*80 Decision will be entered under Rule 50.
1. The taxpayer, in computing excess profits tax for 1943 and 1944, sought disallowance of abnormal bad debt deductions for 1938 and 1940. The Commissioner refused to permit such a disallowance. In its petition the taxpayer asserted error only as to the refusal by the Commissioner to permit disallowance in 1940. The petitioner computed its excess profits credit under the growth formula. The Commissioner, by answer, asked that, if the bad debt deduction be disallowed for 1940, the 1938 deduction be also disallowed. By petitioner's evidence and by stipulation it was established that both in 1938 and 1940 the taxpayer had taken bad debt deductions which were not abnormal as to class but were abnormal as to amount. Held, the bad debt deductions for both years should be disallowed as abnormal in amount.
2. Under the facts, deductions for bad debts, dues, and subscriptions, and fees for professional services taken during base period years, held to be abnormal in amount.
*383 Deficiencies were determined in petitioner's excess profits tax returns for the taxable years ended July 31, 1943 and 1944, in the respective amounts of $ 30,988.16 and $ 122,392.79. The questions presented are as follows:
I. -- (a) In computing petitioner's excess profits tax credit under the income method, should $ 65,000 deducted on petitioner's return for the base period year ended July 31, 1940, as a bad debt for indebtedness due from Poth Brewing Co., be disallowed on the ground that the deduction for that year was improperly claimed and allowed?
(b) If such debt was erroneously claimed*82 and allowed for 1940, is respondent entitled to an adjustment for the taxable year ended July 31, 1943, under
II. -- Was petitioner's deduction for a bad debt in the fiscal year 1940 in the sum of $ 85,000 for a customer's debt represented by or secured by two mortgages a deduction abnormal as to class within the meaning of
III. -- Was petitioner's deduction of $ 10,000 in the fiscal year 1939 for a fee paid to its tax counsel for accounting services in connection with a controversy under
*384 IV. -- (a) Did petitioner's deductions for trade association dues constitute a class of deduction abnormal in amount within the meaning of
(b) If trade association dues constitute a class of deduction abnormal in amount, has petitioner overcome the limitations imposed by
V. -- (a) In the alternative, is petitioner entitled to an adjustment for abnormal bad debt deduction for*83 the fiscal year 1940 within the meaning of
(b) In the alternative, is petitioner entitled to an adjustment for the fiscal year 1939 due to abnormality in amount of accounting fees?
VI. -- If an adjustment for abnormal deduction for bad debts for the fiscal year 1940 is allowable, should an adjustment for abnormal deduction of the same class be made for the fiscal year 1938?
FINDINGS OF FACT.
The petitioner is a corporation, organized under the laws of New York, with its office and principal place of business in Buffalo. Its fiscal year ends July 31.
The returns involved were filed with the collector of internal revenue for the twenty-eighth district of New York.
At all times material, petitioner has engaged in the business of manufacturing and selling malt, and approximately 99 per cent of its income arose from such sales to breweries. Sales are ordinarily made on open account, but, when accounts for any reason become unsatisfactory, they are made on a cash basis.
Sales to Forest City Brewing Co., hereinafter referred to as Forest City, and Poth Brewing Co., whose indebtednesses to the petitioner were charged off in *84 1940 and claimed as deductions in that year, are scheduled and classified as follows:
| Forest City | Poth Brewing Co. | |||
| Year | ||||
| Charge sales | Cash sales | Charge sales | Cash sales | |
| 1934 | $ 39,885.74 | $ 11,917.49 | $ 48,311.17 | $ 0.00 |
| 1935 | 81,925.00 | 0.00 | 7,794.91 | 61,292.98 |
| 1936 | 78,876.49 | 5,947.57 | 76,881.55 | 0.00 |
| 1937 | 80,731.35 | 75,800.19 | 76,641.73 | 0.00 |
| 1938 | 104,066.67 | 0.00 | 105,689.60 | 0.00 |
| 1939 | 50,894.96 | 29,648.14 | 30,162.00 | 6,834.00 |
| 1940 | 0.00 | 72,803.59 | 0.00 | 1,637.60 |
On its Federal tax returns for the fiscal year ended July 31, 1934, to July 31, 1940, inclusive, petitioner claimed as deductions from gross income the following items in the amounts set forth, which deductions were allowed by the respondent. *385
| 1934 | 1935 | 1936 | 1937 | |
| Bad debts | $ 73,798.45 | $ 204,532.86 | $ 23,014.82 | $ 14,634.19 |
| Dues and subscriptions | 4,822.50 | 6,063.60 | 6,975.40 | 5,566.06 |
| Legal and professional | ||||
| services | 2,059.05 | 8,570.16 | 3,559.88 | 4,099.45 |
| 1938 | 1939 | 1940 | |
| Bad debts | $ 132,865.87 | $ 86,684.06 | $ 156,231.02 |
| Dues and subscriptions | 4,938.60 | 14,972.89 | 18,456.60 |
| Legal and professional | |||
| services | 5,751.80 | 12,250.00 | 2,500.00 |
The bad*85 debts of $ 132,865.87 for the fiscal year 1938 were made up of a number of charges to various customers. Practically all of the charges were incurred in the fiscal years 1936, 1937, and 1938. The charges to these customers all represented sales made in the ordinary course of the business of selling malt. There were no unusual features concerning any of such accounts. They were charged off because they were worthless.
