1976 U.S. Tax Ct. LEXIS 38">*51 The bone of contention in the instant case is the meaning of the phrase "portion of the consolidated taxable income attributable to such [WHTC] corporations" as used in section 1503(b)(1)(A) and (B). Respondent contends that the phrase refers to a fraction of the consolidated taxable income of the entire group computed in accordance with the formula 67 T.C. 37">*43 prescribed by section 1.1502-25, Income Tax Regs., quoted in pertinent part above, for calculating the consolidated section 922 deduction for WHTCs. Respondent's computation is as follows:

Petitioner does not question1976 U.S. Tax Ct. LEXIS 38">*52 the validity of section 1.1502-25, Income Tax Regs., as the rule for measuring the consolidated section 922 deduction but steadfastly maintains that: "The computation of the Sec. 1503(b)(1) limitation stands completely on its own, and is in no way dependent on the computation of the consolidated Section 922 deduction." Petitioner argues that section 1503(b)(1) calls for a mechanical calculation which isolates the WHTCs as a group and aggregates the separate taxable incomes and losses, if any, of the respective WHTC members to arrive at the portion of consolidated taxable income attributable to such members. ¹⁰ Petitioner's computation is as follows:

67 T.C. 37">*44 We think respondent has the better side of the argument, and we hold that his computation is the correct one.

Section 1503(b)(1) refers to the portion of the "consolidated taxable income" attributable to the WHTCs and not to the aggregate of their separate taxable incomes. The consolidated taxable income of a group of affiliated corporations filing a consolidated return is determined by taking into account not only the separate taxable1976 U.S. Tax Ct. LEXIS 38">*54 income of each member of the group but also an extensive list of consolidated income and loss items, including the consolidated section 922 deduction. Sec. 1.1502-11, Income Tax Regs. The tax liability of the group includes, along with other taxes (such as personal holding, accumulated earnings, etc.), where applicable, the tax imposed by section 11 on the consolidated taxable income. Against the tax so computed are allowed the investment and consolidated foreign tax credits, subject to the applicable limitations. See secs. 1.1502-2 and 1.1502-4, Income Tax Regs.

Where the section 904(a)(2) overall limitation on the foreign tax credit is used by an affiliated group of corporations filing a consolidated return, section 1503(b)(1) denies the group the right to credit certain foreign taxes paid by its WHTCs against the United States taxes attributable to the non-WHTCs in the group. The foreign taxes that may not be credited are those taxes in excess of the United States taxes on the WHTCs' portion of the consolidated taxable income but only to the extent those foreign taxes do not exceed the United States taxes which would be imposed on that portion of the consolidated taxable income1976 U.S. Tax Ct. LEXIS 38">*55 if those subsidiaries were not WHTCs. ¹¹

The parenthetical phrase in section 1503(b)(1)(A), referring to the section 1503(a) tax computation, read in conjunction with the corresponding phrase in section 1503(b)(1)(B), creates 67 T.C. 37">*45 a "notch" on the United States progressive tax rate scale between the effective tax rate of 34 percent, applicable to WHTCs as a result of the consolidated section 922 deduction, and 48 percent, the generally effective United States tax rate. This "notch" determines the maximum amount of foreign taxes paid by WHTCs disallowed by section 1503(b)(1) as a credit against United States taxes. Where the average foreign tax rate paid by WHTCs falls on or below the lower limit of this "notch" (i.e., 34 percent and below), the disallowance of foreign tax credit is zero. Where the average foreign tax rate paid by WHTCs falls1976 U.S. Tax Ct. LEXIS 38">*56 within the "notch" (i.e., above 34 percent and up to and including 48 percent), the amount of foreign taxes paid above the lower limit of the "notch" is disallowed. And where the average foreign tax rate falls above the upper limit of this "notch" (above 48 percent), the maximum disallowance is extracted by the "notch," but those foreign taxes above the "notch" are eligible for crediting. Thus, the "notch," expressed in terms of dollars and cents, is generally an amount equal to the amount of the United States tax reduction caused by the consolidated section 922 deduction, but the amount of the foreign tax credit disallowed by section 1503(b)(1) cannot exceed the amount of the consolidated section 922 deduction multiplied by the effective United States tax rate of 48 percent. ¹²

1976 U.S. Tax Ct. LEXIS 38">*57 67 T.C. 37">*46 The language "(tax * * * with respect to the portion of the consolidated taxable income attributable to such corporations [if they were not WHTCs])" in section 1503(b)(1)(A) sets, in terms of dollars and cents, the upper limit of the "notch," i.e., the United States tax on the WHTCs' proportionate share of the consolidated taxable income determined without any consolidated section 922 deduction. The language "tax * * * with respect to the portion of the consolidated taxable income attributable to such [WHTC] corporations" in section 1503(b)(1)(B) refers, in terms of dollars and cents, to the lower limit of the "notch," i.e., the United States tax on such portion of the consolidated taxable income calculated with the benefit of the consolidated section 922 deduction. Thus, the upper and lower limits of the section 1503(b)(1) "notch" are inextricably tied to the amount of the consolidated section 922 deduction.

