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February 20, 1957


The opinion of the court was delivered by: DUSEN

This is a suit for refund of plaintiff's 1947 federal corporation income tax involving (a) the amount of plaintiff's net operating loss for the year 1946 available for carry-over to 1947, (b) defendant's contention that a refund of 1944 federal excess profits tax, as a result of the 1946 loss, which refund was received in 1947, should be included in taxable income in either 1946 or 1947, and (c) defendant's contention that the statute of limitations bars plaintiff's claim as to amounts paid into the Collector's suspense account prior to filing of the 1947 return, since they were received by the Government more than three years prior to the filing of the refund claim (see Section 322(b)(2)(A) of the Internal Revenue Code of 1939, as amended to August 1951, 26 U.S.C. § 322(b)(2)(A)), *fn1" even though these amounts had not been credited to plaintiff's 1947 income tax until a date which was within three years of the date this refund claim was filed.

I. Findings of Fact

 1. Paragraphs 1 to 3(b), *fn2" inclusive, of Plaintiff's Requests for Findings of Fact.

 2. By letters of March 3, 1948, and May 18, 1948, plaintiff was granted an extension of time until July 15, 1948, within which to file its 1947 federal income tax return, which return would normally have been due on March 15, 1948 (Stipulation, paragraphs 4 & 6, and Exhibits A and C).

 3. Paragraphs 14, 16 and 17 of Plaintiff's Requests for Findings of Fact.

 4. The moneys received from plaintiff by the Collector on March 15, 1948, and June 15, 1948, were deposited with the local Federal Reserve Bank in the name of the Collector of Internal Revenue, with credit being applied to the Treasurer of the United States.

 5. On July 13, 1948, plaintiff filed with the then Collector of Internal Revenue its 1947 United States Corporation Income Tax Return (Form 1120) with the word 'COMPLETED' typed at the top of it and showing an income tax due on Line 38 of $ 1,616,277.36 (Stipulation, paragraph 8, and Exhibit D).

 6. Paragraphs 19 to 23, 4 to 8, and 26 to 28a, inclusive, of Plaintiff's Requests for Findings of Fact.

 7. Paragraphs 29(a), 30 and 31 of Plaintiff's Requests for Findings of Fact.

 8. Plaintiff sustained a net operating loss of $ 6,457,421.78 for the calendar year 1945 (Paragraph 23 of Stipulation filed 12/19/56).

 9. Paragraphs 10 to 12, *fn3" inclusive, of the Plaintiff's Requests for Findings of Fact.

 II. Conclusions of Law

 1. The court has jurisdiction over the subject matter and the parties.

 2. Paragraphs 1(i) to (iv), inclusive, of Plaintiff's Requests for Conclusions of Law.

 3. The credit of $ 1,942,622.64 under Section 3806(b) of the Internal Revenue Code, 26 U.S.C. § 3806(b), if it is taxable income, accrued in 1945, since all events necessary to entitle plaintiff to this item occurred prior to January 1, 1946, and this item could not constitute taxable income to plaintiff in 1946. See H.O. Boehme, Inc. v. Commissioner, 1950, 15 T.C. 247, Acq. 1951 C.B. p. 1.

 4. Paragraphs 4(c)(2) and 4(c)(3) of Plaintiff's Requests for Conclusions of Law.

 5. If the refund of 1944 excess profits tax of $ 4,968,554.12 were to constitute taxable income to plaintiff, then, since plaintiff is on the accrual basis, it could not constitute taxable income in 1947, since all of the events occurred prior to 1947 which entitled plaintiff to a refund by reason of Sections 23(s) and 122(b)(1) of said Code, 26 U.S.C. §§ 23(s), 122(b)(1), requiring plaintiff to carry back its 1946 net operating loss as a deduction against its 1944 net income.

 6. Paragraphs 5(c)(2), 5(c)(3) and 5(d) *fn4" of Plaintiff's Requests for Conclusions of Law.

 7. The net operating loss of $ 10,808,499.53 sustained by plaintiff for the calendar year 1946 is not subject to any adjustment on account of the item of $ 1,235,511.52 of 1944 excess profits tax referred to in paragraph 20 of the Stipulation of Facts.

