3. A third matter in dispute between the parties relates to the amount of the 1948 net operating loss that was absorbed in the years 1946, 1947, and 1949 in the course of computing the carryover to 1950. The question is whether the adjusted gross income of these 3 prior years must be computed so as to reflect in full the net operating loss deduction applicable to each of those years which in turn is based upon the 1948 net operating loss itself. If the adjusted gross income should be thus computed, then all items in the prior years, such as the deductions for contributions and medical expenses, which depend during the years involved upon the amount of adjusted gross income, would have to be modified, with the consequence that the net income for those years would be affected. The end result would then be that the carry-over to 1950 would in turn be affected, 1957 U.S. Tax Ct. LEXIS 54">*66 since it is based upon the excess of the 1948 net operating loss over the sum of the net income for the years prior to 1950. Sec. 122 (b) (2) (C).

The answer to this problem is to be found in the statute itself. The provisions are set forth with precision in section 122 (b) (2) (C) which, if meticulously followed, will furnish the solution. It provides that if a taxpayer has a net operating loss for any year beginning after December 31, 1947, and before January 1, 1950 (here, the calendar year 1948) --

such net operating loss shall be a net operating loss carry-over for each of the three succeeding taxable years, except that the carry-over in the case of each such succeeding taxable year (other than the first succeeding taxable year) shall be the excess, if any, of the amount of such net operating loss over the sum of the net income for each of the intervening years computed --

(i) with the exceptions, additions, and limitations provided in subsection (d) (1), (2), (4), and (6), and

(ii) by determining the net operating loss deduction for each intervening taxable year without regard to such net operating loss^{41957 U.S. Tax Ct. LEXIS 54">*67} * * * [Italics supplied.]

These provisions spell out with particularity the adjustments that are required in computing the amount of the carryover. The sum of the net income of the intervening years must be subtracted from the net operating loss, but the statute calls for a recomputation of such net income for that purpose. And the provisions of clause (ii), together with the cognate provisions of clause (iv), contain those particulars of the recomputation that are dispositive of this issue. Clause 29 T.C. 142">*148 (ii) provides for a recomputation of the net income of an intervening year (say 1949 in this case) in such manner that the net operating loss deduction for that intervening year (1949) is determined without regard to the net operating loss (sustained in 1948) that is to be the subject of the carryover. In other words, any net operating loss deduction to be taken would depend on a net operating loss 1957 U.S. Tax Ct. LEXIS 54">*68 or losses for some year or years other than 1948. But as applied herein the net income for 1949 would be computed without the benefit of any net operating loss deduction at all because it does not appear that there were any carrybacks or carryovers from any year other than from the year 1948 which could furnish the basis for a net operating loss deduction in 1949. Moreover, since clause (ii) eliminates the 1948 net operating loss in the recomputation of the 1949 "net income" for purposes of arriving at the carryover to 1950, it must of necessity eliminate that loss from 1949 adjusted gross income because that is the point at which it is taken into account in the process of determining net income. The net operating loss deduction is allowable as a deduction under section 23 (s), and since it is "attributable to a trade or business of the taxpayer," it must be taken, pursuant to section 22(n), in the determination of adjusted gross income, which is merely an intermediate stage in the determination of net income.

The foregoing conclusion is supported by regulations and by a special ruling which specifically sets forth computations in accord with this construction of the statute. Regulations 1957 U.S. Tax Ct. LEXIS 54">*69 111, section 29.122-4 (c) (4), dealing with "computation of net income which is subtracted from net operating loss to determine carry-backs or carry-over," provide:

(4) Any deduction which is limited in amount to a percentage of the taxpayer's net income, or adjusted gross income for taxable years beginning after December 31, 1943, shall be recomputed upon the basis of the net income or adjusted gross income, as the case may be, determined with the adjustments prescribed in the preceding paragraph.

And among the adjustments prescribed by the preceding paragraph, (3), which in turn makes applicable paragraph (1), is the one calling for a revision of the net operating loss deduction for the intervening year in such manner as to eliminate the net operating loss for the taxable year which is the subject of the carryback or carryover. The special ruling referred to above was issued on December 20, 1951, and can be found in 52-5 C. C. H. Federal Tax Reports par. 6055 and 1952 P. H. Fed. p. 8175. In matters of such complexity, administrative practice and the construction of the statute by the agency charged with its administration are of particular assistance, and we should be slow to take 1957 U.S. Tax Ct. LEXIS 54">*70 a different view unless it is plainly required by the statute. In the present case we are satisfied not only that such interpretation is consistent with the statute but that the statute affirmatively demands it.

29 T.C. 142">*149 The contrary view fails to distinguish between the part played by the net operating loss deduction in determining the taxable net income of each intervening year and the part played by it in determining the net income of the intervening years that is to be subtracted from the net operating loss for purposes of carryback and carryover. Of course, where the question is one of computing the taxable net income of one of the intervening years, the net operating loss deduction is taken in full in arriving at adjusted gross income, and other deductions (such as contributions or medical expenses) which are dependent in part upon a percentage of adjusted gross income must be revised accordingly. Cf. McDonnell Aircraft Corporation, 16 T.C. 189, 198-199. But that is not the issue here. The present problem relates to the computation of a carryover to a later year, and section 122 (b) (2) (C) specifically calls for certain adjustments that preclude similar treatment of the contributions 1957 U.S. Tax Ct. LEXIS 54">*71 and medical deductions. This result is based squarely upon the statutory provisions and we have no authority to depart therefrom.

4. A fourth point of difference between the parties, as it affects the correct amount of the net operating loss deduction in 1950 under section 122 (c), relates to whether capital loss carryovers under section 117 (e) are to be considered as losses from sales or exchanges of capital assets within the meaning of section 122 (d) (4) which is made applicable by section 122 (c). The Commissioner, on brief, concedes this issue. However, petitioner now raises a related issue, affecting an adjustment with respect to capital gains and losses made by the Commissioner in his determination of the deficiency for 1950 which was wholly separate from his adjustment of the net operating loss deduction. But as we have already pointed out, supra, page 143, the parties have stipulated that only the net operating loss deduction adjustment is in dispute, and in the circumstances of this case we will not consider any contentions dealing with a different adjustment.

Decision will be entered under Rule 50.