Included in petitioner's deductions for bad debts for the fiscal year ended July 31, 1940, was a debt of the Poth Brewing Co. amounting to $ 65,000. The return for that year was signed by Leo P. Meyer, the president, and Eugene J. Meyer, treasurer. The return was prepared by and was subscribed and sworn to on September 10, 1940, by one Rath, of the firm of Ernst & Ernst, with which counsel for petitioner in this proceeding are associated. Petitioner knew at the end of its taxable year 1940 that the Poth Brewing Co. was in very bad shape. Petitioner's collection attorneys continually reported to it their efforts to collect, and the combination of all the reports caused petitioner to make the decision to take the account as a bad debt deduction.
Also included in*86 petitioner's bad debt deductions for the fiscal year 1940 was a debt of $ 85,000 due it from Forest City. In April 1938 petitioner accepted from this company common stock in the company in the amount of $ 26,000 in partial payment of the malt account. It also, in the same month, accepted a chattel mortgage from Forest City in the amount of $ 20,000, and, in December, a second mortgage on its property in the amount of $ 65,000. With the receipt of this second mortgage, it opened an account on its books called "Forest City Second Mortgage" account and debited the same with $ 65,000.
In its 1940 return petitioner claimed a bad debt deduction for all of these payments, but the $ 26,000 represented by the receipt of the capital stock was disallowed. During the base period years and during the taxable years petitioner did not accept any other mortgage in connection with its accounts. Prior to 1939 petitioner had accepted bonds in payment of a Belmont Brewing Co. account. The bonds became worthless and in that year petitioner sought a bad debt deduction, which was disallowed.
*386 The bad debts deducted by petitioner and allowed by respondent for the fiscal year 1940 were in excess*87 of 125 per cent of the average thereof for the preceding four years and were in excess of the amounts deducted and allowed for each of the taxable years 1943 and 1944 in the same classification. The excess of the deduction in 1940 was not a consequence of an increase in the gross income in the base period or of a decrease in any other deduction in the base period, nor was it a consequence of a change at any time in the type, manner of operation, size, or condition of the business engaged in by the petitioner.
At all times material herein petitioner occupied the same plant, with no addition thereto. The proved capacity of the plant was approximately 2,500,000 bushels annually, and this capacity was substantially reached during all the years involved. The process of manufacturing and merchandising did not change from 1934 to 1940, inclusive, nor were any new products manufactured during that period.
