1952 U.S. Tax Ct. LEXIS 101">*101
Petitioner claiming credit for agreed constructive average base period net income under
18 T.C. 1025">*1025 OPINION.
This proceeding grows out of a partial denial of an application for relief from excess profits tax under
All of the facts have been stipulated. They are hereby found accordingly. Petitioner filed its income and excess profits tax returns with the collector for the first district of Ohio.
The essence of E. P. C. 29 (
1952 U.S. Tax Ct. LEXIS 101">*103 Applying that concept with conceded fidelity, "respondent" in the words of the stipulation "in determining that petitioner's constructive average base period net income of $ 50,834.72 for the taxable year 1942 should be adjusted to $ 12,493.48, applied a ruling designated as E. P. C. 29. * * *." His computation was as follows:
| Constructive average base period net income | $ 50,834.72 | |
| Net operating loss deduction | $ 36,424.18 | |
| 100/95 of $ 36,424.18 | 38,341.24 | |
| Constructive average base period income as adjusted | $ 12,493.48 |
18 T.C. 1025">*1027 Having ascertained that the tax would be less under the invested capital method, respondent denied relief for 1942 under
Petitioner's "constructive average base period net income" is thus determined to be $ 50,834.72, the figure for which petitioner contends. If this were doubtful, it would be confirmed by the fact that the same figure has been employed in granting relief for other years not here in controversy; that the parties have agreed that "in the event the Court should find that the application of E. P. C. 29 * * * is erroneous, the petitioner is entitled to the benefit of an unused excess profits credit carry-over, 1952 U.S. Tax Ct. LEXIS 101">*104 based on its constructive average base period net income determined under
In attempting thus to neutralize the net loss carry-over we think the Council and respondent are in error. The two provisions are distinct, and there is no indication that special relief under
That the
E. P. C. 29 is no more than a ruling. It has never been given the force of a regulation. Cf.
Reviewed by the Special Division.
1. "The E Corporation was organized and commenced business in January, 1939, and, therefore, is qualified for consideration under
"1. The E. Corporation was organized and commenced business in January, 1939, and filed returns on the basis of the calendar year. For the year 1939 the corporation sustained a net operating loss which gave rise to a $ 19,000 net operating loss deduction for 1940. Its net income for 1940, computed without regard to the net operating loss deduction, was $ 100,000.
"2. The taxpayer filed application for relief under
"3. If the amount of relief were computed without regard to the net operating loss deduction, duplication in tax benefits would arise. The operating loss would, in effect, be restored twice in the computation of the excess profits tax for the year 1940, first, by reducing the excess profits net income for 1940 and, second, by substituting net income for this loss in computing constructive base period net income to form part of the excess profits credit. Such double counting would be contrary to the terms of
"4. In the circumstances of this case, the constructive average base period net income for 1940 is obtained by reducing the amount which would be used in the absence of a net operating loss deduction by a sum equal to 100, ninety-fifths of the excess of the net operating loss deduction for 1940 over additional 1940 income tax that would have been payable had no such deduction been allowable. In short, the object of the adjustment is to subject to excess profits tax an amount of adjusted excess profits net income equal to the amount that would have been taxed had there been no net operating loss deduction. * * *"
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2. "* * * the tax
