dissenting:
It seems to me that the regulation under the 1950 Act requiring the making of an election within six months after the return was filed nullifies that provision of the Act which makes it retroactive to taxable years beginning after December 31,1940. A return for a taxable year beginning January 1,1941, had to be filed by March or April 1942. If the election had to be made six months thereafter, it would have been necessary to make it by September or October 1942; but the Act of 1950 extending the time for making the election was not passed until eight years later. Hence, under the regulation the time for making the election had passed before the Act giving the right had been enacted. Its retroactivity to the year 1941 was, therefore, nullified by the regulation. So, as to the years 1942, 1943, 1944, 1945, 1946, 1947 and 1948, and parts of 1949.
The taxpayer was entitled to some period of time after the passage of the Act of 1950 to take advantage of the privilege therein granted. It claimed the privilege in 1948, when it filed its claim for refund.
I think plaintiff is entitled to recover.
Littleton, Judge, concurs in this dissent.FINDINGS OF FACT
The court, having considered the evidence, the report of Commissioner George H. Foster, and the briefs and argument of counsel, makes findings of fact as follows:
1. The plaintiff is a corporation organized and existing under and by virtue of the laws of the State of Michigan with its principal offices at Harbor Beach, Michigan. It is engaged in the manufacture of starches, adhesives, monosodium glutamate, and other wheat starch derivatives.
2. Commencing with its fiscal year ended June 30, 1940, plaintiff with the permission of the Commissioner of Internal Eevenue adopted the so-called “LIFO” method of keeping its inventories of flour pursuant to the provisions of section 22 (d) of the Internal Eevenue Code. Thereafter, and at all times pertinent hereto, the plaintiff continued to keep its inventories of flour under such method.
*7393. Plaintiff, during the period here involved, kept its books of account on the accrual basis and reported its income for tax purposes on the fiscal year basis commencing July 1 of each year and ending June 30 of the following year.
4. During the fiscal year beginning July 1,1945, and ending June 30,1946, plaintiff’s inventories of flour were greatly reduced because of the restrictions provided by War Food Order No. 144, as amended. Under that order, domestic deliveries of wheat flour for the year 1946 were reduced to not over 75 percent of the quantity distributed by millers in plaintiff’s category in the corresponding months of 1945. The said regulation also prohibited the plaintiff from carrying more than twenty-one days’ supply of flour on hand.
5. Plaintiff’s inventories of flour as of July 1, 1945, and June 30, 1946, together with the value thereof reported in its tax returns for its fiscal year 1946 were as follows:
Number of pounds reported but un-
changed by Commissioner of In-On HandJuly 1, 1945 On handJune So, 191,6
ternal Eevenue_ 9,851,630 lbs. 1,569,745 lbs.
Valuations reported in returns_ $143,104.35 $22,465.56
6. During the months of July, August, and September 1946, the plaintiff purchased the quantities of flour shown below for inventory replacement: L
Quantity, lbs.
July 1946_ 384,020
August 1946_ 2,471,840
September 1946_4,618,855
Total_ 7,474,715
7.On September 11, 1946, plaintiff filed its corporation income and declared value excess profits tax return and its excess profits tax return for its fiscal year ended June 30, 1946, reporting an aggregate tax liability of $691,798.45, which was duly paid. Subsequently, the Commissioner of Internal Revenue made certain adjustments in plaintiff’s reported income and excess profits tax liability, which adjustments are not involved in this proceeding. The plaintiff did not file with its returns for its fiscal year 1946 any statement showing its election to invoke the involuntary liquidation relief provisions of section 22 (d) (6) of the Internal Revenue Code.
*7408. On June 14, 1950, the Commissioner of Internal Revenue duly issued a ninety-day statutory deficiency notice covering several years including plaintiff’s fiscal year 1946. Plaintiff was advised in the deficiency notice that the issues set forth in its claims for refund for the fiscal year ended June 30, 1946, which were thereby denied, should be made a part of any petition by the plaintiff filed with the Tax Court of the United States. No deficiency was asserted in the deficiency notice for the fiscal year ending June 30,1946.
