UNITED STATES v. OLYMPIC RADIO & TELEVISION, INC.
No. 10.
Argued April 18-19, 1955.
Decided May 23, 1955.
Assistant Attorney General Holland argued the cause for the United States. With him on the brief were Solicitor General Sobeloff, Ellis N. Slack, Ralph S. Spritzer, Lee A. Jackson and I. Henry Kutz.
Fred R. Tansill argued the cause for respondent. With him on the brief was Eugene Meacham. William H. Krieg entered an appearance for respondent.
Mr. Justice Douglas
delivered the opinion of the Court.
This suit was brought in the Court of Claims for a tax refund. The taxpayer, a New York corporation, kept its books and accounts on the accrual basis and filed its federal income tax returns on the same basis, using the calendar year. The taxpayer had a net operating loss of $310,872.60 for 1946. This loss was carried back and set off against the taxpayer’s excess profits net income for 1944, and its excess profits tax for 1944 was adjusted accordingly. That carry-back was authorized by the Internal Revenue Code of 1939, § 122; and it is not in controversy here.
The taxpayer reported an excess profits tax liability of $346,643.22 for 1945. In 1946 the taxpayer paid $263,272.80 in excess profits taxes for 1945. It contends that that amount, paid in 1946, should have been added to the net operating loss of $310,872.60 for that year and that the sum of those figures, instead of $310,872.60, should have been carried back to 1944 as a net operating loss. If that should have been done, the United States would now owe the taxpayer the refund claimed.
The Court of Claims, by a divided vote, sustained the taxpayer’s contention and held that, in computing its net operating loss for 1946, the taxpayer was entitled to include the amount of excess profits tax paid in 1946 on account of its 1945 return. Judgment was accordingly entered for the taxpayer. ' 124 Ct. Cl. 33, 39, 108 F. Supp. 109, 110 F. Supp. 600. The case is here on a petition for a writ of certiorari which we granted (348 U. S. 808) because of a conflict between the decision below and Lewyt Corp. v. Commissioner, 215 F. 2d 518, decided by the Court of Appeals for the Second Circuit.
Section 23 (s) of the Internal Revenue Code provides that, in computing net income, “the net operating loss deduction computed under section 122” shall be allowed as a deduction. Section 122, as applicable here, provides a complicated formula for carrying net operating losses back for two preceding taxable years and over into the two succeeding taxable years, thus taking for the limited purpose of § 122 a five-year period as the accounting unit. The part of § 122 of which the taxpayer seeks to take advantage is (b)(1) relating to the carry-back. By the express terms of § 122 (b)(1) the carry-back provisions are subject to the limitations contained in § 122 (d)(6), which provides in part, “There shall be allowed as a deduction the amount of tax imposed by Subchapter E of Chapter 2 paid or accrued within the taxable year . . . .” Subchapter E of Chapter 2 identifies the tax which may be used as a deduction as the Excess Profits Tax. But if it is to be used as a deduction, the tax must have been “paid or accrued” within the taxable year.
The controversy here revolves around the meaning of “paid or accrued.” The years 1944 and 1945 were years of profit for the taxpayer. The years 1946 and 1947 were years of loss. The taxpayer kept its books and filed its returns on the accrual basis of accounting. Its 1945 excess profits tax therefore accrued in 1945,- though it was paid in 1946. Yet the argument which prevailed below is that the tax paid in 1946 on account of the liability for 1945 could be used under § 122 (d) (6) as a net operating loss for 1946. We take the other view and conclude that § 122 (d) (6) does not grant a taxpayer an option to take deductions on a basis that is inconsistent with the method of accounting which it employs.
Section 41 states the general rule that net income shall be computed “in accordance with the method of accounting regularly employed in keeping the books” of the taxpayer.
Section 43 provides that deductions and credits may be taken “for the taxable year in which ‘paid or accrued’ or ‘paid or incurred,’ dependent upon the method of accounting upon the basis of which the net income is computed, unless in order to clearly reflect the income the deductions or credits should be taken as of a different period.”
