carryover from 1966_30,124. 62
Net operating loss carryover from 1968_ 30, 529.78
Carryover of total deductions for 1967 (exclusive of net operating loss deduction)_53,910.27
Petitioner filed a timely Federal income tax return for 1970, rеporting a net operating loss of $23,490.08 for that year. On April 30, 1970, petitioner filed an Application for Tentative Refund from Carryback of Net Operating Loss, in which it claimed a tentative refund of Federal income tax paid for the taxable year 1969, based on the carryback to that year of its net operating loss fоr 1970. On June 18, 1970, respondent notified petitioner of his disallowance of that application.
• By notice of deficiency dated February 7,1972, respondent also disallowed the net operating loss deduction claimed on petitioner’s return for 1969 and determined a deficiency of $59,863.57 in petitioner’s income tax for that yеar.
Respondent contends that petitioner’s net operating losses for 1965, 1966, 1968, and 1970 must be carried to petitioner’s taxable year 1967 pursuant to the provisions of section 172
Respondent further contends that petitioner’s deductions in excess of ordinary income (exclusive of any net operating loss deduction) for 1967 in the amount of $53,910.27 do not constitute a “net operating loss” as defined in section 172 (c) and therefore may not be carried over to petitioner’s taxable year 1969, even though they were not to be absorbed as deductions from petitioner’s gross income for 1967.
Petitioner argues that its income tax liability for 1967 may not be recomрuted under section 11. It admonishes us that our only task herein is the redetermination of an alleged deficiency in its income tax for 1969 and points to the fact, stipulated by the parties, that respondent is barred by the statute of limitations from assessing a deficiency in petitioner’s income tax for 1967. Sec. 6501 (a). Petitioner urges that, undеr these circumstances, a recomputation of its income tax liability for 1967 would amount to a determination of an overpayment in its tax for that year and that section 6214(b)
It is well settled that we may determine the correct amount of taxable income or net operating loss for a year not in issue (whether or not the assessment of a deficiency for that year is barred) as a preliminary step in determining the correct amount of a net operating loss carryover to a taxable year in issue. ABKCO Industries, Inc.,
The Tax Court * * * shall have no jurisdiction to determine whether or not the tax for any other year has been overpaid or underpaid.
We think that petitioner misconceives the import of section 6214(b). It is true that resрondent’s disallowance of petitioner’s claimed net operating loss deduction for 1969 depends on a determination that section 1201 does not apply to petitioner’s taxable year 1967 because a recomputation of the regular tax for 1967 shows that it is less than the alternative tax. What concerns us in this proceeding, however, is not the correct amount of petitioner’s tax liability for 1967 but the deductions to bo used in correctly calculating that amount, whether under section 11 or section 1201.
Section 6214(b) says that we have no power to determine an overpayment or underpayment of tax for a year not in issue which would form the basis of a refund suit or an assessment of a deficiency. Commissioner v. Gooch Co.,
The crux of petitioner’s argument is that the alternative tax provisions of section 1201(a) are in effect optional and that its original decision
The fact of the matter is that the unambiguous provisions of sections 172 and 1201 contradict petitioner’s assertions. Section 172(b)(2) provides (with exceptions not pertinent herein) that the entire amount of the net operating loss for any taxable year shall be carried to the earliest of the taxable years to which such loss may be carried, and further provides that the portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss ovеr the sum of the taxable income for each of the prior taxable years to which such loss may be carried. Therefore, when the taxpayer claims a net operating loss for the year in issue, it is necessary, under section 172(b) (2), to determine whether the net operating losses claimed as a deduction for that year are still available or were absorbed as allowable deductions in prior taxable years. Ellery Willis Newton,
Section 1201 is similarly unambiguous and applies whenever the alternative tax is less than the regular tax for that year computed under section 11. See Amelia J. Taylor,
Nothing in Chartier Real Estate Co.,
We hold that petitioner’s net operating losses for 1965, 1966, 1968, and 1970 must be carried to petitioner’s taxable year 1967 and — together with its deduсtions in excess of ordinary income (exclusive of the net operating loss deduction) for 1967 in the amount of $53,910.27 — deducted in that year, leaving them unavailable for carryover to 1969 and deduction in that year. In view of this conclusion, we need not decide whether the $53,910.27 of deductions for 1967 could have been carried over to 1969 and deducted in that year if they were not absorbed as deductions from petitioner’s gross income for 1967.
