Chrysler Corporation v. Commissioner , 116 T.C. 465 ( 2001 )

116 T.C. No. 30UNITED STATES TAX COURT
CHRYSLER CORPORATION, f.k.a. CHRYSLER HOLDING CORPORATION,
AS SUCCESSOR BY MERGER TO CHRYSLER MOTORS CORPORATION
AND ITS CONSOLIDATED SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22148-97. Filed June 29, 2001.
P’s 1980, 1981, and 1982 Federal income tax
returns claimed deductions for foreign tax liabilities
which had accrued during those years. On July 24,
1995, P amended those returns to elect foreign tax
credits in lieu of the deductions and amended its 1985
return to claim a refund from a carryover of the
foreign taxes to 1985. R disallowed the claim,
determining in relevant part that P’s change of the
deductions to credits was untimely under sec. 901(a),
I.R.C.
Held: P’s election to credit the foreign taxes
was untimely under sec. 901(a), I.R.C. The period
specified therein commenced on the due dates of the
returns for 1980, 1981, and 1982, the years for which P
elected the foreign tax credit.
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James P. Fuller, Ronald B. Schrotenboer, Kenneth B. Clark,
William F. Colgin, and Barton W.S. Bassett, for petitioner.
Jeffrey L. Bassin, Nancy B. Herbert, and Bethany A.
Ingwalson, for respondent.
OPINION
LARO, Judge: Respondent moves the Court for partial summary
judgment. See Rule 121. Respondent determined deficiencies of
$593,967, $13,064,705 and $36,102,409 in petitioner’s Federal
income taxes for 1983, 1984, and 1985, respectively. The
deficiencies are attributable partially to respondent’s
determination that petitioner could not in 1995 amend its 1985
tax return to claim for that year a carryover of foreign tax
credits which accrued in 1980, 1981, and 1982.
We decide for the first time whether petitioner timely
elected under section 901(a) to credit (rather than deduct) its
1980, 1981, and 1982 foreign taxes.1 We hold it did not. Unless
otherwise indicated, section references are to the Internal
Revenue Code in effect for the years in issue. Rule references
are to the Tax Court Rules of Practice and Procedure.
1
The parties also dispute whether petitioner timely claimed
a refund under sec. 6511(d)(3)(A). On the basis of our holding
on the issue before us, we need not decide that dispute.
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Background
All facts were stipulated. The parties’ stipulation of
facts and the exhibits submitted therewith are incorporated
herein by this reference. The stipulated facts are found
accordingly. Petitioner’s principal place of business was in
Auburn Hills, Michigan, when the petition was filed. Petitioner
is an accrual basis taxpayer that reports its income and expenses
on the basis of the calendar year.
Petitioner timely filed its 1980 through 1985 Federal income
tax returns on or about September 15 of the appropriate years.
Petitioner deducted on its 1980 through 1983 returns its foreign
taxes that accrued during those years. Petitioner claimed as a
credit on its 1984 and 1985 returns its foreign taxes that
accrued during those years. Petitioner reported the information
shown in appendix A on its 1980 through 1985 returns, as
originally filed.
On July 24, 1995, petitioner amended its 1980 through 1985
returns. On that date, the period of limitation for assessment,
credit, or refund was closed for 1980, 1981, and 1982 and open
for 1983, 1984, and 1985. On each of the 1980 through 1983
amended returns, petitioner claimed a credit for its accrued
foreign taxes, rather than the deduction it had reported
originally. Petitioner’s 1980 through 1985 amended returns
disclose the information summarized in appendix B.
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On its original 1980 return, petitioner included $17,945,227
of section 78 gross-up income and claimed a deduction in the same
amount. Petitioner also deducted $16,610,858 as direct foreign
taxes paid, for a total deduction of $34,556,085. The 1980
amended return eliminated the foreign tax deduction, claiming in
its place creditable foreign taxes (in the amount of the original
deduction) resulting from direct and deemed paid taxes. The 1980
amended return also claimed an additional $8,686,479 of deemed
paid taxes, for total creditable foreign taxes of $43,242,564.
The 1980 amended return reported total section 78 gross-up income
of $26,631,706, an increase of $8,686,479 over the $17,945,227
reported on the original 1980 return.
On its 1980 through 1982 amended returns, petitioner
reported that the election of the foreign tax credit generated
increased taxable income from the disallowance of the deduction
for foreign taxes and increased section 78 gross-up income.
Those amended returns reported net operating losses (NOL’s) and
no U.S. tax liability against which to credit foreign taxes;
accordingly, petitioner applied no foreign tax credits on those
amended returns. Petitioner had no taxable income or U.S. tax
liability for 1978 and 1979 against which a foreign tax credit
from 1980 or 1981 could have been applied by way of a carryback.