 8. Paragraphs 8 and 9 of Plaintiff's Requests for Conclusions of Law.

 9. The Tentative U.S. Corporation Income Tax Return for the calendar year 1947, which plaintiff filed on March 15, 1948, with the then Collector, was not a return within the meaning of that word as used in either Section 52(a) or Section 322(b)(2)(A) of the Code, 26 U.S.C. §§ 52(a)8 322(b)(2)(A). See Florsheim Bros. Dry Goods Co. v. United States, 1930, 280 U.S. 453, 50 S. Ct. 215, 74 L. Ed. 542. *fn5"

  10. Paragraphs 2(ii) and 2(iii) of Plaintiff's Requests for Conclusions of Law.

 11. Plaintiff's objections to the admissibility of evidence offered by the Government are overruled in view of the trial judge's ruling permitting the second amended answer to be filed and the authorities cited by defendant at pages 25 to 29 of its brief filed in May 1956. Tax computations testified to by witnesses for both parties are opinions as to the application of the law and are not binding on the court.

 12. Plaintiff is entitled to judgment against defendant (for 1947 income tax and interest thereon overpaid) in the amount of $ 2,796,918.28, interest thereon as provided by law, and its costs.

 III. Discussion of the Law

 A. Computation of plaintiff's 1946 net operating loss available for carryover to 1947

 Section 23(s) of the Code provides that in computing net income for 1947, plaintiff was entitled to a deduction from gross income of the 'net operating loss deduction' for 1946 computed as provided in Section 122. *fn6" Section 122(a) defines 'net operating loss' as 'the excess of the deductions allowed by this chapter over the gross income, with the exceptions, additions, and limitations provided in subsection (d).' Subsection 122(d)(6) permits the deduction of taxes 'imposed by subchapter E of Chapter 2 (excess profits taxes) paid or accrued within the taxable year.' The Government contends that this deduction of accrued excess profits taxes, which Congress has provided for in Section 122(d)(6) and which is the basis of the 1946 loss carry-over resulting in this claim for refund of 1947 income tax, should result in the inclusion in plaintiff's gross income for 1946 or 1947 of the amount of the excess profits tax refunded ($ 4,968,544.42). Plaintiff became entitled to this amount ($ 4,968,544.42) as the result of the carry-back of this same 1946 loss to 1944 for purposes of recomputing the 1944 excess profits tax. The hearing judge, after examination of the record and the briefs in Lewyt Corp. v. Commissioner, 1955, 349 U.S. 237, 75 S. Ct. 736, 99 L. Ed. 1029, *fn7" finds that the United States Supreme Court has rejected that contention by its decision in the Lewyt case for the reasons summarized under these two arguments of the Government:

 1. Argument that plaintiff has not sustained its alleged burden of showing an overpayment of taxes which equitably belongs to it (pages 16-19 of Government's brief of May 1956).

 An examination of the briefs and the opinion of the Supreme Court in the Lewyt case, supra, has convinced the hearing judge that cases on this point cited by defendant, such as those referred to on pages 2 and 3 of the opinion filed August 29, 1956, in this matter, are inapplicable to this case in view of that decision. At pages 17 and 18 of the Government's Supreme Court brief in the Lewyt case, the argument was made that Congress only intended the net operating loss adjustment to be effective where there was a real economic loss. The opinion of the United States Supreme Court considered and rejected this argument with the following language in 349 U.S. at pages 239-340, 75 S. Ct. at page 739: *fn8"

  '* * * The argument is that the taxpayer having once got back, through credit or refund, the difference between the amount of the tax 'accrued' in 1944 and the amount finally determined to be due, no double benefit should be inferred. The double benefit, it is argued, should certainly be denied when the figure upon which it is based has no economic reality.

 'But the rule that general equitable considerations do not control the measure of deductions or tax benefits cuts both ways. It is as applicable to the Government as to the taxpayer. Congress may be strict or lavish in its allowance of deductions or tax benefits. The formula it writes may be arbitrary and harsh in its applications. But where the benefit claimed by the taxpayer is fairly within the statutory language and the construction sought is in harmony with the statute as an organic whole, the benefits will not be withheld from the taxpayer though they represent an unexpected windfall.' *fn9"

 2. Argument that the refund of 1944 excess profits tax constitutes income under the tax benefit principle, since this tax is deductible in computing the net 1946 operating loss forming the basis of this claim for refund of 1947 income taxes (pages 19-25 of Government's brief of May 1956).