Decision will be entered for the respondent.
Notes
Petitioner’s taxable years ending Jan. 31 -will hereinafter be denoted by the calendar years In which they end.
Statutory references are to tile Internal Revenue Code of 1954, as amended and in effect during the years in issue.
SEC. 1201. ALTERNATIVE TAX.
(a) Corporation. — If for any taxable year the net long-term capital gain of any corporation exceeds the net short-term capital loss, then, in lieu of the tax imposed by sections 11, 511, 821 (a) or (c), and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist оf the sum of — ■
(1) a partial tax computed on the taxable income reduced by the amount of such excess, at the rates and in the manner as if this subsection had not been enacted, and
(2) an amount equal to 25 percent of such excess, * * *
The provisions of sec. 1201(a) were amended by sec. 511(h) of Pub. L. 91-172, 83 Stat. 635, effective for taxable years beginning after Dec. 31, 1969, In respects not pertinent to the issues involved herein.
Each of these items was designated on the return as “Loss for Fiscal Year Ended Jan. 31, [1965, 1966, 1967, or 1968].”
SEC. 172. NET OPERATING LOSS DEDUCTION.
(a) Deduction Allowed. — There shall be allowed as a deduction/ for the taxable year an amount equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.
(b) Net Operating Loss Carrybacks and Carryovers.—
(1) Years to which loss max be carried.—
(A) (i) [With exceptions not material herein], a net operating loss for any taxable year ending after December 31, 1957, shall be a net operating loss carryback to each of the 3 taxable years preceding the taxable year of such loss.
* * *****
(B) [With exceptions not material herein], a net operating loss for any taxable year ending after December 31, 1955, shall be a net operating loss carryover to each of the 5 taxable years following the tаxable year of such loss.
*******
(2) Amount of carrybacks and carryovers. — [With exceptions not material herein], the entire amount of the net -operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable Income for each of the prior taxable years to which such loss may be carried. Fоr purposes of the preceding sentence, the taxable Income for any such -prior taxable year shall be computed—
(A) * * *
(B) by determining the amount of the net operating loss deduction—
(i) without regard to the net operating loss for the loss year or for any taxable year thereafter, * * *
* * * * * * *
and the taxable income so computed shall not be considered to be less than zero.
* * # * * * *
(c) Net Operating Loss Defined. — For purposes of this section, the term “net operating loss” means (for any taxable year ending after December 31, 19S3) the excess of the deductions allowed by this chapter over the gross income.
Petitioner has not placed in issue any net operating losses it may have sustained in years subsequent to 1970 and the possible carryback of such losses to 1969.
Taxable income before net operating loss deduction_$259, 621.12
Less : Net operating loss deduction :
Net operating loss carryover from 1965_ $8, 207. 60
Net operating loss carryover from 1966- 30,124. 62
Net operating loss carryback from 1968_ 30, 529. 78
Net operating loss carryback from 1970_ 23, 490. 08 92, 352. 08
Taxable income_ 167, 269. 04
Normal tax: 22%X$167,269.04_ 36,799.19
Surtax:
Taxable income_ 167, 269. 04
Less: Surtax exemption- 25, 000. 00
26% X —--1- 142, 269. 04 36, 989. 95
Regular tax- 73, 789.14
SEC. 6214. DETERMINATIONS BY TAX COURT.
(b) Jurisdiction Over Other Years. — The Tax Court in redetermining a deficiency of inсome tax for any taxable year * * * shall consider such facts with relation to the taxes for other years as may be necessary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other year has been overpaid or underpaid.
In its reply brief, however, petitioner states that it later filed a “protective” claim for refund with respect to 1967, should respondent prevail herein.
See also Prichard Funeral Home, Inc.,
It seems that petitioner will, in fact, be entitled to receire a refund of the tax it paid for 1967, attributable to the net operating loss deduction for that year determined in this proceeding. See fn. 8 supra.