Decision will be entered under Rule 155.
From 1971 through 1980, P deducted additions to its bad debt reserve. The amounts deducted were calculated with reference to P's taxable income for each year. In 1981 and 1982, P had net operating losses (NOLs). Held, subdivisions (vi) and (vii) of
*101 OPINION
Respondent determined the following deficiencies in petitioner's Federal income tax: *102
| Year | Deficiency |
| 1978 | $ 1,743,066 |
| 1979 | 5,057,885 |
| 1980 | 2,512,321 |
After concessions, the issue presented is whether certain portions of
The facts are fully stipulated. We incorporate by reference the stipulation of facts and attached exhibits.
Petitioner is a corporation formed and existing under the laws of the State of Washington and having as its principal place of business when it filed its petition Tacoma, Washington.
From 1971 through 1980, petitioner used the calendar year as its taxable year and deducted amounts added to a reserve for bad debts. Petitioner calculated those amounts by using the "percentage of taxable income method" set forth in
*103 In 1981 and 1982, petitioner had net operating losses (NOLs) within the meaning of
Central to resolution of the instant case is the interplay between NOL carrybacks and the deduction for addition to bad debt reserve calculated under the percentage of taxable income method. Respondent contends that petitioner's NOL carrybacks from 1981 and 1982 reduce petitioner's deductions under
Subdivisions (vi) and (vii) of
(5) Computation of taxable income. For purposes of * * * [calculating the deduction for addition to bad debt reserve under the percentage of taxable income method], taxable income is computed --
* * * *
(vi) For taxable years beginning before January 1, 1978, without regard to any deduction the amount of which is computed upon, or may be *19 subject to a limitation computed upon, the amount of taxable income, and without regard to any net operating loss carryback to such year from a taxable year beginning before January 1, 1979. (For purposes of this subparagraph, a net operating loss deduction under
(vii) For taxable years beginning after December 31, 1977, by taking into account any deduction the amount of which is computed upon, or may be subject to a limitation computed upon, the amount of taxable income, and any other deduction or loss allowed under subtitle A of the Code, such as any deduction allowable under
For taxable years beginning after December 31, 1977, subdivision (vii) expressly requires that taxable income reflect the
Petitioner argues that the foregoing provisions are invalid and that it should be permitted to use the ordering rule in effect prior to publication of the regulation containing the challenged provisions on May 17, 1978. The ordering rule *105 proposed by petitioner requires calculation of the deduction for addition to bad debt reserve before any NOL carrybacks are reflected in the calculation of taxable income.
Prior to May 17, 1978, the applicable Treasury regulations were consistent with petitioner's method. They required or were interpreted to require that NOL carrybacks be disregarded when using the percentage of taxable income method to calculate the deduction *21 for addition to bad debt reserve. The first regulations interpreting
the reasonable addition to a reserve for bad debts shall be an amount determined by the taxpayer which does not exceed the lesser of:
(1) The amount of its taxable income for the taxable year, computed without regard to
Respondent cited the foregoing regulation in a revenue ruling which required that NOL carrybacks be disregarded when computing the deduction for addition to bad debt reserve.