Crucial in determining the amount of the consolidated section 922 deduction and thus, correspondingly, in computing the upper and lower limits of the "notch" is the computation of the "portion of the consolidated taxable income" attributable to WHTCs. For the section1976 U.S. Tax Ct. LEXIS 38">*58 1503(b)(1) limitation to achieve its purpose, that phrase must have the same meaning in both calculations. To compute the section 922 deduction by using one WHTC income figure and then to turn around and compute the upper and lower limits of the credit-limiting "notch" created by section 1503(b)(1) by using another WHTC income figure, derived in a different manner, would be inconsistent. It would disregard the relationship that the consolidated section 922 deduction bears to the section 1503(b)(1) limitation and would rob section 1503(b)(1) of its vitality and purpose.

The "portion of the consolidated taxable income" attributable to WHTCs referred to in section 1503(b)(1)(A) and (B) must be the same amount as the amount used in computing the consolidated section 922 deduction. That amount is precisely defined in section 1.1502-25(c), Income Tax Regs., quoted above, and the same amount must be used in making the section 1503(b)(1)(A) and (B) computations.

Petitioner argues on brief that the Court erred in denying its motion filed January 9, 1976, for a continuance of the trial. A continuance was needed, petitioner maintains, to permit discovery of a technical1976 U.S. Tax Ct. LEXIS 38">*59 advice memorandum, and facts with regard thereto, allegedly issued by the National Office of the Internal Revenue Service to a field office in connection with the audit of another taxpayer's return. Petitioner hoped to introduce into evidence such memorandum, which deals with the substantive legal issue discussed herein, and to contend that Midco is entitled to the treatment called for in that memorandum. The memorandum, a copy of which was attached to petitioner's motion for continuance, has been the subject of published analysis. ¹³ The motion for a continuance was denied; the Court ruled that interrogatories served on respondent pertaining to such memorandum need not be answered. The case was tried on January 19, 1976.

The legal arguments in the technical advice memorandum were made with equal force in petitioner's briefs, and we have taken them into account in reaching the foregoing conclusion. Petitioner does not1976 U.S. Tax Ct. LEXIS 38">*60 allege that it entered into business transactions in reliance on the technical advice memorandum and could hardly so claim since the memorandum related to another taxpayer and was evidently issued after the close of the taxable year here in dispute. The issue is thus narrowed to whether petitioner is entitled to have an erroneous interpretation, made by the Internal Revenue Service in this highly technical area with respect to another taxpayer's liabilities, followed in the instant case.

We think the following quotation from Shakespeare Co. v. United States, 389 F.2d 772">389 F.2d 772, 389 F.2d 772">777 (Ct. Cl. 1968), denying discovery of letter rulings inconsistent with the Government's position in that case, is apposite:

We can find nothing in the record before us to indicate either good cause, relevancy, or that the documents sought appear reasonably calculated to lead to the discovery of admissible evidence, as required by the rules, other than the statement by plaintiff in the attachment to the subpoena previously referred to that the rulings sought are relevant. Nor is there a 67 T.C. 37">*48 showing that the documents sought are material to the issues * * *. We say this in 1976 U.S. Tax Ct. LEXIS 38">*61 particular because (1) if any letter rulings were contrary to the application of the law, they obviously could not estop the government from correcting them even with respect to the same taxpayer ( Dixon v. United States, 381 U.S. 68">381 U.S. 68, 85 S. Ct. 1301, 14 L. Ed. 2d 223 (1965); Automobile Club of Michigan v. Commissioner, 353 U.S. 180">353 U.S. 180, 77 S. Ct. 707, 1 L. Ed. 2d 746 (1957)), and (2) even though a taxpayer receiving a private ruling issued by the National Office of the Internal Revenue Service might be entitled to rely upon it until revoked, no court has held a private ruling binding on the government as against other taxpayers. See Bornstein v. United States, 345 F.2d 558">345 F.2d 558, 170 Ct. Cl. 576 (1965); Knetsch v. United States, 348 F.2d 932">348 F.2d 932, 172 Ct. Cl. 378 (1965), cert. denied, 383 U.S. 957">383 U.S. 957, 86 S. Ct. 1221, 16 L. Ed. 2d 300 (1966); Bookwalter v. Brecklein, 357 F.2d 78">357 F.2d 78 (8th Cir. 1966).

These same principles apply here.

In 1976 U.S. Tax Ct. LEXIS 38">*62 Bernard E. Teichgraeber, 64 T.C. 453">64 T.C. 453, 64 T.C. 453">455 (1975), this Court held that a technical advice memorandum of the same type as the one here involved was not discoverable under Rule 70 of the Rules of Practice and Procedure of this Court. ¹⁴ Further, since production of the technical advice memorandum, and facts relating thereto, would have made available no additional material evidence, we think petitioner has not shown that this Court abused its discretion in denying petitioner's motion for a continuance.

To reflect the foregoing,

Decision will be entered under Rule 155.