The following schedule shows petitioner's net sales, gross income from sales, cost of goods sold, other income, percentage of gross income from sales to net sales, and ratio of bad debts to net sales for the fiscal years ended July 31, 1934, to July 31, 1940, inclusive:
| Gross | Cost of goods | ||
| July 31 -- | Net sales | income | sold |
| from sales | |||
| 1934 | $ 3,478,092.14 | $ 917,783.65 | $ 2,560,308.49 |
| 1935 | 4,725,598.16 | 866,956.40 | 3,858,641.76 |
| 1936 | 3,619,549.00 | 716,519.72 | 2,902,939.28 |
| 1937 | 4,187,714.10 | 507,220.74 | 3,680,493.36 |
| 1938 | 3,066,633.85 | 404,159.22 | 2,662,474.63 |
| 1939 | 2,468,740.88 | 531,833.84 | 1,936,907.04 |
| 1940 | 2,530,607.38 | 622,117.82 | 1,908,489.56 |
| Per cent | Ratio | ||
| of gross | of bad | ||
| July 31 -- | Other | income | debts |
| income | from sales | to sales | |
| to net sales | |||
| Per cent | Per cent | ||
| 1934 | $ 12,424.14 | 26.39 | 2.12 |
| 1935 | 6,923.19 | 18.35 | 4.33 |
| 1936 | 13,868.71 | 19.80 | .64 |
| 1937 | 9,673.85 | 12.11 | .35 |
| 1938 | 27,340.67 | 13.18 | 4.33 |
| 1939 | 15,679.08 | 21.54 | 3.51 |
| 1940 | 14,335.60 | 24.58 | 6.17 |
The fluctuations in the dollar value of petitioner's sales during the base period were due almost wholly to changes in the price of barley. In the fall of each year petitioner entered into contracts with its customers for the sale of malt during the succeeding year. However, because of the lack of storage space and available capital, it was compelled to buy its barley on the open market as it was able to process the barley into malt. Its contract price to its customers for malt was based upon its estimate of what the price for barley during the ensuing year would be. If this estimate was too low, petitioner's profits were reduced. However, if the estimate was too high, the custom in the malt trade required that the manufacturer reduce his contract price to the malt purchasers, which deprived the taxpayer of some of the *89 benefit of the profits that would otherwise result.
In case of unusual conditions such as the drought which occurred in 1936 and the outbreak of the Second World War, error in the estimation *387 of future barley prices seriously affected petitioner's profits and income.
At all times material herein petitioner was a member of the United States Maltsters Association, which is the trade association for the malt industry. Annual membership dues in that organization are based upon the number of bushels of barley processed by the members. Petitioner's dues in that organization are charged to advertising expense on its books. The rate of dues per 1,000 bushels, the amount of dues for 2,500,000 bushels, the trade association dues paid, and the approximate number of bushels which the actual total dues paid would represent, are as follows:
| Approximate | ||||
| quotient of | ||||
| Rate of dues | Amount of | Dues and | dues rates | |
| Year | per 1,000 | dues for | subscriptions | into dues and |
| bushels | 2,500,000 | paid | subscriptions | |
| bushels | paid | |||
| 1935 | $ 1.53 | $ 3,825 | $ 6,063.60 | 3,962,000 |
| 1936 | 1.61 | 4,025 | 6,975.40 | 4,332,000 |
| 1937 | 1.74 | 4,425 | 5,566.06 | 3,200,000 |
| 1938 | 1.70 | 4,250 | 4,938.60 | 2,900,000 |
| 1939 | 6.46 | 16,150 | 14,972.89 | 2,300,000 |
| 1940 | 7.00 | 17,500 | 18,456.60 | 2,636,000 |
*90 The increase in dues to the United States Maltsters Association paid by petitioner during those years was due to increased activity on the part of the association and was not the consequence of an increase in the gross income of the petitioner in the base period or a decrease in the amount of some other deduction in the base period, and was not a consequence of a change in the type, manner of operation, size, or condition of petitioner's business.
Included in the petitioner's deduction for professional fees for the taxable year 1939 was a fee of $ 10,000 paid to petitioner's tax counsel as an agreed fee for the handling of a case involving petitioner's tax liability under
*388 On its tax returns for the fiscal years ended July 31, 1942, 1943, and 1944, petitioner claimed and was allowed deductions for worthless debts, trade association dues and professional fees, as follows:
| 1942 | 1943 | 1944 | |
| Worthless debts | $ 54,672.19 | $ 2,375.61 | $ 26,385.82 |
| Trade association dues | 15,685.19 | 12,635.11 | 14,176.36 |
| Professional fees | 6,301.65 | 2,930.32 | 2,500.00 |
Petitioner filed its corporate income and excess profits tax return for the fiscal year ended July 31, 1940, with the collector of internal revenue at Buffalo, New York, on October 15, 1940. Assessment and collection of any additional income or profits taxes for that fiscal year are barred by the statute of limitations.