After the Revenue Act of 1962 amended
Thus, the provisions challenged by petitioner reversed an ordering rule that had been in effect for approximately 20 years. The following hypothetical example highlights the difference between the positions of the parties:
| 1971 | 1972 | 1981 | |
| (1) Income before percentage | |||
| method deduction | 1,000,000 | 1,000,000 | (1,000,000) |
| (2) Percentage method | |||
| deduction at 54% for | |||
| 1971 and 51% for 1972 | (540,000) | (510,000) | |
| (3) Taxable income before | |||
| carrybacks | 460,000 | 490,000 | (1,000,000) |
| (4) Tax at 46% | 211,600 | 225,400 | |
| Carryback Effect Under Prior Regs. (Petitioner's Position): | |||
| (5) Taxable income before | |||
| carryback | 460,000 | 490,000 | |
| (6) NOL carryback absorbed | (460,000) | (490,000) | |
| (7) Tax | |||
| (8) Refund due to carryback | 211,600 | 225,400 | |
| (9) NOL carried to next year | (540,000) | (50,000) | |
| Carryback Effect Under Challenged Rule (Respondent's Position): | |||
| (10) Taxable income before | |||
| carryback | 460,000 | Loss fully | |
| absorbed in | |||
| 3*23 (11) Add back percentage | 1971. Lines | ||
| method deduction | 540,000 | (1)-(4) above | |
| are | |||
| unaffected. | |||
| (12) Subtotal | 1,000,000$ | ||
| (13) NOL carryback | |||
| absorbed | (1,000,000) | ||
| (14) Tax | |||
| (15) Refund | 211,600 | ||
| (16) NOL carried to next year | |||
*106 The challenged provisions were promulgated under the authority of
In
In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation *107 harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous *24 construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner's interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute.
With the foregoing precepts in mind, we hold that the challenged portions of
Respondent contends that the plain language of the statute compels the ordering rule set forth in the challenged provisions. Respondent points out that
Respondent's argument presumes that
Moreover, we reject any suggestion that our inquiry is limited to the statutory language. National *26 Muffler Dealers Assn., Inc. v. United States requires that a challenged regulation be examined for consistency with "the statute, its origin, and its purpose."
Prior to 1952, certain financial institutions were exempt from Federal income tax. Exempt from taxation were "a mutual savings bank not having capital stock represented by shares," "a domestic building and loan association," and "a cooperative bank without capital stock organized and operated for mutual purposes and without profit" (Hereafter, we refer to the foregoing types of financial institutions as mutual institutions.). Secs. 101(2), (4), (15),
The Revenue Act of 1951 repealed the tax-exempt *27 status of mutual institutions, but also granted them a generous deduction for addition to bad debt reserve. In fact, Congress amended
The Revenue Act of 1962 somewhat curtailed the available deduction. Congress amended
taxable income shall be computed (i) by excluding from gross income any amount included therein by reason of subsection (f) [pertaining to distributions from reserve to shareholders], and (ii) without regard to any deduction allowable for any addition to the reserve for bad debts.
The addition calculated under the percentage of taxable income method could not produce a reserve for qualifying real property loans greater than 6 percent of such loans. As before, total reserves combined with surplus and undivided profits could not exceed 12 percent of deposits. Pub. L. 87-834, sec. 6(a), 76 Stat. 977.
The House Report expresses Congress' dual concerns in enacting the foregoing changes. On one hand, Congress sought to tax mutual institutions. The report states, "Congress repealed [in 1951] the exemption of these mutual savings institutions *29 * * *. At the same time, however, these institutions were allowed a special deduction for additions to bad-debt reserves which proved to be so large that they have remained virtually tax exempt since 1951." On the other hand, Congress wanted to ensure that ample reserves would be maintained and therefore preserved a generous deduction for additions to reserve. The report states, "The bill provides reserves consistent with the proper protection of the institution and its policyholders in the light of the peculiar risks of long-term lending on residential real estate which is the principal function of *110 these institutions." H. Rept. 1447, 87th Cong., 2d Sess. (1962),
The Tax Reform Act of 1969 further curtailed the available deduction. Amendments to
Legislative history indicates that Congress again struggled with competing considerations in enacting the foregoing changes. As in 1962, Congress believed that mutual institutions were paying less than a fair amount of tax. The House Report states:
