School Street Associates Ltd. Partnership v. District of Columbia

WAGNER, Chief Judge,

dissenting:

The District of Columbia tax provision under consideration allows corporations, unincorporated businesses or financial institutions to take as deductions in computing net income, net operating losses in prior or subsequent years “in the same manner as allowed under § 172 of the Internal Revenue Code of 1986 and as reported on any federal tax return for the same taxable period, except that no net operating losses may be carried back to any year ending before January 1, 1988.” D.C.Code § 47-1803.3(a)(14). The Office of Tax and Revenue (OTR) has consistently interpreted this provision to mean that taxpayers can take the deduction on their D.C. tax returns only if they take the same net operating loss deductions on their federal tax returns for the same period. Assuming some ambiguity in this statutory provision, our task on appeal is to deter *816 mine whether OTR’s interpretation of its governing statute is reasonable, not whether it is the best interpretation. See Atlantic Mutual Ins. Co. v. Commissioner, 523 U.S. 382, 389 , 118 S.Ct. 1413 , 140 L.Ed.2d 542 (1998) (citing Cottage Savings Ass’n v. Commissioner, 499 U.S. 554, 560 , 111 S.Ct. 1503 (1991)). In my opinion, OTR’s interpretation is reasonable, and this court should defer to it. See id. at 391 , 118 S.Ct. 1413 ; see also District of Columbia v. Casino Assocs., 684 A.2d 322, 325 (D.C.1996). OTR’s interpretation is consistent with the statutory language, and it facilitates administration of the statute by limiting deductions for net operating losses to those taken on the federal tax return. That a taxpayer, such as Sovran, may lose the advantage of the full deduction on its D.C. return for a particular year because of the tax treatment it has elected to use on its federal return does not render OTR’s interpretation irrational, unreasonable or unjust. 25 Similarly, that the legislators may not have recognized that partnerships, although unincorporated businesses, would not qualify for net operating loss deductions in the District at the entity level because such deductions cannot be taken on the federal level does not render OTR’s interpretation unreasonable. Such losses are passed through to the individual partners. Under OTR’s interpretation of the net operating loss deduction, net operating losses of these unincorporated businesses can be used only once, by the individual partner. The alternative interpretation is not superior to the agency’s interpretation. Finally, in enacting the statute, while perhaps not an overarching concern, the legislature expressed its intent to continue “limited conformity” with the federal income tax laws. 26 Such a limitation is expressed in the statute itself which establishes a different carry back period, while otherwise providing for conforming deductions in the same manner as allowed under a specific section of the Internal Revenue Code and as reported on any federal tax return for the same taxable period. Even if not superior to other possible interpretations, OTR’s interpretation is reasonable, and under our standard of review, should be accepted. See Atlantic Mutual, 523 U.S. at 389, 391 , 118 S.Ct. 1413 ; Hutchinson v. District of Columbia, 710 A.2d 227, 234 (D.C.1998). For these reasons, I respectfully dissent from the opinion of the court.

. In this case, Sovran had losses which it chose to use to offset income for affiliated groups on its federal return over a lengthy carry back period, leaving it no losses to take on its federal or D.C. returns for the years in question in this appeal. It appears that Sov-ran had a net operating loss deduction for 1988 for federal tax purposes which therefore, should have been available as a deduction on it's 1988 D.C. return.

. Report of the council of the district of Columbia COMMITTEE ON FINANCE AND REVENUE ON BILL 7-183, at 1 (May 14, 1987).