*106 Decision will be entered under Rule 155.
Ts sustained net operating losses (NOLs) and alternative minimum tax NOLs in 1984 and 1985. In each of their tax returns for those years, they stated "Taxpayers elect to forego [sic] the carryback period for the regular NOL in accordance with
Held, the regular and alternative tax net operating loss deductions are governed by a single carryback period, to which only a single election made under
Held further, Ts effectively communicated their intent to make an election which was unavailable to them, and which was therefore invalid. Accordingly, they are entitled, indeed required, to carry back their alternative minimum tax NOLs before carrying them forward, but at the same time they are similarly required to carry back their regular NOLs prior to carrying them forward.
*633 OPINION
The Commissioner determined a deficiency in petitioners' income tax for their 1983 taxable year in the amount of $ 311,657. At the time petitioners filed the petition herein, they resided in Houston, Texas. This case was submitted on a stipulation of facts and exhibits. Petitioners attempted in their 1984 and 1985 returns to make an election under
Petitioners timely filed an income tax return for 1983 on which they reported liability for the alternative minimum tax in the amount of $ 403,862. In 1984, petitioners sustained a net operating loss (NOL) of $ 544,066 and an alternative minimum tax NOL of $ 541,343. Petitioners' timely filed tax return for 1984 contained the statement that "Taxpayers elect to forego [sic] the carryback period for the regular NOL in accordance with*109
On April 24, 1985, the Commissioner received from petitioners a copy of Form 1045, entitled "Application for Tentative Refund." This form showed the computations *634 underlying the alternative minimum tax NOL of $ 541,343 sustained by petitioners in 1984. It also indicated that the carryback of the 1984 alternative minimum tax NOL to 1983 would entitle petitioners to a refund of $ 108,269 for 1983. There is no dispute that they received a refund in this amount. Petitioners did not seek a refund relating to a carryback of the regular NOL. Instead, they carried this NOL over to 1985 and claimed it as a deduction for that year.
In 1985, petitioners sustained a net operating loss of $ 1,021,804 and an alternative minimum tax net operating loss of $ 1,016,940 as indicated by their timely filed income tax return for that year. Their 1985 return contained the statement that "Taxpayers elect to forego [sic] the carryback period for the regular NOL in accordance with
The Commissioner subsequently determined that petitioners' "1984 and 1985 alternative minimum tax net operating losses are not allowed in computation of 1983's alternative minimum tax because elections to relinquish each of the carrybacks were made in accordance with
At issue is the effect of petitioners' attempt under
The deductions for net operating losses were introduced into our revenue law in 1939 for carryovers and in 1942 for carrybacks. 3 These provisions have been amended from time to time, both before and after being incorporated into the 1954 Code as
*113 *636
*114 A taxpayer may elect to relinquish the carryback period with respect to the loss sustained in a given year.
*116 As applicable to the taxable period before us,
*638
*118
A statement made in the legislative history of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, confirms our conclusion that only one carryback period exists. The conference report relating to that act stated that "It is clarified that an election under
Petitioners rely on the following example contained in the legislative history of TEFRA, S. Rept. 97-494, 111-112 (1982):
if in year one a taxpayer has $ 20,000 of income and $ 35,000 of losses, of which $ 10,000 are preference items, the minimum tax net operating loss for the year is $ 5,000. Thus, in any subsequent (or prior) year a $ 5,000 net operating loss deduction will be allowed to reduce income subject to the minimum tax.
Assume that in year two, the taxpayer has $ 20,000 of minimum taxable income (without regard to the net operating loss deduction) and *640 $ 20,000 of preferences. The taxpayer will be allowed to reduce his minimum taxable income to $ 15,000 by the $ 5,000 net operating loss deduction. The net operating loss deduction for purposes of the regular tax will not be affected by this computation (i.e. the taxpayer will have a loss*121 carryover of $ 15,000 from year 1 to be used under the regular tax in subsequent years).
Petitioners claim thatThis example illustrates the distinctness between the regular NOL and the AMT NOL and the fact that an AMT NOL may be used in one year without affecting the use of the regular NOL in subsequent years. A necessary corollary of this relationship is that an AMT NOL may be carried back to past taxable years while the regular NOL is carried forward to future years.
The quoted example does not support petitioners' contention. The example demonstrates only that alternative minimum tax NOL carrybacks are deducted from and absorbed by alternative minimum taxable income, while regular NOL carrybacks are deducted from and absorbed by taxable income. The example does not refer to the carryback period, or to the election to relinquish such period under
Having decided that only one net operating loss carryback period existed, and that an election to waive such carryback period would necessarily apply for*122 both regular and alternative minimum tax purposes, it now remains for us to decide whether the actions taken by petitioners constituted an election to waive the carryback period. For the reasons subsequently stated, we hold that petitioners did not make a valid election to waive the carryback period.
Several courts, including this one, have held in various other contexts that a taxpayer who attempts to make an election that is not legally available to him will be treated as having made no election, and accordingly may be allowed to make another election as though the original election had not been made. E.g.
