Ben Ginsburg Co. v. Commissioner

*82OPINION.

This proceeding was submitted upon the pleadings. All the facts alleged by the petitioner are admitted by the respondent in his answer. The sole issue is whether petitioner is entitled to have $48,340.16, net loss of Mendelson <& Sussman Co. in 1926, used as a deduction in determining net income of the affiliated group in 1927.

The Revenue Act of 1926, section 206 (b), provides:

If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called “second year”), and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called “third year”); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.

In Alabama By-Products Corporation et al., 18 B. T. A. 919, recently decided by this Board, we construed similar language to that just above quoted to mean that such a loss sustained by a corporation in a year when not affiliated could be brought forward and used as a deduction in determining net income of the affiliated group even although the corporation having a loss in such prior year, still has a net loss in the taxable year. So on the authority of that case we decide in favor of the petitioner on the only issue presented by the pleadings.

*83We deem it proper to say, however, that the term “ net loss ” as used in section 206 of the Revenue Act of 1926 is not necessarily the loss reflected by the return filed for the purpose of the income tax, nor the net loss shown by the taxpayer’s profit and loss account. The loss which is allowed as a deduction must be computed in accordance with section 206 (a) (1) to (5) of the Revenue Act of 1926 and article 1621 of Regulations 69, relating to income tax under the Revenue Act of 1926. That method should be used in the instant case in determining whether petitioner has any taxable income for the year 1927,

Decision will he entered under Bule 50.