Pursuant to petitioner’s 1985 amended return, the creditable
foreign taxes reported on the 1980 through 1982 amended returns
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were carried forward and claimed as a credit on the 1985 amended
return, generating a claimed refund of $6,771,601 for that year.
The carryover also “freed up” investment tax credits of
$38,372,409 claimed on the original 1985 return, which petitioner
treated as eligible to be carried forward to later years.
In the notice of deficiency, respondent denied petitioner’s
refund claim made by way of the 1985 amended return. Respondent
determined that petitioner’s taxable income for 1980 through
1985, and its NOL carryover deductions for 1982 through 1985,
were as follows:
Taxable Income Per NOL
Year Notice of Deficiency Carryover Deduction
1980 $(1,073,590,197) -0-
1981 (458,366,008) -0-
1982 -0- $1,631,010
1983 -0- 527,861,679
1984 323,669,637 1,356,138,685
1985 1,311,979,860 -0-
Taking into account agreed adjustments, the table in appendix C
shows the result if petitioner is allowed to change its reporting
for foreign taxes accrued in 1980, 1981, and 1982 from a
deduction to a credit.
Discussion
The issue at hand involves three sections of the Code;
namely, sections 901, 904, and 6511. These sections provide in
relevant part as follows:
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SEC. 901. TAXES OF FOREIGN COUNTRIES AND OF
POSSESSIONS OF UNITED STATES.
(a) Allowance of Credit.–-If the taxpayer chooses
to have the benefits of this subpart, the tax imposed
by this chapter shall, subject to the limitation of
section 904, be credited with the amounts provided in
the applicable paragraph of subsection (b) plus, in the
case of a corporation, the taxes deemed to have been
paid under sections 902 and 960. Such choice for any
taxable year may be made or changed at any time before
the expiration of the period prescribed for making a
claim for credit or refund of the tax imposed by this
chapter for such taxable year. * * * [Emphasis
added.]
SEC. 904. LIMITATION ON CREDIT.
(a) Limitation.--The total amount of the credit
taken under section 901(a) shall not exceed the same
proportion of the tax against which such credit is
taken which the taxpayer’s taxable income from sources
without the United States (but not in excess of the
taxpayer’s entire taxable income) bears to his entire
taxable income for the same taxable year. * * *
* * * * * * *
(c) Carryback and Carryover of Excess Tax Paid.--
Any amount by which all taxes paid or accrued to
foreign countries or possessions of the United States
for any taxable year for which the taxpayer chooses to
have the benefits of this subpart exceed the limitation
under subsection (a) shall be deemed taxes paid or
accrued to foreign countries or possessions of the
United States in the second preceding taxable year, in
the first preceding taxable year, and in the first,
second, third, fourth, or fifth succeeding taxable
years, in that order and to the extent not deemed taxes
paid or accrued in a prior taxable year * * *
SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.
(a) Period of Limitation on Filing Claim.--Claim
for credit or refund of an overpayment of any tax
imposed by this title in respect of which tax the
taxpayer is required to file a return shall be filed by
the taxpayer within 3 years from the time the return
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was filed or 2 years from the time the tax was paid,
whichever of such periods expires the later, * * *
* * * * * * *
(d) Special Rules Applicable to Income Taxes.--
* * * * * * *
(3) Special rules relating to foreign
tax credit.--
(A) Special period of
limitation with respect to foreign
taxes paid or accrued. If the
claim for credit or refund relates
to an overpayment attributable to
any taxes paid or accrued to any
foreign country or to any
possession of the United States for
which credit is allowed against the
tax imposed by subtitle A in
accordance with the provisions of
section 901 or the provisions of
any treaty to which the United
States is a party, in lieu of the
3-year period of limitation
prescribed in subsection (a), the
period shall be 10 years from the
date prescribed by law for filing
the return for the year with
respect to which the claim is made.
Section 901(a) allows a taxpayer such as petitioner to elect
to credit income taxes owed to a foreign country in lieu of
deducting them under section 164(a)(3).2 Respondent argues that
petitioner’s election was untimely. Respondent asserts that the
phrases “for any taxable year” and “for such taxable year” that
2
While accrued foreign taxes must ultimately be paid to be
eligible for credit, see sec. 905(b); see also sec. 1.901-2(e),
Income Tax Regs., proof of payment is not at issue in this case.
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appear in section 901(a) refer to petitioner’s 1980, 1981, and
1982 taxable years rather than petitioner’s 1985 taxable year.
Petitioner argues that its election was timely. Because section
904(c) allows a taxpayer to carry over a foreign tax credit for
up to 5 years, petitioner asserts, section 901(a), when read in
the light of section 6511(d)(3)(A), generally allows a taxpayer
up to 15 years to elect or change its election under section
901(a). Petitioner concludes that the relevant phrases refer to
the year for which the overpayment is claimed on account of the
foreign taxes; here, 1985. Petitioner asserts that its
conclusion comports with Congress’ intent for section 901(a),
i.e., to avoid subjecting a taxpayer’s foreign earnings to
taxation by both the foreign country and the United States, and
that its conclusion is consistent with the application of section
6511(d)(3)(A).
