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118 C. Cls,


INCOME TAX-Continued
XIV, (7) The Commissioner's interpretation of the rather com-

plicated provisions of Section 122, sustained by the
Court, is in accord with the decision of the Tax Court
in the case of Louisiana Delta Hardwood Lumber
Co. v. Commissioner of Internal Revenue, 7 T. C.
994, in which the facts were similar to those in the
instant case. Id.

Internal Revenue Emm 670.

XV. (8) The purpose of the statute, as revealed by its legisla-

tive history, would be defeated by plaintiff's inter-
pretation, which would allow a taxpayer to deduct
a net operating loss carried over from a prior year
even though it were absorbed by income not taxed
in the year for which the return is being made. A
net operating loss sustained in a prior year repre-
sents an economic loss only to the extent that it
exceeds nontaxable income in the year in which the
net operating loss deduction is sought to be made.
To the extent that percentage depletion exceeds
cost depletion & part of income may become non-
taxable by reason of the percentage depletion deduc-
tion. See Virginia Mining Corporation v. Commis-

sioner of Internal Revenue, 7 T. C. 384, 386. Id.

Internal Revenue Em 670.
XVI. (9) In a suit for the refund of the tax levied on its undis-

tributed net profits for the years 1936 and 1937
where plaintiff, a Tennessee corporation, claims it
was not subject to the tax under the applicable
statute because the laws of Tennessee prohibited
plaintiff from distributing its net profits by reason
of the fact that prior to the years in question it had
operated at a net loss; it is held that plaintiff is not

entitled io recover. Brooks, 339.
Internal Revenue Con 763


XVII. (10) Under the provisions of the Revenue Act of 1936, as

amended by Section 501 of the Revenue Act of 1942,
a corporation was entitled to a credit where it had a
deficit in accumulated earnings and profits as of the
close of the preceding taxable year provided the cor-
poration was prohibited by a provision of a law or of
an order of a public regulatory body from paying
dividends during the existence of a deficit in accu-

118 C. Cls.

INCOME Tax-Continued

mulated earnings and profits, and if such provision

was in effect prior to May 1, 1936. Id.
Internal Revenue Con 763.

XVIII. (11) Under tbe relevant Tennessee statute & corporation is

permitted to pay dividends if the net earnings of
the corporation for the current year were sufficient
to take care of them or if the surplus of the corpora-
tion's assets over its liabilities was sufficient to do
so (Section 3737, Williams Tennessee Code Anno-
tated, 1934). The statute permitted the payment
of dividends out of surplus, or if there was no sur-

plus, out of current earnings, or vice versa. Id.

Corporations on 152.
XIX. (12) In two suits for the recovery of income taxes and

interest paid for the year 1941 by and on behalf of
William E. Skeeles and his wife, Anne C. Skeeles,
where the taxpayers each claimed recovery of income
taxes and the interest paid on the deficiencies as-
serted against each for the year 1941, together with
interest thereon as provided by law; and where the
community income and losses were derived from
gambling operations engaged in by the husband as
his regular business; it is held that the amounts
claimed as deductions, being gambling losses in
excess of gambling gains, were properly disallowed
and plaintiff is not entitled to recover. Petitions in

both cases dismissed. Skeeles, 362.
Internal Revenue Cum 606.

XX. (13) Losses from wagering transactions in excess of the gains

from such transactions during the years 1940 and
1942 are not net operating losses for each of these
years within the meaning of the term in Section
122 (a) of the Internal Revenue Code (26 U. S. C.
122) which under subsection (b) can be carried over
and carried back to the year 1941 and allowed as
deductions in computing taxable income for the year
1941. Id.

Internal Revenue me 606.

XXI. (14) Where plaintiff contended that since gambling was the

business of her husband and that losses sustained in
1940 and 1942 were business losses deductible under
Section 23 (e) (1) and as such could be offset against
118 C. Cls.

INCOME Tax-Continued

gambling gains in 1941 as a carry-over from 1940 and
as a carry-back from 1942; it is held that Section
23 (h), applying specifically to wagering losses, limits

the general provisions in Section 23 (e) (1). Id.
Internal Revenue Cm 606.

XXII. (15) Where taxpayer corporation, operating at a loss,

secured from trade creditors cancellations of a
portion of their claims pursuant to a plan of reorgan-
ization and installation of new management, the
cancellations were properly regarded as income by
the Commissioner of Internal Revenue, and plaintiff
is not entitled to recover. Helvering v. American
Dental Co., 318 U. S. 322, distinguished. Marshall

Drug Company, 532.
Internal Revenue Com 313.


See Report To Senate I, II; Suit For Salary XV.

See Contracts XIV.

See Jurisdiction III.

I. In two suits against the Government for $6,174.49,

one involving furnishing water and meals to Army
personnel on maneuvers and the other involving
freight charges for transportation of Government
property, where liability is admitted by the defend-
ant which claims a set-off of an equal amount on
account of destruction of the Government property
by fire of unknown origin while in the hands of the
plaintiff railroad; is held that on the evidence the
Government has made out an unrefuted case that
would have entitled it to judgment had it been the
plaintiff. The Government having established
its right to a set-off in the amount of the plaintiff's
claim, the plaintiff is not entitled to recover and the
petition is dismissed. Atchison, Topeka and Santa

Fe Railway Company, 194.
Carriers Com 134.

II. In the instant case the Government was not the

shipper, as shown by the bill of lading issued to the
Goodyear Aircraft Corporation as consignor, which

118 C. Cls.


filed its own suit for damages covering only its own
losses, no claim being asserted for the equipment
belonging to the Government and destroyed by
fire. The Goodyear Corporation prevailed in that
suit, and its claim, for its own property was paid by
the railroad. The Government did not choose to
file its own suit but asserted its common right as &
creditor to apply unappropriated moneys of a
debtor, in its hands, in the extinguishment of the
debts due to it. The plaintiff sues to recover the

amount so withheld. Id.
Carriers Con 76.

III. The facts not being in dispute, it is held that the rail-

road stood in the relation of common carrier to the
Government so far as the transportation of Govern-
ment property was concerned, and is liable to the
Government as an insurer under the carrier's con-
tract to carry safely, notwithstanding the fact that
the carrier did not know it was transporting property

belonging to the Government. Id.
Carriers Com 110.

IV. The bill of lading accurately, although in general

terms, described the entire shipment as "airplane
parts.” There was no duty on the part of the Good-
year Corporation, as the shipper, to disclose the
Government ownership of any or all of the parts nor
is it important who owned them at the time of ship-
ment so long as the railroad was not deceived regard-
ing its cargo and suit is maintained by one having a
sufficient interest in the cause and so long as the
carrier is not subjected to double recovery for the
same loss, which is not asserted in the instant case.

Carriers C 131.

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See Overtime Pay IX.

See Indian Claims XVII, XVIII, XIX, XX, XXI, XXII.

See Suit for Salary XIII, XIV, XV, XVI, XVII.

See Overtime Pay VI.

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