Petitioner is entitled to, has*92 claimed, and has been allowed the use of the growth formula under
In its returns for each of the taxable years 1943 and 1944, petitioner, in computing its excess profits credit, claimed adjustments both in 1938 income and 1940 income for abnormal deductions for bad debts, the adjustment claimed for 1938 being $ 34,122.02. The respondent determined that the deductions did not constitute abnormalities as defined in the Internal Revenue Code and disallowed the increase in the base period net income claimed by petitioner.
The bad debts deducted by petitioner and allowed by respondent for the fiscal year 1938 were in excess of 125 per cent of the average thereof for the preceding four years by $ 34,122.02 and were in excess of the amounts deducted and allowed for each of the taxable years 1943 and 1944 by at least $ 34,122.02. The abnormality or excess of $ 34,122.02 was not a consequence of an increase in the gross income in the base period or a decrease in any other deduction in the base period, nor was it a consequence of a change at any time in the type, manner of operation, size, *93 or condition of the business engaged in by the petitioner.
In his answer herein the Commissioner asked that, if the deductions for bad debts for the year 1940 be disallowed, then that the deductions for bad debts for 1938 also be disallowed.
OPINION.
Issue I.
Petitioner, in the excess profits tax returns involved herein, claimed that certain deductions taken in the base period *389 were abnormal and computed its excess profits credit accordingly. The respondent rejected all of these claimed abnormal items. This controversy between the parties turns upon
*94 The first deduction for our present consideration, which petitioner took in 1940 because of an alleged bad debt and which it now seeks to have disallowed, is the claim against the Poth Brewing Co. for $ 65,000. The petitioner now contends that that deduction was improper because there was no identifiable event in the fiscal year 1940 which showed that the claim against the Poth Brewing Co. was valueless. This company did not go into bankruptcy until February of 1941, and during 1941, 1942, and 1943 petitioner actually recovered payments in excess of $ 4,000 to apply on its claim against the Poth indebtedness.
Petitioner's only witness on this point was its bookkeeper at the time and prior thereto when the 1940 return was made. This witness said that during 1940 the taxpayer had employed an attorney to force the collection of this claim; that the attorney was exerting pressure on the debtor and endeavoring to force it into bankruptcy; and that the attorney was in constant touch with the officers of the corporation concerning the condition of the claim.
The income tax return was signed by the president, the treasurer, and the accountant who prepared the return, none of whom were *95 called *390 as witnesses by the taxpayer, nor was their absence explained. They were the individuals who were being advised by the company attorney and were the ones who passed upon the worthlessness of the claim. We, therefore, can not accept the statement of the bookkeeper that there was some doubt about the worthlessness of the claim when it was charged off as a bad debt because there was a possibility of the debtor procuring a loan. If this were true, the officers of the company who made the income tax return did not correctly represent the facts in that return and in the absence of their testimony we would hesitate to come to this conclusion. The fact that some payments were received on this debt in the ensuing three years does not argue against its worthlessness when charged off, as the World War, which commenced in 1941, in a number of instances made assets theretofore worthless of some substantial value.
It is therefore our conclusion that petitioner has not established from all of the evidence and the record that the claim against the Poth Brewing Co. was not totally worthless when it was claimed to be so in petitioner's 1940 return.
Issue II.
Petitioner contends *96 that bad debts in the amount of $ 85,000 of Forest CityBrewing Co. and Poth Brewing Co., deducted in 1940, were abnormal as to class.
In its 1940 return petitioner claimed and was allowed a bad debt deduction growing out of the worthlessness of a chattel mortgage for $ 20,000 and a second mortgage for $ 65,000 given by Forest CityBrewing Co. in 1938 when its account with the taxpayer had gotten into arrears. These two mortgages were the only mortgages accepted by the taxpayer from its customers. All other credits were for cash or property, such as the receipt in 1938 of the common stock of Forest City in the amount of $ 26,000. Petitioner contends that these mortgages were treated by it in its bookkeeping processes as a capital asset, inasmuch as when the second mortgage was received it was debited to the "Forest City Second Mortgage" account. The record is not clear as to just how the chattel mortgage was handled. However, when on the stand, the only witness for the petitioner said that after the mortgages were received the petitioner considered that the customer "still owed the debt."