We agree with respondent that the 10-year period under
section 901(a) is measured from the years for which P elected the
foreign tax credits; i.e., 1980, 1981, and 1982.3 We read the
3
At the outset, we note that petitioner relies in part on
legislative actions (including the release of committee reports)
that occurred many years after the enactment of sec. 901(a) to
construe the legislative intent underlying that section. We do
not do likewise. As we stated in Central Reserve Life Corp. &
Subs. v. Commissioner, 113 T.C. 231, 238 (1999) (citations and
quotation marks omitted):
It is emphatically the province and duty of the
judicial department to say what the law is, and the
(continued...)
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phrase “for such taxable year” to refer to the “any taxable year”
specified at the beginning of the same sentence, or, in other
words, to the year for which the election of the foreign tax
credit is made. The only other time that Congress used the word
“such” in section 901(a) it did so to refer to the “choice” made
by the taxpayer described in the first sentence of section
901(a). We believe it logical to conclude that Congress’ use of
the second “such”, i.e., the one at issue, refers to the only
“taxable year” described in section 901(a); namely, the year for
which the election of the foreign tax credit is made.
Our reading comports with the Commissioner’s regulations
prescribed under section 901(a). Section 1.901-1(d), Income Tax
Regs., provides that “The taxpayer may, for a particular taxable
year, claim the benefits of section 901 (or claim a deduction in
lieu of a foreign tax credit) at any time before the expiration
of the period prescribed by section 6511(d)(3)(A)”. Here,
petitioner aims to “claim the benefits of section 901” for 1980,
1981, and 1982 and not for 1985. The benefits which petitioner
3
(...continued)
views of one Congress as to the meaning of prior
legislation have little bearing on a court's
furtherance of that duty. Such is especially true in
the instant case where few of the legislators who voted
on the subsequent legislation * * * were members of
Congress * * * [at the time of the original
legislation].
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is attempting to avail itself of in 1985 are the benefits of
section 904(c).
We are mindful that the Court of Claims entered an order in
the case of Allatt v. United States, 218 Ct. Cl. 694 (1978), that
effectively allowed the taxpayer to make an election under
section 901(a) outside the 10-year period discussed herein. It
does not appear, however, that in that case the Commissioner
raised, or the court addressed, an argument comparable to the one
made by respondent here. In fact, the underlying opinion in
Allatt addresses only the Commissioner’s motion for summary
judgment in which he sought (but the court rejected) an
interpretation of section 901 that would limit to 3 years the
time to make an election under section 901(a).
We hold that petitioner’s elections for 1980, 1981, and 1982
were untimely. Accordingly, we will grant respondent’s motion
for partial summary judgment.
An appropriate order will be issued
granting respondent’s motion for partial
summary judgment.
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APPENDIX A--Information Shown on Original Returns
Reportable NOL Sec. 78 Foreign
Year taxable income carryforward gross-up tax deducted
1980 ($1,060,731,645) -0- $17,945,227 $34,556,085
1981 (489,345,867) -0- -0- 7,020,844
1982 -0- $58,634,098 -0- 3,631,958
1983 -0- 331,319,906 -0- -0-
1984 -0- 1,381,445,931 -0- -0-
1985 918,244,402 197,091,387 -0- -0-
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APPENDIX B--Information Shown on Amended Returns
Reportable NOL Sec. 78 Foreign
Year taxable income carryforward gross-up tax deducted
1980 ($1,017,489,081) -0- $26,631,706 -0-
1981 (476,743,564) -0- 5,581,459 -0-
1982 -0- $29,960,453 4,225,518 -0-
1983 -0- 328,059,940 -0- -0-
1984 -0- 1,381,295,514 -0- -0-
1985 951,917,484 129,375,575 -0- -0-
Creditable Sec. 901 Sec. 902
Year foreign taxes direct tax deemed tax
1980 $43,242,564 $16,610,858 $26,631,706
1981 12,602,303 7,020,844 5,581,459
1982 7,857,476 3,631,958 4,225,518
1983 -0- -0- -0-
1984 -0- -0- -0-
1985 -0- -0- -0-
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APPENDIX C--Result If Petitioner Is Allowed To Change Its
Reporting for Foreign Taxes Accrued in 1980, 1981,
and 1982 From a Deduction to a Credit
Total Sec. 78
Sec. 901 Sec. 902 Total creditable deduction income
Year direct taxes deemed taxes foreign taxes decreased increase
1980 $14,997,403 $26,631,706 $41,629,109 $34,556,085 $8,686,479
1981 6,901,732 5,581,459 12,483,191 7,020,844 5,581,459
1982 3,631,958 4,225,518 7,857,476 3,631,958 4,225,518