11 T.C. 341">*341 OPINION.

In these proceedings, which were consolidated, the respondent determined deficiencies in income tax for the taxable year ended October 31, 1944, against petitioner C. Ray Novak in the amount of $ 196.08 and against petitioner Dorothy Novak in the amount of $ 193.

11 T.C. 341">*342 The parties have stipulated that the issues to be determined in these proceedings may be stated as follows:

A. Whether1948 U.S. Tax Ct. LEXIS 84">*87 for the fiscal year ended October 31, 1944, the petitioners may use the tax table provided in section 400, Supplement T, chapter 1, of the Internal Revenue Code, as amended by section 5 (a) of the Individual Income Tax Act of 1944, in determining the tentative tax prescribed by section 108 (b) (2) (B) of the code, and;

B. Where the tax liability of each petitioner for the fiscal year ended October 31, 1943, is not greater than his or her tax liability for the fiscal year ended October 31, 1944, does the tax liability of each for the fiscal year 1944 include as a proper addition 25 per cent of the tax computed and determined with respect to the fiscal year 1943, within the meaning of the provisions of the Current Tax Payment Act of 1943?

The facts are stipulated and are summarized as follows:

Petitioners are husband and wife, residing at Steilacoom Lake, Tacoma, Washington, and at all times material to these proceedings constituted a marital community under the laws of the State of Washington. Each of the petitioners filed a timely original individual income and victory tax return, Form 1040, for the fiscal year November 1, 1943, to October 31, 1944, with the collector of internal1948 U.S. Tax Ct. LEXIS 84">*88 revenue at Tacoma, Washington. Under date of June 25, 1945, each of the petitioners filed with the collector of internal revenue an amended return, Form 1040, for the fiscal year November 1, 1943, to October 31, 1944.

The amount of the net income determined by the respondent with respect to each petitioner as set forth in the deficiency notice in each case for the fiscal year ended October 31, 1943, is correct and the amount of tax computed with respect thereto is as shown in the said notice of deficiency, subject only to the forgiveness features of the Current Tax Payment Act of 1943.

The amounts of the income tax net income and the victory tax net income determined by the respondent for the fiscal year ended October 31, 1944, as set forth in the notice of deficiency in each case, are also correct, the only questions being whether the method contended for by the respondent or that contended for by petitioner for the computation of the resulting tax due with respect thereto is proper under the applicable terms and provisions of the statute.

Paragraphs 6 and 7 of the stipulation are as follows:

6. In the event the Court should hold and determine:

A. That the Commissioner's computation1948 U.S. Tax Ct. LEXIS 84">*89 of the taxes due for the fiscal year ended October 31, 1944, by use of the method shown in the deficiency notices, (see page 3 of the statement attached to the deficiency notice in each case) is proper, and;

B. That in the circumstances of these cases 25% of the tax computed with respect to the fiscal year ended October 31, 1943, in each case, becomes a proper 11 T.C. 341">*343 addition in determining the true tax liability of each petitioner for the taxable year ended October 31, 1944, as determined by respondent, then it is agreed between the parties that the deficiencies determined and set forth in the statutory notices herein are correct.

7. In the event the Tax Court should hold and determine, on the other hand:

A. That petitioners are entitled to use the table provided in section 400, Supplement T of the Code, mentioned in paragraph 3 A of this stipulation above, in determining the tentative tax under section 108 (b) (2) (B) of the Code, and;

B. That no part of the tax computed with respect to the fiscal year of the petitioners ended October 31, 1943, may properly be included in determining their tax liability for the fiscal year ended October 31, 1944, then the deficiencies determined1948 U.S. Tax Ct. LEXIS 84">*90 by the respondent should be eliminated.

For purposes of illustration we need only set out the respondent's computation as shown in the statement attached to the deficiency notice to petitioner C. Ray Novak, which computation is as follows (the computation in the case of petitioner Dorothy Novak is the same except for the credits for personal exemption and dependents, which are not in dispute):

1948 U.S. Tax Ct. LEXIS 84">*91 11 T.C. 341">*344 The parties are in agreement with the above computations down to "Computed under Rates for Year 1944 (Tentative Tax)." We shall now consider the issues in the order of their statement. Both parties agree that in so far as they know the issues are of first impression and no adjudicated cases have been cited by either party.