Your committee has reviewed the tax treatment of these mutual institutions. It has concluded that the present bad-debt reserve provisions are unduly generous as they have allowed these institutions to *31 pay a much lower average effective rate of tax than the average effective rate for all corporations. * * * [H. Rept. 91-413,
Yet, as in 1962, Congress' desire to ensure that mutual institutions pay taxes was counterbalanced to some extent by Congress' goal of encouraging reserves. Thus, the House Report explains:
Your committee believes, that, notwithstanding a larger tax liability because of these changes in the bad-debt reserve deductions, there will *111 still be reserves consistent with the proper protection of the institution and its policyholders in the light of the peculiar risks of long-term lending on residential real estate which is the principal function of these institutions. Furthermore, to provide for unusually large losses, your committee has extended the net operating loss carryback from 3 to 10 years for all financial institutions, which allows the spreading of losses over 15 years -- 10 years back and 5 years forward. Your committee believes that this is a better means to provide for large unexpected losses than to allow such institutions to build up their reserves tax free. [H. Rept. 91-413,
The House Report also contains *32 a number of statistics, including the following:
| Tax as a percent of economic income: | 1966 |
| A. Commercial banks | 23.2 |
| B. Mutual savings banks | 6.1 |
| C. Savings and loan associations | 16.9 |
In response to the foregoing statistics, the House Report comments:
Since your committee's bill increases appreciably the 23.2 percent effective rate of tax for commercial banks, it is your committee's intention not only to bring the level of taxation of mutual savings banks (presently 6.1 percent) up to the level of savings and loan associations (16.9 percent), but also to provide an increase in the 16.9 percent rate somewhat comparable to the increase in the 23.2 percent rate for commercial banks. For this reason, the percentage deduction for additions to bad-debt reserves is being reduced from 60 percent to 30 percent, but this reduction is to take effect over a 10-year period. This percentage reduction in the formula will raise the effective rate of tax for these institutions, but will still leave some margin of tax advantage for them over commercial banks, which should preserve the inducement for them to continue investing in real estate mortgages. [H. Rept. 91-413,
Thus, the House was *33 cognizant of the effective rate of tax paid by mutual institutions and intended to raise, but only to a specific and limited extent, that effective rate by reducing the deduction for addition to bad debt reserve.
Moreover, while the House proposed to reduce the applicable percentage used under the percentage of taxable income method from 60 to 30 percent over 10 years, the Senate proposed a reduction to only 50 percent over 4 years. The Senate, like the House, was aware of the *112 effective rate of tax paid by mutual institutions (S. Rept. 91-552,
The ordering rule found in the challenged portions of
Second, the new ordering rule reduces the value of NOL carrybacks and is therefore plainly at odds with Congress' intent to ameliorate the effects of the 1969 curtailment by granting mutual institutions a "more generous net operating loss carryback." H. Rept. 91-413,
The legislative history also indicates that Congress did not intend that
Further proof that Congress intended that pre-existing modifications remain in effect is the fact that any modification of the taxable income base would upset the legislative compromise reached in 1969. Contracting the base would result in a greater curtailment of the deduction for addition *38 to bad debt reserve, while expanding the base would neutralize in whole or in part the curtailment approved by Congress.
Finally, the statute itself does not state that its list of modifications is exclusive. We also note that when Treasury initially proposed the new ordering rule, it supported the change by arguing that Congress had enacted an exclusive, statutory list of modifications to the section 63 definition in 1969. Respondent, however, has essentially discarded this argument, perhaps because of lack of confidence in its merit.
Other ConsiderationsOther factors set forth in National Muffler Dealers Assn., Inc. v. United States support our conclusion.
We are mindful of the rule enunciated in cases such as
That a regulation harmonizes with an extinct ancestor of a statute, and its purpose, should not suffice. In National Muffler Dealers Assn., Inc. v. United States, the Court considered a 1966 amendment to section 501(c)(6) in attempting to decide whether regulations interpreting "business league," a term first used in the Tariff Act of October 3, 1913, comported with Congressional intent.
