Arrow Coal & Ice Co. v. Commissioner

ARROW COAL & ICE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. R. LENAHAN COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. HANRAHAN BRICK & ICE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. DWYER BROS. INCORPORATED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Arrow Coal & Ice Co. v. Commissioner Docket Nos. 44997, 44998, 44999, 45000. United States Board of Tax Appeals 22 B.T.A. 1341; 1931 BTA LEXIS 1949; April 29, 1931, Promulgated *1949 NET LOSSES. - Statutory net losses sustained by the petitioners in the calendar years 1923 and 1924, during which time they were affiliated but filed separate returns, held, to be proper deductions in arriving at the consolidated net income of petitioners for 1925 and 1926, in which years they filed consolidated returns. Jacob A. Ronder, Esq., for the petitioners. J. M. Leinenkugel, Esq., and T. G. Histon, Esq., for the respondent. TRUSSELL *1342 By these proceedings, consolidated for hearing and decision, petitioners ask redetermination of deficiencies asserted by respondent as follows: Name [1926] Arrow Coal & Ice Co $144.61 $378.18 R. Lenahan Co 469.43 2,489.05 Hanrahan Brick & Ice Co 680.96 Dwyer Bros. Inc 728.49 Only one issue is assigned in each proceeding, this being the failure of respondent to allow, in computing net consolidated income for 1925 and 1926, deduction of certain net losses incurred by petitioners in 1923 and 1924, during which years they were affiliated but filed separate returns. FINDINGS OF FACT. All of the petitioners are New York corporations, with principal office*1950 at 20 West Strand, Kingston, N.Y. All of these petitioners were affiliated within the purview of the applicable revenue acts during the years 1923, 1924, 1925, and 1926. For the calendar years 1923 and 1924, petitioners filed separate returns and for the calendar years 1925 and 1926, they filed consolidated returns. The net income or loss, as the case may be, of each company for the years 1925 and 1926 was: Company Year 1925 Year 1926 Dwyer Bros. Inc Loss $1,665.52 Net income $5,735.25 R. Lenahan Co Net income 16,790.64 Net income 19,771.83 Hanrahan Brick & Ice Co Loss 13,574,22 Net income 5,395.32 Arrow Coal & Ice Co Net income 5,172.50 Net income 2,995.00 The net income or statutory net loss of each company for the years 1923 and 1924 was as follows: Company Year 1923 Year 1924 Dwyer Bros. Inc Loss 2,895.15 Loss 15,186.56 R. Lenahan Co Net income 2,709.38 Net income 2,920.67 Hanrahan Brick & Ice Co Net income 15,587.50 Loss 12,225.87 Arrow Coal & Ice Co Net income 129.03 Loss 3,102.22 In computing the consolidated taxable net income of the petitioners for the years*1951 1925 and 1926, respondent failed to allow as deductions the statutory net losses of petitioners for 1923 and 1924 as above set out. *1343 OPINION. TRUSSELL: Respondent, in determining the deficiencies here appealed from, refused to allow to any extent the net losses sustained by petitioners in 1923 and 1924. At the hearing, however, it is conceded by his counsel that such losses should have been allowed in each case to the extent of income in the later year of the individual corporation sustaining the loss. Section 206 of the Revenue Act of 1926, which is applicable to the years before us, provides: (b) If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called*1952 "third year"); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary. * * * (e) If for the taxable year 1923 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1921, or, if for the taxable year 1924 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1924, the amount of such net loss shall be allowed as a deduction in computing net income for the two succeeding taxable years to the same extent and in the same manner as a net loss sustained for one taxable year is, under this Act, allowed as a deduction for the two succeeding taxable years. We have in a number of instances held that under the above quoted provisions, or similar language in prior acts, statutory net losses sustained by corporation which for the "succeeding year" or "next succeeding year" became affiliated and filed consolidated returns, might be carried forward and deducted in arriving at consolidated net income, even though the corporation sustaining the loss had no income in the later year. *1953 ; ; ; ; ; ; affd., . See also . In the present case we can see no reason for denial of the right to carry forward and deduct these losses in arriving at consolidated net income, where the petitioners were actually affiliated in the prior *1344 year in which the losses were sustained and merely exercised the option then granted of filing separate returns. The cases cited by respondent are clearly distinguishable, involving deductions sought under the 1921 Act for the "succeeding year," such deduction being provided by that act only to be made from the "net income of the taxpayer," whereas under the section here controlling and above set out the deduction is permitted "in computing the net income." The effect of the noted difference*1954 in language is pointed out and fully discussed in the cited cases. The statutory net loss admitted to have been sustained by the petitioner, Dwyer Bros. Incorporated, in 1923 should be carried forward and allowed as a deduction in computing the consolidated net income of petitioners for 1925 and the statutory net losses sustained by petitioners in 1924 should similarly be allowed in computing consolidated net income for 1925 and 1926. Judgment will be entered pursuant to Rule 50.