Section 48 provides, “When used in this chapter . . . (c) The terms . . . ‘paid or accrued’ shall be construed according to the method of accounting upon the basis of which the net income is computed under this Part.” This provision of § 48 would itself seem to be conclusive of the question, since § 122 is “in this chapter,” to use the language of § 48. And § 48, together with § 41 and § 43, seem to indicate that the words “paid or accrued” have only one meaning throughout the chapter, not the changeable meaning which the taxpayer seeks to give them.
We deal here with a deduction which one obtains not as of right, but as of grace. Deputy v. du Pont, 308 U. S. 488, 493. The taxpayer has the burden to show that it is within the provision allowing the deduction. But the effort here made, if successful, would cause “paid or accrued,” as used in § 122 (d)(6), to mean something different than it does in other sections of the same chapter; and that would fly in the face of the express command of §48.
The Court of Claims recognized the force of this analysis, but concluded that Congress could not have meant what it said because, if so, this particular carry-back provision would have little application. First, most corporations are on the accrual not the cash basis. Second, if an accrual taxpayer is limited in its deductions to excess profits taxes accrued within the taxable year, the provision has little value since there is “rarely a case when a taxpayer would be liable for any excess profits tax in a year in which it had sustained a net operating loss . . . 124 Ct. Cl., at 37, 108 F. Supp., at 111. This taxpayer argues the inequity of the results which would follow from our construction of the Code. But as we have said before, “general equitable considerations” do not control the question of what deductions are permissible. Deputy v. du Pont, supra, at 493. It may be that Congress granted less than some thought or less than was originally intended. We can only take the Code as we find it and give it as great an internal symmetry and consistency as its words permit. We would not be faithful to the statutory scheme, as revealed by the words employed, if we gave “paid or accrued” a different meaning for the purposes of § 122 (d) (6) than it has in the other parts of the same chapter.
Our construction is in harmony with the general rule that a taxpayer on an accrual basis must take deductions in the year of accrual. See Security Mills Co. v. Commissioner, 321 U. S. 281.
The fact that the construction we feel compelled to make favors the taxpayer on the cash basis and discriminates against the taxpayer on the accrual basis may suggest that changes in the law are desirable. But if they are to be made, Congress must make them.
Reversed.
Me. Justice Harlan took no part in the consideration or decision of this case.
Section 122(b)(1) is entitled “Net operating loss carry-back” and reads as follows:
“If for any taxable year beginning after December 31, 1941, the taxpayer has a net operating loss, such net operating loss shall be a net operating loss carry-back for each of the two preceding taxable years, except that the carry-back in the case of the first preceding taxable year shall be the excess, if any, of the amount of such net operating loss over the net income for the second preceding taxable year computed (A) with the exceptions, additions, and limitations provided in subsection (d)(1), (2), (4), and (6), and (B) by determining the net operating loss deduction for such second preceding taxable year without regard to such net operating loss.”