Respondent points out that the challenged provisions had been in effect for approximately 8 years when Congress amended
But we have no occasion to decide this question since we are of opinion that the reenactment of the section, without more, does not amount to sanction of retroactive enforcement *42 of the amendment, in the teeth of the former regulation which received Congressional approval, by the passage of successive Revenue Acts including that of 1928. [
Respondent argues that unless NOL-adjusted taxable income is the basis for computing the deduction for addition to bad debt reserve, mutual institutions will create reserves out of deposits, rather than income, as contemplated by Congress. Respondent has failed to demonstrate that Congress was concerned that additions to reserve be made from income. In fact,
Furthermore, the prior ordering rule does not enable petitioner or other mutual institutions to obtain "double deductions." Under the reserve method of accounting for bad debts, additions to a reserve for bad debts are deducted from income. No deduction is made, however, when an individual debt is deemed worthless. Rather, the reserve is charged in the amount of the debt. Conversely, the reserve is credited for debts collected after having been *43 deemed worthless.
To reflect the foregoing and concessions,
Decision will be entered under Rule 155.
Gerber, J., dissenting. I respectfully disagree with those who support the majority's opinion because they have chosen to invalidate a regulation which is a literal, accurate, and reasonable interpretation of unambiguous statutory provisions. This matter arose in circumstances under which respondent issued new regulations contrary to his original regulations and position. The superseded regulations had permitted the result being sought by petitioner. Although the majority has not shown that the new regulations are incompatible with the statutory structure, it has invalidated the regulation *44 because of its perception of congressional intent. I cannot support the majority's holding because: (1) The regulations are unambiguous and in complete accord with an unambiguous statutory framework; (2) the effect of the majority's invalidation of the regulations will not carry out the congressionally intended result described in the majority opinion; (3) it permits a congressionally unintended benefit to a specific class of taxpayers, which is not available to any other class of taxpayers; and (4) the majority has failed to consider the Supreme Court's analysis and approach in an analogous and similarly situated case.
BackgroundThe salient factors in this case are as follows:
*118 (1) Petitioner is a savings bank which computes its reserve for losses under
(2) Petitioner, during the taxable years 1971 through 1977, could have chosen any of several statutorily permitted methods of computing its *45 loss reserve. Some of the methods provide for computation of the reserve based upon actual experience. Another permits the use of an artificial statutorily permitted percentage of taxable income without regard to a taxpayer's actual loss experience. Petitioner, for its 1971 through 1977 taxable years, used the artificial percentage of taxable income method without regard to its actual loss experience to produce the largest permissible reduction of taxable income -- a result envisioned by Congress to permit the flow of additional capital and provide for potential losses.
(3) As much as 10 years later, in 1981 and 1982, petitioner experienced net operating losses which generated a net operating loss deduction (NOLD), which petitioner sought to carry back to the taxable years 1971 through 1977. The NOLD reduces taxable income and may produce a tax refund from the years to which it is carried back. To the extent that the NOLD is not absorbed in the year to which it is carried back, it is carried forward to the next later year with taxable income, and so on. Petitioner wishes to have the benefit of being able to carry the NOLD further forward by applying it against an amount of taxable *46 income in the carryback year which had been reduced by the maximum amount of reserve addition based upon a "taxable income" unreduced by the NOLD. In other words, petitioner wishes us to ignore the fact that taxable income had been reduced in the carryback year by an addition to the loss reserve based upon a percentage of taxable income. Respondent argues that taxable income must first be reduced by the NOLD before the reserve addition may be determined. It should be noted that respondent does not advocate that petitioner receive no allowance for its loss *119 reserve, but that it is not now feasible to compute it based upon the now-reduced amount of taxable income under the computation called for in the questioned regulation. It should also be noted that
The appropriate question posed by these facts is whether petitioner is entitled to the double benefit of carrying back the NOLD and also retaining the artificial and purely mathematical addition to its loss reserve based upon the "pre-NOLD" or unreduced amount of taxable income. 1*48 The answer to *47 this question is to be found in the definition of the term "taxable income." "Taxable income" is conceptually the bedrock of our income tax system. We must be careful not to weaken this structure by an inconsistent use of the basic principles which have been carefully formulated over the past 75 years. The majority has not shown or stated that the regulations 2 it invalidates do not comport with statutes (which are unambiguous on their face). The majority opinion is based upon a view that Congress intended a result opposite to that promulgated in respondent's regulation, even though the statutory provisions clearly and unambiguously comport with respondent's regulation. The majority also emphasizes respondent's 20-year practice of permitting the double benefit prior to promulgation of the regulation in question. 3*49
*120 Congressional IntentThe majority has expended substantial verbiage attempting to persuade us that Congress intended certain savings institutions to enjoy liberal loss reserves, which may result in the freeing of capital. To that extent, there is no disagreement. The disagreement concerns the majority's reasoning that these intentions are a basis for holding that certain savings institutions should have a more favorable definition or concept of "taxable income" applied to them in instances where they are carrying back a NOLD. No legislative history has been advanced by the majority for such a proposition and the statutes involved, as the majority must *50 admit, do not provide for such a result. The essence of the legislative history advanced by the majority tells us that Congress intended that certain savings institutions, which were once tax-exempt, should be subject to taxation; and that said institutions were originally intended to have broad discretion to enjoy liberal deductions attributable to their loss reserves.