Issue A. -- section 108 of the Internal Revenue Code as amended by section 108 of the Revenue Act of 1943, provides:

SEC. 108. FISCAL YEAR TAXPAYERS.

* * * *

11 T.C. 341">*345 (b) Taxable Years Beginning in 1943 and Ending in 1944. -- In the case of a taxable year beginning in 1943 and ending in 1944, the tax imposed by sections 11, 12, 13, 14, 15, and 450 shall be --

* * * *

(2) Taxpayers other than corporations. -- In the case of a taxpayer other than a corporation, an amount equal to the sum of --

(A) that portion of a tentative tax, computed as if the law applicable to taxable years beginning on January 1, 1943, were applicable to such taxable year, which the number of days in such taxable year prior to January 1, 1944, bears to the total number of days in such taxable year, plus

(B) that portion of a tentative tax, computed as if the law applicable1948 U.S. Tax Ct. LEXIS 84">*92 to taxable years beginning on January 1, 1944, were applicable to such taxable year, which the number of days in such taxable year after December 31, 1943, bears to the total number of days in such taxable year.

Sections 11 and 12 mentioned in section 108, supra, deal with normal tax and surtax on individuals. Sections 13, 14, and 15 deal with taxes on corporations and are not material here. Section 450, the victory tax on individuals, was added by section 172 of the Revenue Act of 1942 and repealed by section 6 of the Individual Income Tax Act of 1944.

Referring now to that part of the respondent's computation "Computed under Rates for year 1944 (Tentative Tax)," petitioners contend that instead of the $ 694.47 ($ 804.47 in Docket No. 16745) determined by the respondent, they are entitled to have this tentative tax computed under section 400, Supplement T, chapter 1, of the Internal Revenue Code as amended by section 5 (a) of the Individual Income Tax Act of 1944. This section 5 (a) comes under "Part I -- Amendments to Chapter 1 of the Internal Revenue Code" of the Individual Income Tax Act of 1944. Section 2 of this act provides as follows:

SEC. 2. TAXABLE YEARS TO WHICH1948 U.S. Tax Ct. LEXIS 84">*93 APPLICABLE.

Except as otherwise expressly provided, the amendments made by this part shall be applicable with respect to taxable years beginning after December 31, 1943.

Petitioners' taxable year in question began on November 1, 1943. Notwithstanding that fact, the tentative tax mentioned in section 108 (b) (2) (B), supra, is to be "computed as if the law applicable to taxable years beginning on January 1, 1944, were applicable to such taxable year." Since section 5 (a), supra, "shall be applicable with respect to taxable years beginning after December 31, 1943," it would seem that petitioners would be entitled to the benefits of section 5 (a) if they meet all of the provisions contained in the statute. The respondent, in support of his contention that petitioners may not use the tax table provided in section 400, Supplement T, as amended by section 5 (a), supra, relies upon Mim. 5750, 1944 C. B. 213, and I. T. 3698, 1944 C. B. 216. Mim. 5750 is a mimeograph published by the respondent stating that an individual filing a return for a fiscal year beginning in 1943 and ending in 1944 may determine the amount of 11 T.C. 341">*346 1948 U.S. Tax Ct. LEXIS 84">*94 income and victory tax for the taxable year by making four separate computations mentioned in paragraph 2 and explained in paragraph 3 of the mimeograph. Under the present issue, we are concerned with computations 2 (b) and 3 (b) of the mimeograph. Under paragraph 3 (b) the Commissioner merely states that the tax table contended for by petitioners herein "may not be used by individuals computing the tax under the provisions of section 108 (b) of the Code." There is no reason given for this statement. The reason came later in I. T. 3698, supra, wherein it is stated:

The tax computations provided by section 108 (b) of the Internal Revenue Code are, by the terms of such section, applicable only to the taxes imposed by sections 11, 12, 13, 14, 15, and 450 of the Code. Those are the normal tax and surtax on individuals, the normal tax and surtax on corporations, and, with respect to taxable years beginning before January 1, 1944, the victory tax imposed by section 450 of the Code. No provision is made for determining the tax under section 400, Supplement T, Chapter 1 of the Code when applying the provisions of section 108 (b) of the Code.