 Again, the United States Supreme Court would have reduced the taxpayer's 1946 net operating loss in the Lewyt case *fn10" by the amount of its 1944 excess profits tax refund (which accrued on the last day of 1946 when that loss became certain) if this principle was applicable in this situation. *fn11" Although this principle was not contained in the Supreme Court briefs or opinion, the federal appellate courts have laid down the rule that a lower federal court should not disregard a holding of the United States Supreme Court on the ground that a certain legal point had not been raised. See Bingham v. United States, 1935, 296 U.S. 211, 218-219, 56 S. Ct. 180, 80 L. Ed. 160; *fn12" United States ex rel. Trinler v. Carusi, 3 Cir., 1948, 168 F.2d 1014, 1016; Bank Line v. United States, 2 Cir., 1938, 96 F.2d 52, 54; *fn13" Kowalski v. Chandler, 6 Cir., 1953, 202 F.2d 413, 414, affirmed 346 U.S. 356, 74 S. Ct. 78, 98 L. Ed. 64; cf. Sunbeam Corp. v. Wentling, 3 Cir., 1951, 185 F.2d 903, 905, vacated on other grounds 1951, 341 U.S. 944, 71 S. Ct. 1012, 95 L. Ed. 1369; Tucker v. Norton, D.C.E.D.Pa.1943, 49 F.Supp. 483, 484.

 Furthermore, since (a) the definition of 'prior tax' in Section 22(b)(12)(B) of the Code is limited to a 'tax on account of which a deduction or credit was allowed for a prior taxable year,' (b) the only years for which the deduction for the 1944 excess profits tax refunded could have been allowed are 1946 (the year in which the refund accrued *fn14" ) or 1947 (when it was received), and(c) neither of these years is a 'prior taxable year' to the year the refund accrued, the trial judge can find no merit in defendant's contention in its second amended answer *fn15" that the $ 4,968,544.42 of 1944 excess profits tax refund, which accrued in 1946 and was received in 1947, is 'taxable income to the plaintiff * * * under the Tax Benefit Rule as provided in Section 22(b)(12) * * *.' *fn16"

 B. Possible Application of the Statute of Limitations

 Defendant contends that the terms of Section 322(b)(2)(A) *fn17" prevent the refund of the $ 400,000 paid on March 15, 1948, when plaintiff filed his 'tentative' return and the $ 400,000 paid on June 15, 1948, which amounts were placed by the Collector to plaintiff's credit in his suspense account, since 'the amount of the * * * refund shall not exceed the portion of the tax paid * * * during the three years immediately preceding the filing of the claim (July 11, 1951).' *fn17" However, the United States Supreme Court has held that amounts paid on account of a tax to be computed in a return to be filed later and placed in a Collector's suspense account are not 'paid' for the purpose of the statute of limitations until they are applied by the Collector, through assessment or similar action, to the particular tax involved. See Rosenman v. United States, 1945, 323 U.S. 658, 65 S. Ct. 536, 89 L. Ed. 535. *fn18" The trial judge has been unable to find any significant differences in the facts before the court in the Rosenman case and the facts in this case on this issue. *fn19" The opinion in the Rosenman case used this language in rejecting the defendant's contention 323 U.S. at page 662, 65 S. Ct. at page 538:

 'But the Government contends 'payment of such tax' was made on December 24, 1934, when petitioners transferred to the Collector a check for $ 120,000. This stopped the running of penalties and interest, says the Government, and therefore is to be treated as a payment by the parties. But on December 24, 1934, the taxpayer did not discharge what he deemed a liability nor pay one that was asserted. There was merely an interim arrangement to cover whatever contingencies the future might define. The tax obligation did not become defined until April 1938. And this is the practical construction which the Government has placed upon such arrangements. The Government does not consider such advances of estimated taxes as tax payments. They are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due.' *fn20"

 The Government relies on language used in reports of Congressional Committees *fn21" and of the Association of the Bar of the City of New York, *fn22" concerning proposals to amend the Internal Revenue Code, to support its contention that the statute of limitations is a bar to recovery of these amounts paid prior to filing of the return and placed in the Collector's suspense account. However, even if the language used in these reports was applicable to this situation, *fn23" non-judicial statements as to the meaning of statutory language made after the enactment of the statute may not be considered in construing the statute. See Fogarty v. United States, 1950, 340 U.S. 8, 13, 71 S. Ct. 5, 95 L. Ed. 10; *fn24" and United States v. United Mine Workers, 1947, 330 U.S. 258, 281-282, 67 S. Ct. 677, 91 L. Ed. 884. *fn25" The United States Court of Appeals for the Third Circuit has reached a result consistent with the holding of the Rosenman case on an analogous factual situation. See Busser v. United States, 3 Cir., 1942, 130 F.2d 537. *fn26"

 For the reasons stated above, plaintiff is entitled to judgment. *fn27" Plaintiff may submit an appropriate order for the entry of judgment in accordance with the foregoing Findings of Fact, Conclusions of Law and Discussion, upon 15 days' notice to defendant.

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