U.S. Court of Customs and Patent Appeals U.S. Court of International Trade U.S. Court of Claims, Court of Federal Claims U.S. Court of Military Appeals, renamed as Court of Appeals for the Armed Forces U.S. Court of Military Review U.S. Court of Veterans Appeals U.S. Customs Court U.S. Court of Appeals, Federal Circuit U.S. Tax Court Temporary Emergency U.S. Court of Appeals U.S. Court for China U.S. Consular Courts U.S. Commerce Court Territorial Supreme Court Territorial Appellate Court Territorial Trial Court Emergency Court of Appeals Supreme Court of the District of Columbia Bankruptcy Court U.S. Court of Appeals, First Circuit U.S. Court of Appeals, Second Circuit U.S. Court of Appeals, Third Circuit U.S. Court of Appeals, Fourth Circuit U.S. Court of Appeals, Fifth Circuit U.S. Court of Appeals, Sixth Circuit U.S. Court of Appeals, Seventh Circuit U.S. Court of Appeals, Eighth Circuit U.S. Court of Appeals, Ninth Circuit U.S. Court of Appeals, Tenth Circuit U.S. Court of Appeals, Eleventh Circuit U.S. Court of Appeals, District of Columbia Circuit (includes the Court of Appeals for the District of Columbia but not the District of Columbia Court of Appeals, which has local jurisdiction) Alabama Middle U.S. District Court Alabama Northern U.S. District Court Alabama Southern U.S. District Court Alaska U.S. District Court Arizona U.S. District Court Arkansas Eastern U.S. District Court Arkansas Western U.S. District Court California Central U.S. District Court California Eastern U.S. District Court California Northern U.S. District Court California Southern U.S. District Court Colorado U.S. District Court Connecticut U.S. District Court Delaware U.S. District Court District Of Columbia U.S. District Court Florida Middle U.S. District Court Florida Northern U.S. District Court Florida Southern U.S. District Court Georgia Middle U.S. District Court Georgia Northern U.S. District Court Georgia Southern U.S. District Court Guam U.S. District Court Hawaii U.S. District Court Idaho U.S. District Court Illinois Central U.S. District Court Illinois Northern U.S. District Court Illinois Southern U.S. District Court Indiana Northern U.S. District Court Indiana Southern U.S. District Court Iowa Northern U.S. District Court Iowa Southern U.S. District Court Kansas U.S. District Court Kentucky Eastern U.S. District Court Kentucky Western U.S. District Court Louisiana Eastern U.S. District Court Louisiana Middle U.S. District Court Louisiana Western U.S. District Court Maine U.S. District Court Maryland U.S. District Court Massachusetts U.S. District Court Michigan Eastern U.S. District Court Michigan Western U.S. District Court Minnesota U.S. District Court Mississippi Northern U.S. District Court Mississippi Southern U.S. District Court Missouri Eastern U.S. District Court Missouri Western U.S. District Court Montana U.S. District Court Nebraska U.S. District Court Nevada U.S. District Court New Hampshire U.S. District Court New Jersey U.S. District Court New Mexico U.S. District Court New York Eastern U.S. District Court New York Northern U.S. District Court New York Southern U.S. District Court New York Western U.S. District Court North Carolina Eastern U.S. District Court North Carolina Middle U.S. District Court North Carolina Western U.S. District Court North Dakota U.S. District Court Northern Mariana Islands U.S. District Court Ohio Northern U.S. District Court Ohio Southern U.S. District Court Oklahoma Eastern U.S. District Court Oklahoma Northern U.S. District Court Oklahoma Western U.S. District Court Oregon U.S. District Court Pennsylvania Eastern U.S. District Court Pennsylvania Middle U.S. District Court Pennsylvania Western U.S. District Court Puerto Rico U.S. District Court Rhode Island U.S. District Court South Carolina U.S. District Court South Dakota U.S. District Court Tennessee Eastern U.S. District Court Tennessee Middle U.S. District Court Tennessee Western U.S. District Court Texas Eastern U.S. District Court Texas Northern U.S. District Court Texas Southern U.S. District Court Texas Western U.S. District Court Utah U.S. District Court Vermont U.S. District Court Virgin Islands U.S. District Court Virginia Eastern U.S. District Court