In exercising the consolidated return privilege, the two corporations bound themselves to have their return made, and if necessary adjusted, to conform to the provisions of the consolidated return regulations. Sec. 1502; sec. 1.1502-75(a) and (b)(1), Income Tax Regs.; Patten Fine Papers v. Commissioner, 249 F.2d 776, 779 (C.A. 7, 1957), reversing on another issue 27 T.C. 772 (1957); American Trans-Ocean N. Corp. v. Commissioner, 229 F.2d 97, 98 (C.A. 2, 1956), affirming a Memorandum Opinion of this Court. Petitioners next argue that section 1562(c)(3) does not refer to an inadvertent termination of the multiple surtax exemption election.
It is our opinion that the rationale of the Libson Shops case, and also that of the Dudley, Mill Ridge, Virginia metal Products, and Willingham cases, preclude the deductibility of the claimed capital loss carryover here involved. Moreover, in Patten Fine Papers, Inc. v. Commissioner, 249 F.2d 776, affirming on this point 27 T.C. 772, the Court of Appeals for the Seventh Circuit applied the ‘continuity of business enterprise’ principle of the Libson Shops case in disallowing deduction of a claimed capital loss carryover. We decide this second issue also in favor of the respondent.
der section 505(a)(1) of the Internal Revenue Code of 1939, a cash basis taxpayer may deduct the amount of income tax liability in the year paid or in the year in respect of which the income tax liability was incurred, has been before this and other courts in numerous cases, with varying results. M. W. Alworth, 38 B.T.A. 656; Clarion Oil Co., 1 T.C. 751, revd. 148 F.2d 671 (C.A.D.C., 1945), certiorari denied 325 U.S. 881; Aramo-Stiftung v. Commissioner, 172 F.2d 896 (C.A. 2, 1949), reversing on this point 9 T.C. 947; Joan Carol Corporation v. Commissioner, 180 F.2d 751 (C.A. 2, 1950), reversing 13 T.C. 83; Birmingham v. Loetscher Co., 188 F.2d 78 (C.A. 8, 1951); Wm. J. Lemp Brewing Co., 18 T.C. 586 (wherein the Tax Court reexamined its previous position and decided to follow the Courts of Appeals decisions in the foregoing cases); DeSoto Securities Co., 25 T.C. 175, revd. 235 F.2d 409 (C.A. 7, 1956); Mills, Inc., 27 T.C. 635, revd. 250 F.2d 55 (C.A. 1, 1957); Patten Fine Papers, Inc., 27 T.C. 772, reversed in part 249 F.2d 776 (C.A. 7, 1957). None of these cases, however, involved the question of double deduction such as the petitioners in the instant case seek to obtain, that is, the right, for personal holding company tax purposes, to deduct the amount of income tax liability both in the year incurred and in the year paid.
In this posture of the question, petitioner cannot avail itself of Riggs' net operating loss. Patten Fine Papers, Inc. v. Commissioner, 249 F.2d 776, affirming on this question 27 T.C. 772; Libson Shops, Inc. v. Koehler, 353 U.S. 382; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 441. If the transaction involving Riggs was a reorganization, as petitioner contends, we would hold, following Gramm Trailer Corporation, 26 T.C. 689, that petitioner cannot carry over and deduct Riggs' net operating loss.
The Supreme Court reasoned that the taxpayer was not entitled to a carryover since the income against which the offset was claimed was not produced by substantially the same business which incurred the losses. See also, Gramm Trailer Corporation, 26 T.C. 689 (1956), appeal to C. A. 6 dismissed pursuant to stipulation, and Patten Fine Papers, Inc., 27 T. C. 772 (1957), on appeal (C. A. 7), where we respectively held that a parent corporation could not carry over and deduct from its gross income or its net capital gain, the net operating loss or net capital loss of its liquidated subsidiary, since the parents were not the ‘taxpayers' who sustained the losses involved, within the meaning of sections 122(b)(2)(C) and 117(e)(1). Decisions will be entered for the respondent.