Opinion of the Court 149 C. Cls. Applying the Government's interpretation of § 117 (c) (1) to the taxpayer in the case at bar, it is contended that the taxpayer's alternative tax of $24,604.32 for 1950, computed in the manner prescribed by § 117 (c) (1), was in excess of the taxpayer's corporate income tax for the same year computed in the conventional manner, in the sum of $6,813.15; and that its alternative tax for 1952, $17,257.70, was also in excess of its corporate tax for the same year conventionally computed, $6,795.93. The Government then argues that the taxpayer became liable for the excess over the corporate income tax only because it was a personal holding company, and that therefore the excess in each year was not a tax "in lieu of" corporate income tax, but a tax "in lieu of" the § 500 personal holding company tax. In certain circumstances, the Government's position could be said to implement the policy against the deduction of the personal holding company tax in computing the § 500 surtax. However, we cannot accept the basic premise of this position, which is that § 117 (c) (1) imposes more than a single alternative income tax. The language of § 117 (c) (1) is too clear to be susceptible to such a strained interpretation. Furthermore, under the Government's interpretation of § 117 (c) (1), if each alternative to the tax imposed by §§ 13, 15, and 500 is less than the tax imposed by these sections, the personal holding company would presumably be required to pay three separate alternative taxes of 25 percent on its capital gains. There is no support for such a result in the legislative history of this section. Since we hold that § 117 (c) (1) imposes a single alternative tax "in lieu of", or in substitution of, the taxes imposed by §§ 13, 15, and 500, the next question presented is whether any part of this alternative tax is "imposed" by § 500, and is therefore not deductible in determining subchapter A net income under § 505. The plaintiff contends that this deduction is justified by the express wording of § 505 (a) (1) because (1) the alternative tax is a "Federal It is not denied that the single alternative tax paid in 1950 and in 1952 pursuant to § 117 (c) (1) was less than the taxes which would otherwise have been imposed by §§ 13, 15, and 500. 824 Opinion of the Court income tax," and (2) although a portion of the "partial tax” might be computed at the rates and in the manner set out in § 500, the entire alternative tax is nevertheless imposed by § 117 (c) (1), and not by § 500. The court is aware that in certain circumstances, which do not however exist in this case, the interpretation urged by the plaintiff appears to take some of the edge off the policy expressed in § 505 against deducting personal holding company taxes in computing subchapter A net income. We are nevertheless compelled to agree that the entire alternative tax is imposed by § 117(c), and that it may be deducted in full under the express language of § 505. Accord, Delaware Realty & Investment Co. v. Commissioner, 234 F. 2d 911 (3d Cir. 1956). In 1954 the Congress apparently removed the difficulties created by the language of § 505 by excluding the personal holding company tax from the computation of the alternative tax. See § 1201 of the Internal Revenue Code of 1954; H.R. Rep. No. 1337, 83d Cong., 2d Sess. 56 (1954). Moreover, in the case at bar the taxpayer's net income for each of the years 1950 and 1952 was not more than the excess of its net long-term capital gain over its net shortterm capital loss. The alternative tax was therefore computed exclusively under subparagraph (B) of § 117(c) (1). The single component of the § 117 (c) (1) tax was $24,604.32 in 1950 and $17,257.70 in 1952, representing 25 percent of excess capital gains in 1950 and 26 percent of excess capital gains in 1952, for which there is no § 500 analogue. There was no item of liability computed under subparagraph (A) at § 13, § 15, or § 500 rates. Since it is not denied that § 117 (c) (1) imposes a "Federal income tax", the entire alternative tax is therefore deductible under § 505 in determining subchapter A net income. Accord, Delaware Realty & Investment Co. v. Commissioner, 234 F. 2d at 913. Accordingly, plaintiff is entitled to recover $27,448.21, together with interest as provided by law. It is so ordered. LITTLETON, Judge (Ret.); LARAMORE, Judge; MADDEN, Judge; and WHITAKER, Judge, concur. 625946-62- -54 149 C. Cls. Findings of Fact FINDINGS OF FACT The court, having considered the evidence, the stipulation of the parties, and the briefs and argument of counsel, makes findings of fact as follows: 1. The plaintiff is a corporation duly organized and existing under the laws of the State of New York, having its principal office and place of business at Jericho Turnpike, Syosset, Nassau County, State of New York. At all times material to the issues herein, plaintiff has kept its accounts, filed its tax returns, and computed its taxable income on the basis of a calendar year and under the cash receipts and disbursements method of accounting. 