We do not think that Congress, in enacting1948 U.S. Tax Ct. LEXIS 84">*95 section 108 (b), ever intended individual taxpayers filing on the fiscal year basis to be deprived of the benefits of the table provided in section 400 of the code if they met all the conditions specified for the use of the table. It is true that section 108 (b) reads "In the case of a taxable year beginning in 1943 and ending in 1944, the tax imposed by sections 11, 12 * * * and 450 shall be," and it does not mention section 400. But at the same time Congress amended section 108 (b) it also amended section 400 by section 102 of the Revenue Act of 1943 so as to provide that "In lieu of the tax imposed under sections 11, 12, and 450, an individual who makes his return on the cash basis may elect, for each taxable year, to pay the tax shown in the following table if * * *." (Italics supplied.) Section 48 of the code defines the term "taxable year" to mean either the "calendar year, or the fiscal year." We hold, therefore, that section 108 (b) did not preclude the substitution of the tax shown in the table contained in section 400 which was in lieu of the tax imposed by sections 11, 12, and 450 if the taxpayer made the proper election and met all of the specified conditions.

1948 U.S. Tax Ct. LEXIS 84">*96 The Individual Income Tax Act of 1944 made several amendments to chapter 1 of the Internal Revenue Code. Section 3 amended section 11 of the code so that the last sentence of section 11 read: "For alternative tax which may be elected if adjusted gross income is less than $ 5,000, see Supplement T." Section 4 amended section 12 of the code by adding subsection (h) thereto as follows: "(h) Alternative Tax. -- For alternative tax which may be elected if adjusted gross income is less than $ 5,000, see Supplement T."

Section 5 (a) of the Individual Income Tax Act of 1944 provides, in part, as follows:

11 T.C. 341">*347 SEC. 5. ALTERNATIVE TAX ON INDIVIDUALS WITH ADJUSTED GROSS INCOME OF LESS THAN $ 5,000.

(a) In General. -- Supplement T of Chapter 1 (relating to the alternative tax on individuals with gross income from certain sources of less than $ 3,000) is amended to read as follows:

"Supplement T -- Individuals with Adjusted Gross Income Tax of Less than $ 5,000.

"SEC. 400. IMPOSITION OF TAX.

"In lieu of the taxes imposed by sections 11 and 12, there shall be levied, collected, and paid for each taxable year upon the net income of each individual whose adjusted gross income for 1948 U.S. Tax Ct. LEXIS 84">*97 such year is less than $ 5,000, and who has elected to pay the tax imposed by this supplement for such year, the tax shown in the following table:

* * * *

"SEC. 402. MANNER AND EFFECT OF ELECTION.

"The election referred to in section 400 shall be exercised in the manner provided in regulations prescribed by the Commissioner with the approval of the Secretary. * * *

* * * *

"SEC. 404. CERTAIN TAXPAYERS INELIGIBLE.

"* * * For provisions making both husband and wife ineligible to elect to pay the tax imposed by this supplement if either does not elect to take the standard deduction, see section 23 (aa) (4)."

Section 6 of the Individual Income Tax Act of 1944 repealed the victory tax. This section also comes under part I of the act, and, in accordance with section 2, supra, "shall be applicable with respect to taxable years beginning after December 31, 1943."

Section 8 of the Individual Income Tax Act of 1944 defines the term "adjusted gross income." Under this definition the adjusted gross income of each of the petitioners herein is the amount of $ 4,181.81, which is less than $ 5,000.

Section 9 of the Individual Income Tax Act of 1944 provided in part as follows:

SEC. 9. 1948 U.S. Tax Ct. LEXIS 84">*98 OPTIONAL STANDARD DEDUCTION.

(a) In General. -- Section 23 is amended by adding at the end thereof a new subsection to read as follows:

"(aa) Optional Standard Deduction for Individuals. --

* * * *

"(3) Method and effect of election. --

11 T.C. 341">*348 "(4) Husband and wife. -- In the case of husband and wife living together, the standard deduction shall not be allowed to either if the net income of one of the spouses is determined without regard to the standard deduction. For the purposes of this paragraph the determination of whether an individual is married and living with his spouse shall be made as of the last day of the taxable year, unless his spouse dies during the taxable year, in which case such determination 1948 U.S. Tax Ct. LEXIS 84">*99 shall be made as of the date of such spouse's death.