*191OPINION.
Korner, Chairman:Three questions are presented by this appeal:
1. Is the taxpayer company entitled to have restored to its invested capital for the year 1917, either its total Federal income tax for 1916 paid in 1917, or certain overpayments of that tax made by it for the year 1916 ?
2. Is the taxpayer entitled to have restored to its invested capital for the year 1917 an item of tax paid by it for a dissolved subsidiary corporation under circumstances hereinafter related?
3. Is the taxpayer now entitled to have credit on a deficiency tax for the year 1917 for the amount of an overpayment of taxes made by it for the year 1916, growing out of an overstatement by it of its net taxable income for the year 1916 ?
For the year 1916 the taxpayer reported taxable income in the amount of $172,703.84, which was $16,898.44 in excess of its true net income. On the amount reported it paid $3,454.08 in taxes. The Commissioner finds that the correct taxable income was $155,805.40, on which the correct amount of tax was $3,116.10 — resulting in a refund of $337.98 due the taxpayer, except for the statute of limitations. While finding that the correct tax liability of the taxpayer for the year 1916 was $3,116.10, the Commissioner, in adjusting the taxpayer’s invested capital for the year 1917, refused to restore to invested capital the item of $337.98. The taxpayer contends that its invested capital for 1917 should be reduced (as relates to the taxes for 1916) only in the amount accrued or incurred within and for the year 1916.
It would appear to be the position of the Commissioner that the taxpayer, having paid its 1916 tax in the amount above stated, and now being unable to recover that tax, may not include the tax so paid in invested capital for the reason that, when it was paid, it passed out of the capital of the taxpayer and will never be restored to it. In so far as this position is not modified later in this opinion, we are disposed to agree with the Commissioner.
*192The Board, however, has decided in the Appeal of L. S. Ayers & Co., 1 B. T. A. 1135, that taxes do not accrue until they become due and payable. Such being the case, the 1916 tax of this taxpayer did not accrue as of the close of 1916, and may not be deducted in its entirety from invested 'capital for the year 1917, but may be deducted, if at all, only from the time it became due and payable.
The taxpayer further contends that there should be restored to its invested capital for the year 1917 an item of $61.10. This item represents the difference between the tax liability computed for the year 1916, without deducting the 1916 Federal taxes in computing net income, and that tax liability computed after such deduction has been made. The Commissioner computed the tax, as above stated, to be $3,116.10; but if net income is computed after deducting the Federal taxes for that year, such true tax liability is in the amount of $3,055. In computing the deficiency in tax for the year 1917, the matter in controversy here, the Commissioner refused to restore to taxpayer’s invested capital for 1917 the item of $61.10.
Inasmuch as we have held above that the entire amount of-1916 tax, whether correctly computed or not, may not be deducted from the taxpayer’s invested capital until it becomes due and payable, it follows that the item of $61.10 falls within the entire total already restored, and no further comment is necessary upon that item.
The second point of the taxpayer relates to an item of $817.72, by which amount the Commissioner reduced its invested capital for the year 1917 on the ground that this item represented a liability of the taxpayer for 1916 income taxes due from a subsidiary corporation which had been dissolved on June 30, 1916, and the assets of which had been taken over by the taxpayer. The record is very meager on this point, the only evidence bearing thereon being a portion of the stipulation of facts entered into between the taxpayer and government counsel, reading as follows:
During- this year (1916) it (the taxpayer) also paid Federal Income Taxes for the Manitowoc Boiler Works amounting to $817.72. The Manitowoc Boiler Works was a former subsidiary of the Manitowoc Shipbuilding Company in which the shipbuilding company owned one hundred per cent of the stock. The boiler works company was dissolved on June 30, 1916. All of the assets were taken over by the Manitowoc Shipbuilding Company. The boiler works went out of existence on or about June 30, 1916 and the Manitowoc Shipbuilding Company did not accrue during 1916 this liability of the Manitowoc Boiler Works for Federal Income Taxes.
The disposition of the taxpayer’s own 1916 Federal income tax with respect to invested capital for the yerr 1917 governs the foregoing items with respect to the income tax of its subsidiary, which may not be deducted from invested capital until such time as the said tax became due and payable.
*193In its third point the taxpayer contends that it should be allowed a credit on the deficiency proposed to be assessed for the year 1911 in the amount of $331.97, which amount represents an overpayment made by'it on account of its 1916 income taxes; that the overpayment in taxes resulted from an overstatement of net income by the taxpayer for the year 1916 in the amount of $16,898.44; that of this overstated amount of net income $5,928.18 resulted from a failure to take a deduction on account of state taxes accrued; that the balance of this overstated amount of net income represents reductions made by the Commissioner in taxpayer’s gross income, and is not represented by deductions; and that the invested capital of the taxpayer for the year 1917 was decreased by the Commissioner in the amount of 2 per cent on the said overstatement of net income in the amount of $337.97, with the result that there was an overpayment of that amount in the previous year for which it is entitled to a credit without the filing of a claim therefor, notwithstanding the period of limitation has expired. Its claim in this respect is predicated on section 281 (c) of the Revenue Act of 1924, which reads as follows:
(c) If the invested capital of a taxpayer is decreased by the Commissioner, and such decrease is due to the fact that the taxpayer failed to take adequate deductions in previous years, with the result that there has been an overpayment of income, war-profits, or excess-profits taxes in any previous year or years, then the amount of such overpayment shall be credited or refunded, without the filing of a claim therefor, notwithstanding the period of limitation provided for in subdivision (b) has expired.
The contention of the taxpayer is that the above-quoted section should be construed so as to apply to every case where the invested capital of a taxpayer is decreased by the Commissioner, due to the fact that the taxpayer reported excessive net taxable income in previous years, even though resulting from an overstatement of gross income.
In this position we are of opinion that the taxpayer is clearly in error. The plain provisions of the statute preclude any such construction. “ Deductions ” is a> term used in all revenue acts and has a well-defined meaning. Deductions are' those subtractions which are made from gross income in order to arrive at net income. They include among other things taxes paid to state governments. A taxpayer’s action, in computing his gross income at too great. an amount can not be described as a failure to take an adequate deduction from gross income, even though such action admittedly has the effect of unduly increasing net income.
To the extent that the taxpayer in the instant appeal failed to take adequate deduction in 1916 for state taxes accrued, its claim should be allowed. The amount of state taxes so accrued was *194$5,928.18, and 2 per cent on this amount is $118.56. The taxpayer’s claim should be allowed to the extent of $118.56, and should be disallowed as to the remainder of $219.41.