The issue before the Tax Court, the propriety of a consolidated return, is not before this court. Even though the underlying issue, the ownership of Mutual, will apparently depend on the determination of facts common to both proceedings, Storm-Vulcan and Scranton Factors should ordinarily be entitled to have their liability for the tax assessment, which amounts to about $ 400,000, determined expeditiously in a forum of their choice.
The trustees argue that the precise issues before the Tax Court can now be brought before this court by treating the instant petition as a petition for instructions as to whether they may file a consolidated return, and cite In re American States Public Service Co., D.Md.1935, 12 F.Supp. 667, aff'd sub nom. Burco, Inc. v. Whitworth, 4 Cir. 1936, 81 F.2d 721, cert. denied 1936, 297 U.S. 724, 56 S. Ct. 670, 80 L. Ed. 1008. If the instant petition is treated as a petition for instructions, that would not materially change the considerations on which this court must base the exercise of its discretion as to whether the other action should proceed. The tax matter is scheduled for trial within the next few months, in a forum chosen by two independent subsidiaries not parties to this reorganization. To the extent that the trustees were able to control, through Scranton's stock ownership, the choice of the forum, it could possibly be said that the trustees chose the Tax Court. It is the assets of the two independent subsidiaries which will be directly affected by a decision adverse to them in the Tax Court since, if the Internal Revenue Service prevails, there is returned to Scranton and others, for tax loss carry-forward and carry-back purposes, the loss which they made available to the profitable subsidiaries. If the subsidiaries prevail, Scranton is in no worse position since it loses for tax loss carry-forward and back purposes that which it voluntarily chose to lose by joining in the consolidated return. The decision of the Tax Court, a specialized forum, therefore, could substantially clear up several of the matters involved in these reorganization proceedings since a decision with respect to the propriety of the consolidated return could crystallize the tax loss carry-forward and back positions of the various concerns in this proceeding. This in turn could permit a determination of the tax liabilities of the concerns and, consequently, a determination of whether a set-off exists against the FUTA and withholding tax proofs of claim filed by Internal Revenue Service. Hearings with respect to such proofs of claim as yet have not been scheduled.
On the other hand, one burden that could result if the Tax Court is permitted to proceed is that the trustees may be required simultaneously to introduce or cause to be introduced evidence with respect to the fact of ownership if the Hal Roach-Scranton claims against each other, as they relate to Mutual, come on for hearing at the same time as the Tax Court matter. At the present time, however, this possibility cannot be foreseen, and can be controlled if it arises. And if it happens that the trustees are twice required to introduce or cause to be introduced such evidence, this burden does not seem so great when viewed in the light of the facilitation of these proceedings by a determination of the tax issue. Moreover, if in the future the present proceedings become burdened or delayed by the tax proceedings, appropriate steps to relieve these proceedings can be taken at that time.
It is noted that upon the assertion of tax liabilities Storm-Vulcan and Scranton Factors could have paid the tax and brought an action in the district court for its recovery. In its brief the Government asserts that such an action could have been brought in this court. Instead, they chose to not pay the tax, and to petition the Tax Court for relief. Thus, if this court were to assert jurisdiction over the tax matters, the result would be that two independent enterprises, not parties to the reorganization proceedings, would be able to resist payment of the taxes and nevertheless not be required to obtain relief in the Tax Court. This is not consistent with the statutory scheme Congress intended for the determination of tax questions for ordinary taxpayers. In dealing with the questions of jurisdiction of the district court and the Tax Court, where full payment of the tax deficiency has not been made, the United States Supreme Court stated in Flora v. United States, 1958, 357 U.S. 63, at pages 75-76, 78 S. Ct. 1079, at page 1086, 2 L. Ed. 2d 1165:
'The foregoing study of the legislative history of 28 U.S.C. § 1346(a)(1) and related statutes leaves no room for contention that their broad terms were intended to alter in any way the Cheatham principle of 'pay first and litigate later.' * * * To ameliorate the hardship produced by these requirements Congress created a special court where tax questions could be adjudicated in advance of any payment. But there is no indication of any intent to create the hybrid remedy for which petitioner contends.
'* * * Where the time to petition that court has expired, or where for some other reason a suit in the District Court seems more desirable, the requirement of full payment may in some instances work a hardship. But since any hardship would grow out of an opinion whose effect Congress in successive statutory revisions has made no attempt to alter, if any amelioration is required it is now a matter for Congress, not this Court.'
A hybrid situation of a different sort exists here. It is true that in this case, and unlike Flora, the questions include more than the rights of those petitioning the Tax Court since substantial rights and issues affecting the debtors in this proceeding are also involved. It is unnecessary to decide, however, whether this difference would permit a determination of the tax issue in this proceeding even though the concerns against which the tax was assessed have not paid the tax and are not joined in this proceeding. It is sufficient to state that the position of Storm-Vulcan and Scranton Factors in relation to the statutory scheme intended for the litigation of tax questions, together with the matters heretofore set forth, compel this court to exercise its discretion in favor of permitting the Tax Court action to proceed.
Section 2, sub. a(15) of the Bankruptcy Act, 11 U.S.C.A. § 11, sub. a(15) provides sufficient authority for this court in aid of its jurisdiction to restrain the Tax Court proceeding. In re Standard Gas & Electric Co., 3 Cir. 1943, 139 F.2d 149; In re International Power Securities Corp., supra. On the present record there is no showing that justifies the exercise of this power.
The petition of the trustees will be denied.