The computation of taxable income for the fiscal year ended June 30,1946, set forth in the statutory notice of deficiency, discloses a further deduction of $108,724.01 for cost of sales. This deduction resulted from correction of plaintiff’s LIFO method of valuing inventories for the fiscal year 1946. This and the other adjustments to taxable income for the fiscal year 1946 were agreed to by plaintiff in an agreement executed by plaintiff on August 11,1948.
9. On June 30, 1950, the plaintiff filed a petition with the Tax Court of the United States appealing from the determination of the Commissioner as set forth in his ninety-day letter.
In its petition to the Tax Court, plaintiff claimed that the Commissioner of Internal Revenue erred in failing to allow an additional deduction from net income for the fiscal year 1946 for interest paid during such fiscal year and also erred in failing to allow adjustments under section 711 (b) (1) (J) (ii) and section 721 (a) (2) (C) of the Internal Revenue Code. Plaintiff also claimed the Commissioner failed to compute correctly its inventories under section 22 (d) of the Internal Revenue Code for the fiscal years ended June 30,1940 to June 30,1946, inclusive. No claim was made in the petition, of an election to invoke the involuntary liquidation relief provisions of section 22 (d) (6) of the Internal Revenue Code for the fiscal year 1946.
That petition with respect to plaintiff’s fiscal year 1946 specifically presented issues arising under sections 23 (b), 711 and 721 of the Internal Revenue Code.
On January 9, 1951, plaintiff filed with the Tax Court a motion to strike from its petition the issue concerning the claim of an additional deduction from net income for the *741fiscal year 1946 for interest paid during such fiscal year and, for a reason therefor, stated it was no longer contesting the issue. The Tax Court granted plaintiff’s motion to strike on the same date it was filed.
10. On January 9,1951, the plaintiff and the Commissioner of Internal Revenue filed with the Tax Court a stipulation agreeing to certain deficiencies and overassessments for the years involved in the proceeding before that court. With respect to plaintiff’s fiscal year 1946, it was stipulated that there was an overpayment of excess profits taxes in the amount of $10,277.76. The stipulation also said:
That for the fiscal year ended June 30,1946 there are no standard issues before this Court. The overpayment of excess profits tax arises solely from the application of Sections 711 and 721 of the Internal Revenue Code. Petitioner does not hereby waive whatever rights it may have with respect to any standard issues for the fiscal year ended June 30, 1946.
11. On January 15, 1951, the Tax Court issued its decision on the stipulation of the parties and, with respect to plaintiff’s fiscal year 1946, it ordered and decided:
That there is an overpayment in excess profits tax for the fiscal year ended June 30, 1946 in the amount of $10,277.76, which amount was paid within two years before the filing of the claim for refund.
A deficiency of $4,808.30 in the plaintiff’s income tax was also determined for its fiscal year 1946, and after the plaintiff had duly filed a consent thereto on Form 870-TS on January 2, 1951, the deficiency was paid by credit on February 28, 1951.
12. At the time plaintiff adopted the LIFO method of keeping inventories in 1939, it employed as its tax advisor, one Thomas Forward, who prepared its tax returns. Thomas Forward was a certified public accountant engaged in the practice of public accounting with many years of experience in handling tax matters for the plaintiff and for others.
At the instructions of Mr. Forward, plaintiff priced any increases in its inventory in each taxable year over the preceding year in the following manner. If the inventory of the taxable year exceeded the inventory of June 30,1939, the *742excess was priced by using the price paid in each succeeding month following June 30,1939, for the acquisitions in those months equal to the increase in the inventory in the current year over the prior year. The increases in the inventory from one year to the next were designated as layers.
Under the instructions of Mr. Forward, if there was a decline in the amount of inventory of one taxable year below that of the preceding year, the last layer of the inventory was eliminated. However, if in the following year there was an increase in the closing inventory, the increase was priced at the price of the layer previously eliminated rather than at the price of the first acquisitions in the year just ended.
Plaintiff thought that the instructions of Mr. Forward were proper until the revenue agent’s examination of the return for the fiscal year ended June 30, 1946, which was commenced in January 1948.
