REO MOTORS, INC. V. COMMISSIONER, 338 U. S. 442 (1950)

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U.S. Supreme Court

Reo Motors, Inc. v. Commissioner, 338 U.S. 442 (1950)

Reo Motors, Inc. v. Commissioner of Internal Revenue

No. 59

Argued November 10, 14, 1949

Decided January 9, 1950

338 U.S. 442


In 1941, a corporate taxpayer sustained a loss arising out of the liquidation of a wholly owned subsidiary whose stock was worthless. Under federal tax laws applicable in 1941, the loss was a long-term capital loss, but it could not enter into the computation of net operating loss, because the taxpayer had no long-term capital gains. Under a 1942 amendment, such a capital loss could enter into the computation of net operating loss, and the taxpayer used the 1941 capital loss in claiming a net operating loss deduction in its return for 1942.

Held: the taxpayer's net operating loss deduction in 1942 was properly disallowed. Pp. 338 U. S. 443-450.

(a) A net operating loss must be computed solely on the basis of the statutes in effect during the year in which the loss was sustained. Pp. 338 U. S. 446-449.

(b) The provision of § 101 of the 1942 Revenue Act that the amendments enacted therein "shall be applicable only with respect to taxable years beginning after December 31, 1941" cannot be read to mean "shall be applicable only in computing tax liability for taxable years beginning after December 31, 1941." P. 338 U. S. 449.

(c) The fact that the 1924, 1926, 1928, and 1932 Revenue Acts, which permitted the carry-over of net loss from an earlier year, expressly provided that such net loss should be computed under the law in effect during the earlier period, and that the present Code contains no such provision, does not require a result different from that here reached. Pp. 338 U. S. 449-450.

(d) Commissioner v. Moore, Inc., 151 F.2d 527, disapproved. Pp. 338 U. S. 444-445, n. 4.

170 F.2d 1001 affirmed.

The Commissioner's determination of a deficiency in petitioner's income and excess profits tax for 1942 was sustained by the Tax Court. 9 T.C. 314. The Court of Appeals affirmed. 170 F.2d 1001. This Court granted certiorari. 337 U.S. 923. Affirmed, p. 450.

Page 338 U. S. 443

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