The majority also refers us to the legislative history for the undisputed proposition that the 10-year net operating loss carryback was intended as a substitute for permitting larger loss reserves. This proposition is more properly cited in support of this dissenting view that Congress did not intend to permit both the largest possible reserve and 7 additional years within which to carry back subsequent losses, as petitioner is seeking and the majority has approved in this case. The position advanced by petitioner and approved by the majority is inconsistent with congressional intent concerning the relationship between the 10-year carryback and the more generous percentage of taxable income loss reserve allowance. Therein lies the incongruity and shortcoming of the majority's logic.
If these institutions are to be *51 subject to tax, the definition of "taxable income" utilized for them should be no different than the definition used for other taxpayers, unless specifically and congressionally mandated otherwise. *121 Here, in the face of unambiguous statutory provisions, the majority would redefine "taxable income" based upon its own rationalized view of inexplicit congressional intent. It is inappropriate to find an otherwise lucid statute(s) to be ambiguous based upon legislative history (assuming such legislative history existed here). 4*52 Furthermore, it seems inappropriate to look to legislative history underlying prior statutory provisions when Congress has reenacted the provisions in question at a time when the questioned regulations had been published for nearly 8 years -- a point for which the majority has already provided ample case support.
Congressional intent to expand or increase reserves or the amount of capital available for loans was fully served in this case. Throughout the period that ended with the net operating loss, petitioner received the benefit of computing its loss reserve allowance based upon a percentage of taxable income unreduced by the NOLD now in issue. By means of the beneficial computation in each of the years 1971 through 1977, petitioner ostensibly reported less taxable income and had more cash to loan while amassing a larger reserve for losses. The current recomputation of a portion of the addition to the reserve does not change the availability of that cash which was likely received by borrowers long before petitioner experienced a net operating loss in the 1980's. The only direct effect of the current recomputation is to determine the amount of the net operating loss deduction to be absorbed and, hence, the amount of any refund due the taxpayer. The recomputation, as it relates to the allowance for losses and the loss *53 reserve, has no effect on the congressionally intended result.
Moreover, the congressional intent underlying the net operating loss deduction is also fully served by the ability of petitioner to seek refunds or reductions of tax liability from "carryback years" which would be currently available for the congressionally intended purpose of making capital *122 available to the taxpayer who suffered the net operating loss. Here, however, petitioner, in addition to the favorable reserve benefits already received and those still available, asks us to use differing definitions of "taxable income" to provide to it benefits beyond those congressionally mandated. The concept of net operating losses is not unique to petitioner, as is the loss reserve addition permitted by Congress, and we cannot permit special treatment in an area involving a universal concept (like net operating losses or taxable income) without a clear and specific congressional mandate. As pointed out by the majority, the extra benefit relative to operating losses that Congress conferred upon these savings institutions was to permit a 10-year, rather than a 3-year, carryback. No additional benefit is described or should be *54 inferred, including the one sought by petitioner in this case.