13. The process of examining corporate returns is a complicated and time consuming activity, including the following steps: the assignment of a serial number by the collector, mathematical verification, transfer of the return to Washington, examination in Washington, transfer of the return to the agent’s office, survey of the return in the agent’s office, assignment to the group chief, assignment by the group chief to the revenue agent, examination by the revenue agent prior to notification of the taxpayer, notification of the taxpayer, and field audit.
Taxpayer’s return for the fiscal year ended June 30,1946, was not examined within six months of its due date on September 15, 1946.
14. On April 20, 1946, The New Century Company, 3940 South Union Avenue, Chicago, Illinois, addressed a letter to G. G. Shipley, secretary of the plaintiff company, reading as follows :
I told you over the phone this morning from memory that we had 10,500 cwts. in store at Sykes Terminal Warehouse. This is incorrect. The exact quantity is 13,500 Cwts. I had in mind 10,500-140# jutes or about the equivalent of 13,500 cwts. The figure I gave you as 11,118 cwts. in store at our warehouse is correct.
*743Shortly after I talked to you, our Journal of Commerce was delivered, and in reading Item 3 of the amended War Food Order 144,1 conclude that we are not included in this restriction as the order reads, “limited Millers and Feed Manufacturers, etc.” It says nothing about Jobbers or Merchandisers.
It appears as though you will have to keep your inventory down to 21 days supply effective May 1st, but we can keep as much flour in store as we can get space for.
As explained, we are shipping two cars today, and have only four more in transit, and from the notifications we have had from several mills, we do not believe we will have too much flour to worry about for awhile and can arrange to handle any shipments we do get. In other words, we do not want to stop the mills from shipping if we possibly can avoid it.
15. On April 24,1946, The Consolidated Flour Mills Company, Wichita, Kansas, addressed a letter to the plaintiff, reading as follows:
The government really pulled a fast one in making the 75 % limitation order retroactive to April 1. This forced us to shut down our mills since we had already ground 75% of our April ’45 production. Wired you yesterday so you would know our situation.
We intend to be running again by the middle of next week. Will then get your shipments out as rapidly as possible.
Sincerely regret this situation which, of course, is due to another government attempt to fulfill export promises. They have been trying everything, as you know.
Kindest regards.
16. On June 6,1946, The New Century Company addressed a further letter to plaintiff’s secretary, reading as follows:
We thought you might be interested in knowing how the flour supply situation looks from here.
As you know, our Mr. Shields just recently returned from a trip through the Southwest. He had in mind two purposes; one was to secure whatever old crop flour he could and the other was to book as much new crop flour as possible. He was able to buy only two cars of old crop flour, and while the millers were rather optimistic as to what they expected to do on the new crop, he was unable to book a single car.
*744Just what we are going to be able to buy is very uncertain. We hope to be able to get a few cars toward the end of this month, and then feel rather optimistic about the prospects of getting a fairly, good supply toward the middle of July. However, it all defends upon how the wheat moves, and none of the millers seemed certain enough about getting a supply that they wanted to book any flour.
We know you need to plan your operations as far in the future as possible, and we wish we could give .you some definite information, but up to the. present time, it is impossible. It does seem to us that with the banner crop which is being harvested that there should be lots of wheat and flour available very shortly, and you may be sure we will do our best to get you all possible.
17. On September 29, 1947, the plaintiff addressed a letter to Mr. T. S. Forward of Forward & Love, 409 Griswold Street, Detroit, Michigan, reading as follows:
You will recall that due to conditions beyond our control we lost our Plant base inventory of 6/30/39 in FY 1946. At June 30th, 1939 we had on hand an inventory that was sufficient to run our regular production for 1% months, or 4,335,380 lbs. The first sis months of FY 1940 we washed 15,000,000 lbs. flour, an average of 2,500,000 per month. At June 30th, 1945 we had an inventory of 9,852,430 lbs. which was 1% months supply, the same as our 6/30/39 inventory was.