Petitioners' 1984 and 1985 tax returns each contained only one statement purporting to be an election. That statement was "Taxpayers elect to forego [sic] the carryback period for the regular NOL in accordance with
The Commissioner cites several cases in support of his position, the strongest of which would appear to be an estate tax case,
While Rosenfield may appear to be analogous to this case, it is distinguishable. In this case, the elections for 1984 and 1985 consisted of explicit statements made by petitioners on their returns for those years, and both such statements contained the underlined word "regular." Thus, the very statements by which petitioners attempted to make the
The Commissioner misplaces his reliance on the legislative intent behind section 6411, which governs, among other things, tentative refunds stemming from net operating loss carrybacks. It may be true, as argued by the Commissioner, that only a cursory inspection of the refund application is possible, given the 90-day period within which the Commissioner must issue or deny the request for a refund. See sec. 6411(b); S. Rept. 1357, 78th Cong., 2d Sess. (1944),
Having determined that various other contentions made by the parties do not merit discussion,
Decision will be entered under Rule *127 155.
Footnotes
1. 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, unless otherwise indicated.↩
2. On their 1986 tax return, petitioners stated that they "elect to forego [sic] the carryback period for net operating losses in accordance with
sec. 172(b)(3)(C)↩ and will carry them forward to subsequent periods." In 1987, petitioners sustained a net operating loss and an alternative minimum tax net operating loss and carried both NOLs back to 1986.3. The carryover provisions were brought into the law as sec. 122 of the 1939 Code, shortly after the adoption of that code. Revenue Act of 1939, ch. 247, sec. 211, 53 Stat. 867. The carryback provisions were added in 1942 by an amendment to sec. 122 of the 1939 Code. Revenue Act of 1942, ch. 619, sec. 153, 56 Stat. 847.↩
4.
SEC. 172 . NET OPERATING LOSS DEDUCTION.(a) Deduction Allowed. -- There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term "net operating loss deduction" means the deduction allowed by this subsection.
(b) Net Operating Loss Carrybacks and Carryovers. --
(1) Years to which loss may be carried. --
(A) Except as provided * * * [in other subparagraphs], a net operating loss for any taxable year shall be a net operating loss carryback to each of the 3 taxable years preceding the taxable year of such loss.
(B) * * * Except as provided * * * [in other subparagraphs], a net operating loss for any taxable year ending after December 31, 1975, shall be a net operating loss carryover to each of the 15 taxable years following the taxable year of such loss.
* * *
(2) Amount of carrybacks and carryovers. -- Except as provided in subsection (g), the entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the "loss year") shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall be computed --
(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof; and
(B) by determining the amount of the net operating loss deduction --
(i) without regard to the net operating loss for the loss year or for any taxable year thereafter, * * *
and the taxable income so computed shall not be considered to be less than zero. * * *
[3) Special Rules. --
* * *
(C) Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year ending after December 31, 1975. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for that taxable year.↩
5. The amount absorbed in each year to which the NOL is carried is not necessarily the amount of the NOL that was used as a deduction in each such year.
Sec. 172(b)(2) provides that after being carried to the earliest available year, the portion of the NOL remaining to be "carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior years to which such loss may be carried." Moreover, the "taxable income" for any such prior year is to be computed with certain modifications. Unless we deem it appropriate to be more specific, when we refer to the amount of the NOL as being absorbed in a particular year, we do so for convenience as a shorthand expression for the amount thus extinguished for that year pursuant tosec. 172(b)(2)↩ , rather than the amount that was actually used as the NOL deduction or part thereof for that year.6.
SEC. 55 . ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS.(a) Tax Imposed. -- In the case of a taxpayer other than a corporation, there is imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of --
(1) an amount equal to 20 percent of so much of the alternative minimum taxable income as exceeds the exemption amount, over
(2) the regular tax for the taxable year.
(b) Alternative Minimum Taxable Income. -- For purposes of this title, the term "alternative minimum taxable income" means the adjusted gross income (determined without regard to the deduction allowed bysection 172 ) of the taxpayer for the taxable year --(1) reduced by the sum of --
(A) the alternative tax net operating loss deduction, plus
(B) the alternative tax itemized deductions, plus
(C) any amount included in income under section 87 or 667, and
(2) increased by the amount of items of tax preference.
* * *
(d) Alternative Tax Net Operating Loss Deduction Defined. -- For purposes of this section --
(1) In general. -- The term "alternative tax net operating loss deduction" means the net operating loss deduction allowable for the taxable year under
section 172 , except that in determining the amount of such deduction --(A) in the case of taxable years beginning after December 31, 1982,
section 172(b)(2) shall be applied by substituting "alternative minimum taxable income" for "taxable income" each place it appears, and(B) the net operating loss (within the meaning of
section 172(c) ) for any loss year shall be adjusted as provided in paragraph (2).(2) Adjustments to net operating loss computation. --
(A) Post-1982 loss years. -- In the case of a loss year beginning after December 31, 1982, the net operating loss for such year under
section 172(c) shall --(i) be reduced by the amount of the items of tax preference arising in such year which are taken into account in computing the net operating loss, and
(ii) be computed by taking into account only itemized deductions which are alternative tax itemized deductions for the taxable year and which are otherwise described in
section 172(c) .* * *↩
7.
Sec. 55(d)(1)(A) causes alternative minimum tax NOLs to be absorbed by alternative minimum taxable income in the same way that regular NOLs are absorbed by regular taxable income. See supra note 5.Sec. 55(d)(1)(B)↩ requires the exclusion of certain deductions and tax preference items from the computation of an alternative minimum tax NOL in order to harmonize the alternative minimum tax NOL deduction with the policies underlying the alternative minimum tax. See S. Rept. 97-494, 110-111 (1982).