The Double Benefit AspectThe circumstances of this case have a direct and correlative relationship to the situation we considered in
Failure to reduce the loss reserve addition would result in the anomaly of no taxable income in a particular year and a large increase to the reserve for losses based upon a now-fictional amount of taxable income. Because the *55 addition to the reserve results in a deduction used to arrive at taxable income, distortion and incongruity must result. Where a taxpayer's taxable income increases due to events *123 occurring subsequent to the taxable year in question, that taxpayer's addition to the loss reserve could increase.
Moreover, the majority has failed to emphasize (having relegated it to footnote 3 of the majority opinion) that, under respondent's computation, petitioner will be entitled to a deduction for a reserve allowance based upon one of the other formulae provided in
The adjustment to taxable income and resulting reduction to the reserve addition based upon taxable income is practically no different from the mechanical changes that affect "below the line" medical deductions and charitable and other percentage limitations based upon changes to adjusted gross or taxable income. See for example
In
The alternative computation is made separately from the computation of other income, and, for computational purposes only, the amount of taxable income reflected in part of the computation does not include income from capital gains. In Foster Lumber, the alternative computation produced a lower tax than the regular computation. But the interplay of the NOLD from a subsequent year caused the absorption of all taxable income without permitting the benefit of the capital gains tax rate. The question decided by the *58 Supreme Court was whether capital gain income had to be used as part of taxable income to be absorbed by the NOLD before it was carried to other taxable years. 5 The taxpayer argued that it would lose the benefit of the alternative tax computation if the capital gain portion of taxable income was used to absorb a portion of the NOLD. The Government argued that capital gain income was part of taxable income and must be used in the absorption process. The Supreme Court held for the Government.
In so holding, the Supreme Court, in part, rested its decision upon the concept that taxable income includes capital gains and the NOLD must be applied against or absorbed by all taxable income, irrespective of its characterization as ordinary or capital. The Court was cognizant that the use of the alternative tax computation produced a lower tax liability and that capital *59 gains were not, in the *125 computational sense, a part of taxable income when using the alternative capital gains method of computing the tax liability. Accordingly, the Supreme Court in Foster Lumber was forced, as we are in this case, to consider two competing benefits conferred by Congress. Its holding resulted in the taxpayer not receiving the full benefit of the alternative capital gains computation. 6
In this case we are also confronted with a situation where there is interplay between two benefit provisions. As in Foster Lumber, carryback loss deductions are involved. Here, however, we consider a provision permitting certain savings institutions to liberally compute their loss reserves. Like the beneficial capital gains rates in Foster Lumber, petitioner had the benefit of a liberal
As in Foster Lumber, the majority here should have protected the concept of "taxable income" and the internal harmony of the tax code. As in Foster Lumber, the majority should have strived to treat all taxpayers utilizing net operating losses equally, unless there is a contrary and express congressional mandate to treat them otherwise. To have done so would not cause petitioner any overall hardship. If the majority had not invalidated the regulation, petitioner would have been treated, at very least, equal to other taxpayers who incurred net operating loss deductions. Instead, the majority's *61 invalidation of the
I respectfully submit that petitioner should not be permitted to utilize an addition to its loss reserve based upon a concept of taxable income not specifically mandated in the statutes and/or unavailable to all taxpayers equally.
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. During relevant times, the portions of
section 593 pertinent to the instant case provided as follows:SEC. 593(b) . Addition to Reserve for Bad Debts. --(1) In general. -- For purposes of
section 166(c) , the reasonable addition for the taxable year to the reserve for bad debts * * * shall be an amount equal to the sum of --* * * *
(B) the amount determined by the taxpayer to be a reasonable addition to the reserve for losses on qualifying real property loans, but such amount shall not exceed the amount determined under paragraph (2), (3), or (4) whichever amount is the largest, * * *
* * * *
(2) Percentage of taxable income method. --
(A) In general. -- * * * the amount determined under this paragraph for the taxable year shall be an amount equal to the applicable percentage of the taxable income for such year (determined under the following table):
↩For a taxable year The applicable percentage beginning in -- under this paragraph shall be -- 1971 54% 1972 51 1973 49 1974 47 For a taxable year The applicable percentage beginning in -- under this paragraph shall be -- 1975 45 1976 43 1977 42 1978 41 1979 or thereafter 40 3. The example ignores, for the sake of simplicity, that the taxpayer may be entitled to a deduction under an alternative method, such as the experience method, even if lack of "taxable income" prevents a deduction under the percentage method.
