further states that 'It is not sufficient that this taxpayer was a party to the action before the Tax Court. It is the trustees who are the taxpayers within the meaning of Section 1312(7)(B)(i).' This argument is not persuasive since the A. J. Casey Trust, as a currently distributable trust, had no net income which would be subject to tax for the years covered by the Tax Court's decision. Furthermore, the Internal Revenue Code defines 'taxpayer' as 'any person subject to any internal revenue tax.' 26 U.S.C.A. 7701(a)(14). The deceased taxpayer was 'the taxpayer with respect to whom the (Tax Court's) determination' was made, 38 T.C. 357, and it was she who was 'the taxpayer with respect to whom the erroneous treatment occurred' in 1946, since she, not the A. J. Casey Trust, was affected by the erroneous treatment of such loss. It is my conclusion that the language contained in Section 1312(7)(B) of the Code was intended to afford relief to a person such as this deceased taxpayer, who was a party in the Tax Court's determination and whose tax liability is increased because of the earlier erroneous treatment.
The last condition prescribed in Section 1312(7)(C) for a correct adjustment of a prior return is that in the return for the prior taxable year there have occurred, among other items, an 'erroneous * * * non-recognition * * * of loss' which affects the amount of basis determined. The defendant argues that 'non-recognition' does not mean 'non-allowance' as claimed by the plaintiffs. Defendant asserts that 'non-recognition is intended to be merely a postponement of the inclusion of a gain or the deduction of a loss until a disposition occurs which does not qualify for non-recognition status. It is not intended to produce forgiveness of tax.' Defendant cites no authority for his position, nor was any authority found. In fact, the Congressional history points to the contrary. The legislative history of Section 203(a) of the Revenue Act of 1924 and the following statement of the Finance Committee with respect thereto, S.Rep. 398, 68th Cong., 1st Sess. (CB. 1939-1 (Part 2) 266, 275), makes this clear:
'It appears best to provide generally that gain or loss is recognized from all exchanges and then except specifically and in definite terms those cases of exchange in which it is not desired to tax the gain or allow the loss.' (Emphasis supplied)
That the Tax Law equates non-recognition with non-allowance is implicit in other areas, e.g., Section 312(f) of the 1954 Code, which provides in part:
'* * * For purposes of this subsection, a loss with respect to which a deduction is disallowed under section 1091 (relating to wash sales of stock or securities), or the corresponding provision of prior law, shall not be deemed to be recognized.' (Emphasis supplied)
The principle still holds, see Income Tax Regulations, § 1.1002-1(a), as follows:
'(a) General Rule. The general rule with respect to gain or loss realized upon the sale or exchange of property as determined under section 1001 is that the entire amount of such gain or loss is recognized except in cases where specific provisions of subtitle A of the Internal Revenue Code of 1954 provide otherwise.'
In the recent case of Goodling v. United States, supra, the Court of Claims held, under similar facts, that Section 1317(7)(C) applied where the taxpayers erroneously recognized gain in a financial transaction which was later determined by the Internal Revenue Service to be tax free.
Thus, the portion of Section 1312(7)(C) with which we are presently concerned may be read, therefore, as 'non-allowance * * * of loss * * *' and, so construed, it is beyond dispute that in 1946 there was an erroneous non-recognition of loss to the deceased taxpayer, M. Pauline Casey, the taxpayer whose income would have been reduced by the allowance of such loss.
Defendant's final point is that if the mitigation sections apply and the deceased taxpayer is given the deduction, '* * * she would be receiving a part of the corpus' which, under the A. J. Casey Will, she is not entitled to receive since she is only an income beneficiary. This is difficult to follow since the fact is that she did receive and erroneously paid tax upon corpus rather than income from the Trust. By allowing the deceased taxpayer the relief requested, she would not be receiving a part of the trust corpus, but rather would be receiving the tax monies erroneously paid by not recognizing in her tax return the loss on the sale of the partnership properties in 1946.
It is my conclusion, therefore, that allowance of the present claim is authorized under Sections 1311-1315 of the Internal Revenue Code and is wholly consonant with the remedial objectives sought by Congress in enacting such provisions of the Code. Accordingly, and for the reasons set forth above, plaintiffs' motion for summary judgment will be granted and the parties are directed to prepare an appropriate order.