in the absence of contrary expression, other Code provisions apply and define investment credit provisions
How later courts described this case
- in the absence of contrary expression, other Code provisions apply and define investment credit provisions
Written by the judges who cited it.
The opinion
SkeltoN, Judge,
dissenting:
I cannot agree with, the majority opinion because it allows the taxpayer a double deduction from its income tax of the money in the reserve fund, used to buy the ships and to pay off mortgages on them.
The first deduction occurred when the money was deposited in the reserve fund. This was proper and in accordance with 46 TJjS.C. § 1177(h) (1964) which provides that earnings deposited in the reserve funds “shall be exempt from all Federal taxes.” This deduction was also in accordance with the tax closing agreements of 1947 and 1964, which provided that earnings deposited in the reserve funds would be “tax-deferred income,” which was defined as meaning that such earnings were not taxed.
The second tax deduction occurred when the taxpayer included the payments from the tax exempt reserve funds in its cost basis in figuring its invested capital in the ships. This deduction was a direct and express violation and breach of the tax closing agreement of 1947 the taxpayer signed with the Internal Revenue Service. The majority holds that the Revenue Act of 1962 providing for the investment tax credit nullified the 1947 agreement. I do not agree. A new closing agreement was executed by the taxpayer and the IRS which, for all practical purposes, was the same as the 1947 agreement. These closing agreements provided that money deposited in the reserve funds “are not to be recognized in the determination of cost basis or invested capital.” The taxpayer ignored this provision and included the previously deducted reserve fund money in its cost basis of the ships, thereby increasing its invested capital, resulting in an increased investment tax credit and a double tax deduction of the reserve funds.
Furthermore, the inclusion of the reserve funds in taxpayer’s cost basis was in violation of Sections 38,46 and 48 of the Internal Revenue Code of 1954 and Treasury Regulation § 1.48-1 (b) (2) (1964), which allow an investment tax credit only on section 38 property, which is defined as “property with respect to which depreciation * * * is allowable.” The above regulation provides that if a deduction for depreciation is allowable only on a part of taxpayer’s property, then only that part qualifies as section 38 property for the purpose of *99 determining tbe investment tax credit. Here, that part of the ships paid for with reserve funds (down payment and mortgage payments) is not depreciable property because the amount thereof has already been deducted from taxpayer’s income tax the same as if it was the value of fully depreciated property, and it cannot qualify as section 38 property for the purpose of determining the amount of investment tax credit.
I would allow defendant’s motion for summary judgment, and deny that of the plaintiff and dismiss plaintiff’s petition.
In accordance with the opinion of the court, a memorandum report of the trial judge, and a stipulation of the parties, it was ordered on March 11, 1977 that judgment be entered for plaintiff for the year 1964 for $264,108.32, plus interest thereon as provided by law.