4. Technical corrections to the Revenue Act of 1978 increased the percentage to 18/46. Pub. L. 96-222, sec. 104(a)(3)(C), 94 Stat. 215.↩
5. Because petitioner did not argue the reenactment doctrine (
Helvering v. Winmill, 305 U.S. 79">305 U.S. 79 , 83 (1938)), we do not address the impact of the doctrine on Treasury's authority to promulgate the challenged provisions. CompareHelvering v. R.J. Reynolds Tobacco Co., 306 U.S. 110">306 U.S. 110 (1939) (Congressional approval of long-standing regulation precluded retroactive enforcement of amended regulation taking contrary position) andHelvering v. Griffiths, 318 U.S. 371">318 U.S. 371↩ (1943) (reenactment doctrine cannot invalidate reasonable, prospective amendments to regulations).1. This is a double benefit because it would permit the benefits of the NOLD and the unreduced loss reserve at the same time. These benefits may both exist only if inconsistent concepts of taxable income are used. Moreover, as explained infra, the NOLD and addition to the loss reserve represent concepts which Congress intended to be inversely proportional, so that if one is larger, the other, by design, must be smaller. Here petitioner seeks for them both to be utilized without considering the other.
The record is silent on whether petitioner's particular accounting method with regard to reporting of actual losses or recoveries could result in the potential for double deductions. For purposes of this discussion it is assumed that the question of potential double deductions is not involved and should not be considered.↩
2. The regulations require the reduction of taxable income by NOLD's and the recomputation of the addition to the reserve based upon the reduced amount of taxable income. In a recent opinion we held that taxpayers were permitted broad discretion to choose among the various methods for computing their reserve under
sec. 593 .The Home Group, Inc. v. Commissioner, 91 T.C. 265">91 T.C. 265 (1988), affd. on other grounds875 F.2d 377">875 F.2d 377↩ (2d Cir. 1989). In that Court-reviewed opinion we permitted a taxpayer to select the method it wished for a 1969 taxable year during a 1988 controversy over the computation of a deficiency under Rule 155 of our Rules of Practice and Procedure.3. Respondent's inconsistent positions, whether expressed in revenue rulings or contained in superseded regulations, should be afforded little or no weight. To give credence to respondent's longstanding positions as a basis for holding a regulation valid or invalid, if equally applied in other settings, may place us in a position of treating respondent's longstanding positions as correct by means of prescriptive preemption. If the regulations in question comport with the statute and congressional intent, should they be invalidated because of respondent's longstanding position or interpretation to the contrary?
4. The majority has proceeded a step beyond using the legislative history to assist in understanding a statutory provision. Indeed, without a supporting statutory provision or an ambiguity in the one the regulation tracks, the majority has devised a self-serving version of congressional intent. Commentators have cautioned us to be leery of congressional commentary even where it directly addresses the statutory matter. See Justice Scalia's comments in his concurring opinion in
Blanchard v. Bergeron, 489 U.S. 87">489 U.S. 87 , 97↩ (1989).5. This is, in essence, the same question which we address in this case. The only difference is one case involved an addition to taxable income (capital gains) and the other involves a reduction from taxable income (reserve allowance deduction). Otherwise, in principle and practice, the matters should be treated homogeneously.↩
6. See Justice Blackmun's dissent for further explanation of the benefits involved and the failure of the taxpayer to receive part of the benefits congressionally intended.
United States v. Foster Lumber Co., 429 U.S. 32">429 U.S. 32 , 49-52↩ (1976).