We only operated 13 days in May of FY 1946 due to our inability to get flour and by June 30th we had only 1,569,-745 lbs. of flour on hand. If I remember correctly we decided to run in June as against July as we never dreamed the inventory basis would be changed as it was this last spring. As it happened we could not acquire enough flour on hand nor buy future delivery in quantities sufficient to run the plant until August 1946. Late in August 1946 we did start up and have run continuously since and at June 30, 1947 had built our flour inventory up to 9,044,000 lbs. which at the last three months rate would be 1.6 months supply.
The above is a rough story but if there is any merit in the idea we can go into any further facts that are necessary. I might mention though, that on flour alone the difference at June 30,1947 between the way we have been pricing the elective and the way we had to do it finally amounted to a loss to us of 231,600.00 for FT [sic] 1947. *745And if our inventory liquidation of flour late in F Y1946 bad not happened we would have had our 1939 basis intact on which to price the June 30,1947 flour inventory which would have given us the 231,600.00 loss, which in effect was partially offset by a 97,000.00 gain we had to take June 30,1945 as due to flour shortages at that time, we had lowered our flour inventory quite a little during the year.
Now the question. The Government has been allowing companies to pick up their basic elective inventories at the time they changed back from war production to domestic production and it seems to us we have seen of cases where this was also allowed in cases of involuntary liquidation of inventories which happened in our case. Is it possible that we have a good enough case to go to the Treasury Department with in the case of our Raw Material, Flour ? It would make a tremendous difference to us if we could.
To protect the 500,000. difference in our elective and actual cost inventory at the present time we have got to watch our sales and inventory the early spring and summer every year in order to maintain at least the equivalent of the 6/30/46 inventory which is now our only protection from falling prices, when they come.
18. On October 8,1947, the plaintiff wrote a further letter to Mr. T. S. Forward, readings as follows:
Per our phone conversation of yesterday afternoon, I understand you wish to know just why we were unable to maintain our flour inventory at a normal quantity at 6/30/46.
I believe the explanation lies in the War Food Order 144 amended. This measure set up restrictions as a famine relief measure.. It cut domestic deliveries to not over 75% of the quantity of flour distributed by millers in the corresponding month of 1945. It also prohibited us from carrying over 21 days supply of flour on hand, per the New Centruy [sic] Co. letter to us of April 20, copy of which is enclosed. We do not appear to have a complete copy of the text of these amendments 6-7 to the War Food Order #144. According to the special bulletin of the Southwestern Miller of 4/20/46, the flour limitations on deliveries were retroactive to April 1, 1946.
If there is any more information we can get you, please advise.
*74619. On April 27, 1948, the plaintiff addressed a further letter to Forward & Love, reading as follows:
With reference to our ’phone conversation of this morning we are listing below the detail of the inventories on flour for the fiscal years 6/30/45-6/30/46 & 6/30/47. These figures are all on the new valuations as figured by us in March and are apparently accepted by Mr. Zinzo, the Revenue Agent, as to method of figuring.
Refiguring the 6/30/47 Inventory under the method used for allowance of claim in involuntary liquidation of inventories, we would have the following:
INVENTORY 6/80/47
Valuation of 9,044,460 because we did not apply for relief under involuntary liquidation provision.
INVENTORY 6/80/47
Valuation under involuntary liquidations using values in 6/30/45 Inv.
*747
In support of the above claim, we will have to show the involuntary conversion on flour was of a nature to make the loss an allowable deduction and also we believe we should have the proper application submitted with the amended 1947 return you are going to file, in order to protect us for the 47 year. However, at present it does not look like we could blame any liquidation last year or this year on any cause acceptable under the Eevenue Code.
I believe our correspondence of last September and October covers the reasons for our loss of the flour base inventory.
20. On June 1,1948, plaintiff filed a claim for refund for its fiscal year ended June 30, 1946, in the amount of $112,638.90. That claim asserted as grounds therefor the issues raised in the present proceeding and therein for the first time the plaintiff claimed the benefit of Code section 22 (d) (6) on the ground that its flour inventories for its fiscal year 1946 had been subjected to involuntary liquidation. By statutory notice dated December 8,1949, the Commissioner of Internal Eevenue rejected plaintiff’s claim for refund.
CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and its petition is dismissed.