Furthermore, the taxpayer in 1940, when its return was filed, did not treat these mortgages*97 as capital assets, and it is evident that the question must have been under discussion because the taxpayer, in its 1940 return, did attempt to obtain a deduction for an additional $ 26,000 owed by Forest City, because of which Forest City had delivered to the taxpayer $ 26,000 of its common stock. The Commissioner disallowed the deduction for reasons not set forth in the record, but obviously because the stock received amounted to a capital asset. *391 These mortgages were not received by the petitioner as the result of a loan of petitioner's capital. They were received as additional security for a debt which arose in the regular course of trade, just as the other debts which petitioner charged off as bad debts in 1938 and 1940 also arose.
The facts in this case distinguish it from
In the case at bar, the debts of Forest City arose in the course of trade just as did the taxpayer's other debts.
The petitioner also cites
Petitioner also relies on
It is therefore our conclusion that the bad debt losses deducted by petitioner in its 1940 return growing out of the worthlessness of the Forest City mortgages were not abnormal as to class. See
Issue III.
In 1939 petitioner paid $ 10,000 to its tax counsel to represent it in a tax claim growing out of an attempted enforcement of
Petitioner's argument herein is somewhat difficult to follow, inasmuch as any corporation, regardless of its principal objective, could well be used as a means of "preventing the imposition of the surtax upon its shareholders," and
In
It is therefore our conclusion that the $ 10,000 paid by petitioner in 1939 for legal and professional services is not an improper deduction in considering base period income because of being abnormal as to class.
Issue IV.
The testimony herein presents a serious factual problem relative to the abnormality in amount of the "dues and subscriptions" paid by the taxpayer in 1939. The stipulations give us no help as to what items were included in this classification*102 and taxpayer's only witness was a man who, in 1939, was its bookkeeper. This witness testified that a firm of auditors, at the end of the fiscal year, audited the company's books and broke down the "general" expense account into various accounts, one of which was called "advertising," in which was included *393 all items which the auditors allocated as "dues and subscriptions" in preparing petitioner's income tax returns. The witness himself did not handle this division of the ledger accounts, nor did he prepare or sign the income tax returns. His testimony on this point is of such a vague character that the Court is uninformed whether or not the allocation in 1939 included items other than dues paid to the Maltsters Association; or whether or not the 1939 total included the cash items paid out during that year and ignored the unpaid balance due on the dues to the Maltsters Association.
This witness, however, did testify positively as to two relevant facts which would be within his personal knowledge. He testified as to the rates of dues to the Maltsters Association per 1,000 bushels of barley processed, and also that the taxpayer processed approximately its capacity of 2,500,000*103 bushels of barley each and every year. He, as the bookkeeper, would, of course, handle the invoices and enter the receipts and disbursements. He was therefore in a position to know the rates of dues and the amount of barley annually processed. His manner was frank and he was not evasive. We accept as true his testimony on those points within his personal knowledge. When we apply his statements as to plant capacity to the rate of dues in the Maltsters Association and the amount included in the dues and subscriptions allocation, it becomes evident that in all years except 1939 the dues and subscriptions allocation must have contained items other than dues to the Maltsters Association, while in 1939 the disbursement is not large enough to cover the Malsters Association dues alone for that year.
Nevertheless, the amount included in this allocation in 1939 did exceed 125 per cent of the average disbursements in the same class in the previous four taxable years and in our opinion such increase was not due to any of those causes set forth in
Issue V.
The above discussion brings us to the alternative issue relating to abnormalities in amount in connection with the 1940 bad debt deduction and the deduction for professional services. The petitioner urges that, if these deductions be not disallowed as abnormal in class, they should, in the alternative, be considered as excessive in amount, since in the years in which they were taken the class to which the respective deductions belonged exceeded the average amount of such deductions *394 for the four years prior to the years in which they were taken by an amount in excess of 125 per cent.
The Commissioner contends that they should not be considered as excessive because the taxpayer has failed to show that the excess was not the consequence of an increase in its income, a decrease in the amount of some other deduction, or of a change in the type, manner of operation, size, or condition of the business*105 engaged in by the taxpayer.
Our favorable evalution of the testimony of the taxpayer's witness on all matters within his personal knowledge leads us to conclude that the base period deductions which we have heretofore refused to disallow as abnormal as to class should be considered as excessive in amount within the purview of
Poth Brewing Co.'s largest credit purchases occurred in 1936, 1937, and 1938 and its largest single credit purchase year was 1938, when the taxpayer's net sales were low. We can find no casual connection between the deduction of these bad debts in 1940 and the amount of *107 sales or profits in that year, as the debts were deducted in the year in which the taxpayer ascertained them to be worthless under the provisions of section 22 (k) (1) of the code as it existed in 1940.