2. Plaintiff was a personal holding company, as defined in § 501 of the Internal Revenue Code of 1939, for the years herein involved. Claim for Recovery of 1951 Personal Holding Company Tax 3. Plaintiff filed its U.S. Corporation Income Tax Return for the year 1951 and its U.S. Return of Personal Holding Company Income for the year 1951 with the District Director of Internal Revenue, 210 Livingston Street, Brooklyn, New York. 4. During the prior calendar year, 1950, plaintiff realized certain net long-term capital gains. The amount of the normal tax and surtax for the year 1950, computed under §§ 13 and 15 of the Internal Revenue Code of 1939, as adjusted on audit by the Commissioner of Internal Revenue, was $6,813.15, and the alternative tax computed under § 117 (c) of the Internal Revenue Code of 1939 for the year 1950 amounted to the sum of $24,604.32. Plaintiff, in filing its U.S. Corporation Income Tax Return, Form 1120, for the year 1950, reported as its income tax liability for that year the alternative tax of $24,604.32, which it paid in 1951 to the District Director of Internal Revenue, Brooklyn, New York. 5. In computing its subchapter A net income, for the purpose of determining its personal holding company tax liability for the year 1951, plaintiff deducted in its U.S. Return of Personal Holding Company Income the sum of $24,867.93, representing Federal income taxes paid by it during the year 824 Findings of Fact 1951, of which amount $263.61 represented additional income tax for the year 1949 paid by plaintiff in 1951, and $24,604.32 represented the alternative tax paid for the year 1950, as set forth in paragraph 4 herein. 6. Plaintiff, in filing its U.S. Return of Personal Holding Company, Form 1120H, for the year 1950 reported as undistributed subchapter A net income the amount of $97,902.79. Plaintiff, in filing its U.S. Corporation Income Tax Return, Form 1120, for the year 1950, reported surtax net income in the amount of $19,890.10. On both of these 1950 returns, plaintiff reported an excess of net long-term capital gain over net short-term capital loss in the amount of $98,417.29. 7. Upon audit of plaintiff's 1951 U.S. Return of Personal Holding Company Income, the deduction claimed by plaintiff for Federal income taxes paid in 1951 in computing its subchapter A net income was reduced by the Commissioner of Internal Revenue from $24,867.93 to the sum of $7,076.76, representing the sum of $6,813.15 referred to in paragraph 4 herein, plus the sum of $263.61 for additional income tax for the year 1949 paid in 1951. 8. Thereafter, by reason of the foregoing partial disallowance of the deduction of $24,604.32 for 1950 Federal income taxes, the Commissioner of Internal Revenue assessed an additional personal holding company tax against plaintiff for the year 1951 in the amount of $14,721.54. The Commissioner disallowed as a deduction part of the 1950 Federal income taxes in the amount of $24,604.32 paid in 1951 and allowed only $6,813.15. The assessment of $14,721.54, together with interest of $3,144.67, making a total of $17,866.21, was paid by the plaintiff to the District Director of Internal Revenue, 210 Livingston Street, Brooklyn, New York, on October 25, 1955. 9. Plaintiff filed a timely claim for refund on March 19, 1957, with the District Director of Internal Revenue, Brooklyn, New York, in the amount of $17,866.21, together with interest thereon. No formal disallowance of this claim for refund has been made by the Commissioner of Internal Revenue and more than six months have elapsed since the claim for refund was filed. 149 C. Cls. Findings of Fact Claim for Recovery of 1953 Personal Holding Company Tax 10. Plaintiff filed its U.S. Corporation Income Tax Return for the year 1953 and its U.S. Return of Personal Holding Company Income for the year 1953 with the District Director of Internal Revenue, 210 Livingston Street, Brooklyn, New York. 11. During the prior calendar year, 1952, the plaintiff realized certain net long-term capital gains. The amount of the normal tax and surtax for the year 1952, computed under §§ 13 and 15 of the Internal Revenue Code of 1939, as adjusted on audit by the Commissioner of Internal Revenue, was $6,795.93, and the alternative tax computed under § 117 (c) of the Internal Revenue Code of 1939 for the year 1952 amounted to the sum of $17,257.70. Plaintiff, in filing its U.S. Corporation Income Tax Return, Form 1120, for the year 1952, reported as its income tax liability for that year the alternative tax of $17,257.70, which it paid in 1953 to the District Director of Internal Revenue, 210 Livingston Street, Brooklyn, New York. 12. In computing its subchapter A net income, for the purpose of determining its personal holding company tax liability for the year 1953, plaintiff deducted in its 1953 U.S. Return of Personal Holding Company Income the sum of $17,257.70, representing Federal income taxes paid by it during the year 1953. 13. Plaintiff, in filing its U.S. Return of Personal Holding Company, Form 1120H, for the year 1952 reported as undistributed subchapter A net income the amount of $65,709.50. Plaintiff, in filing its U.S. Corporation Income Tax Return, Form 1120, for the year 1952, reported surtax net income in the amount of $21,949.67.8 On both of these 1952 returns, plaintiff reported an excess of net long-term capital gain over net short-term capital loss in the amount of $66,375.75. 14. Upon audit of plaintiff's 1953 U.S. Return of Personal Holding Company Income, the deduction claimed by plain This is the sum reported as surtax net income on line 5, page 3, of Form 1120. In Schedule D (Form 1120), line 11, of the same U.S. Corporation Income Tax Return for the year 1952, plaintiff reported $22,076.18 as surtax net income. This discrepancy, involving slightly more than $100, does not affect the decision in this case. |