Virginia Western U.S. District Court Washington Eastern U.S. District Court Washington Western U.S. District Court West Virginia Northern U.S. District Court West Virginia Southern U.S. District Court Wisconsin Eastern U.S. District Court Wisconsin Western U.S. District Court Wyoming U.S. District Court Louisiana U.S. District Court Washington U.S. District Court West Virginia U.S. District Court Illinois Eastern U.S. District Court South Carolina Eastern U.S. District Court South Carolina Western U.S. District Court Alabama U.S. District Court U.S. District Court for the Canal Zone Georgia U.S. District Court Illinois U.S. District Court Indiana U.S. District Court Iowa U.S. District Court Michigan U.S. District Court Mississippi U.S. District Court Missouri U.S. District Court New Jersey Eastern U.S. District Court (East Jersey U.S. District Court) New Jersey Western U.S. District Court (West Jersey U.S. District Court) New York U.S. District Court North Carolina U.S. District Court Ohio U.S. District Court Pennsylvania U.S. District Court Tennessee U.S. District Court Texas U.S. District Court Virginia U.S. District Court Norfolk U.S. District Court Wisconsin U.S. District Court Kentucky U.S. Distrcrict Court New Jersey U.S. District Court California U.S. District Court Florida U.S. District Court Arkansas U.S. District Court District of Orleans U.S. District Court State Supreme Court State Appellate Court State Trial Court Eastern Circuit (of the United States) Middle Circuit (of the United States) Southern Circuit (of the United States) Alabama U.S. Circuit Court for (all) District(s) of Alabama Arkansas U.S. Circuit Court for (all) District(s) of Arkansas California U.S. Circuit for (all) District(s) of California Connecticut U.S. Circuit for the District of Connecticut Delaware U.S. Circuit for the District of Delaware Florida U.S. Circuit for (all) District(s) of Florida Georgia U.S. Circuit for (all) District(s) of Georgia Illinois U.S. Circuit for (all) District(s) of Illinois Indiana U.S. Circuit for (all) District(s) of Indiana Iowa U.S. Circuit for (all) District(s) of Iowa Kansas U.S. Circuit for the District of Kansas Kentucky U.S. Circuit for (all) District(s) of Kentucky Louisiana U.S. Circuit for (all) District(s) of Louisiana Maine U.S. Circuit for the District of Maine Maryland U.S. Circuit for the District of Maryland Massachusetts U.S. Circuit for the District of Massachusetts Michigan U.S. Circuit for (all) District(s) of Michigan Minnesota U.S. Circuit for the District of Minnesota Mississippi U.S. Circuit for (all) District(s) of Mississippi Missouri U.S. Circuit for (all) District(s) of Missouri Nevada U.S. Circuit for the District of Nevada New Hampshire U.S. Circuit for the District of New Hampshire New Jersey U.S. Circuit for (all) District(s) of New Jersey New York U.S. Circuit for (all) District(s) of New York North Carolina U.S. Circuit for (all) District(s) of North Carolina Ohio U.S. Circuit for (all) District(s) of Ohio Oregon U.S. Circuit for the District of Oregon Pennsylvania U.S. Circuit for (all) District(s) of Pennsylvania Rhode Island U.S. Circuit for the District of Rhode Island South Carolina U.S. Circuit for the District of South Carolina Tennessee U.S. Circuit for (all) District(s) of Tennessee Texas U.S. Circuit for (all) District(s) of Texas Vermont U.S. Circuit for the District of Vermont Virginia U.S. Circuit for (all) District(s) of Virginia West Virginia U.S. Circuit for (all) District(s) of West Virginia Wisconsin U.S. Circuit for (all) District(s) of Wisconsin Wyoming U.S. Circuit for the District of Wyoming Circuit Court of the District of Columbia Nebraska U.S. Circuit for the District of Nebraska Colorado U.S. Circuit for the District of Colorado Washington U.S. Circuit for (all) District(s) of Washington Idaho U.S. Circuit Court for (all) District(s) of Idaho Montana U.S. Circuit Court for (all) District(s) of Montana Utah U.S. Circuit Court for (all) District(s) of Utah South Dakota U.S. Circuit Court for (all) District(s) of South Dakota North Dakota U.S. Circuit Court for (all) District(s) of North Dakota Oklahoma U.S. Circuit Court for (all) District(s) of Oklahoma Court of Private Land Claims