*395 The taxable years involved in the litigation which caused the deduction of $ 10,000 for legal and professional services in 1939 were 1936 and 1937. These years were not far from average in the financial experience of petitioner in the period from 1934 to 1940. The excess of all of these deductions over the previous four-year average for their respective classes should be computed in determining the excess profits tax credit as provided for in the code.
Issue VI.
Petitioner's returns for 1943 and 1944 claimed adjustments for abnormal deductions of bad debts for 1938 and 1940. Its excess profits credit was computed under the income method and by the use of the growth formula provided for by
The stipulations introduced into this case by both parties, and the evidence introduced by the taxpayer have demonstrated satisfactorily to this Court that from 1934 to 1940, inclusive, there was no material change in the annual quantity of barley processed and marketed or in the methods of the processing and merchandising, and that there was no plant expansion and no additional products were manufactured or sold. The testimony also establishes that none of the bad debt deductions were a consequence of a decrease in the amount of any other deduction claimed or of any increase in the income of the taxpayer during that period.
In his answer herein the Commissioner argues that if the 1940 bad debt deductions are disallowed, the 1938 bad debt deductions should also be disallowed. In
*396 In the
However, the case at bar is clearly distinguishable in our opinion from the two cases above. In the pending case the taxpayer has met*111 the burden of proof which
Relief is provided*112 for corporations that experienced rapid growth during the base period. Under existing law, only the average experience during those *397 years can be counted in determining the excess-profits credit based on income. Corporations whose facilities and production capacities were substantially increased during this period would thus be penalized as compared to corporations which had already achieved and maintained a high and constant level of production. The bill will give effect to the ratio of increase during those years. This treatment will afford a substantial advantage to these expanding companies as compared with the use of the level average now required. [Emphasis supplied.]
An examination of the net sales and the gross income of the taxpayer herein shows that as a matter of fact it was not an expanding industry during the base period years. We feel that this Court would be wholly unwarranted therefore in permitting this taxpayer to procure a disallowance of an abnormality in amount of the deduction for bad debts in 1940 and to refuse to accept a disallowance of an abnormality in amount of a deduction for bad debts in 1938, which is in exactly the same*113 classification.
It is therefore our conclusion that in computing the excess profits tax credit the abnormality in the amount of the bad debt deduction for 1938 should be disallowed, as provided for in the code.
Decision will be entered under Rule 50.
Footnotes
1.
SEC. 711 . * * ** * * *
(b) Taxable Years in Base Period. --
(1) General rule and adjustments. -- The excess profits net income for any taxable year subject to the Revenue Act of 1936 shall be the normal-tax net income, as defined in section 13 (a) of such Act; and for any other taxable year beginning after December 31, 1937, and before January 1, 1940, shall be the special-class net income, as defined in section 14 (a) of the applicable revenue law. In either case the following adjustments shall be made (for additional adjustments in case of certain reorganizations, see section 742 (c)):
* * * *
(J) Abnormal Deductions. -- Under regulations prescribed by the Commissioner, with the approval of the Secretary, for the determination, for the purposes of this subparagraph, of the classification of deductions --
(i) Deductions of any class shall not be allowed if deductions of such class were abnormal for the taxpayer, and
(ii) If the class of deductions was normal for the taxpayer but the deductions of such class were in excess of 125 per centum of the average amount of deductions of such class for the four previous taxable years, they shall be disallowed in an amount equal to such excess
(K) Rules for Application of Subparagraphs (H), (I), and (J). -- For the purposes of subparagraphs (H), (I), and (J) --
* * * *
(ii) Deductions shall not be disallowed under such subparagraphs unless the taxpayer establishes that the abnormality or excess is not a consequence of an increase in the gross income of the taxpayer in its base period or a decrease in the amount of some other deduction in its base period, and is not a consequence of a change at any time in the type, manner of operation, size, or condition of the business engaged in by the taxpayer.
(iii) The amount of deductions of any class to be disallowed under such subparagraphs with respect to any taxable year shall not exceed the amount by which the deductions of such class of such taxable year exceed the deductions of such class for the taxable year for which the tax under this subchapter is being computed.↩