not convinced me that such was actually the case. Most of the items so cited by respondent were minor in nature and, in my opinion, were adequately explained by petitioner. Some accounts on its books carried titles which normally are used for accrual accounting, such as accounts receivable, inventories of livestock, deferred charges, accounts payable, and notes payable. The record shows that in some instances they were erroneously named and in others were balance sheet, not income, accounts. Petitioner's returns stated that they were made on a cash receipts and disbursements basis. This tribunal, in M. D. Rowe, et al., 7 B. T. A. 903 (1927), stated: The respondent attaches great weight to the presence on the books, of a few accounts, amounting in the aggregate to relatively minor totals, as of the end of each year, which are classified on the balance sheets as "accounts receivable" and relies upon the mere existence of these accounts to show that the method of accounting of the partnership, was on the accrual basis. He points out that these asset accounts were determinative of net worth and apparently is thus influenced to believe that they entered through the door of income, and being unpaid, the income must have been an accrual. We think the fact has been overlooked that an account receivable may come into existence and be recorded on books of account, including those kept on a cash basis, without the slightest effect on income. The petitioners have endeavored to show the nature of every such account and have satisfied us that some of them covered transactions classifiable as loans or accommodation purchases chargeable at cost, and it is obvious that such are not indicative of an accrual of income. As to other accounts included in the classification, the evidence is not so clear as to enable a satisfactory determination of their relation to income. In the determination of so comprehensive a question as the method of accounting used, we are averse to drawing a presumption from the general nature of a very few accounts receivable, even where it is unfortunately true that we are left to conjecture how two debits described as "charges in error" and "disputed charges" were originally entered on the books. It is in evidence that the partnership never intentionally departed from a cash basis in determining its net income, and we conclude the record as a whole in this particular, supports the contention of the petitioners. [Pages 908-909.] Such a statement adequately meets the argument presented in the instant case. Under such circumstances, I would hold that the method used by petitioner in keeping its books and reporting its income for Federal tax purposes over the years most clearly reflected its income, and respondent erred in changing petitioner's method from one hybrid system to another. Nor can I subscribe to that portion of the majority opinion which holds that the petitioner is not entitled to carry back to 1943 a net operating loss of 1945 and an unused excess profits credit for 1945. The language of the applicable sections of the Code are clear, and I would not impute to Congress an intent to exclude this petitioner from the statute merely because it liquidated before selling its incomeproducing assets. The majority opinion disregards the unambiguous language of the statute and attempts to justify this by a quotation from United States v. Amer. Trucking Ass'ns., 310 U. S. 534 (1940). It is true that the language used by the Supreme Court is very sweeping, but it is followed by the statement that "Obviously there is danger that the courts' conclusion as to legislative purpose will be unconsciously influenced by the judges' own views or by factors not considered by the enacting body." It should be noted that in that case the statutory language the Court was called on to interpret conflicted with the language in another act of Congress; judicial construction was, therefore, required to resolve the conflict; and the Court was justified in looking at the over-all purpose of Congress in enacting the statute in order to give proper effect to the intent of the legislators. That is not true in this case. In a recent opinion of this Court, Fred MacMurray, 21 T. C. 15, in construing the application of section 130 of the Code to losses suffered by a husband and wife in a community-property state, we said: The statute speaks of the losses 'allowable to an individual', and we are not at liberty to re-write it for citizens of community property states. It may well be that if the attention of Congress had been drawn to the discriminatory operation of the statute in such states, it might have treated the problem differently. The question, however, is a legislative one, and we must apply the statute as we find it. On this issue, our decision must be in favor of the petitioners. That language, it seems to me, is applicable to the situation here. We have held that the fact that a corporation is in the process of liquidating during the taxable year does not prevent it from carrying back a net operating loss for such year, since the language of section 122 is not limited to an operating corporation. Gorman Lumber Sales Co., 12 T. C. 1184 (1949). The record in this case would justify a finding that there were valid business reasons for the dissolution of the petitioner. There is nothing in the Internal Revenue Code which permits the Commissioner to force a taxpayer to dissolve at such a time as would most benefit the Federal Government taxwise. What the end result of the majority holding on these issues will be is difficult to foresee. If the petitioner had dissolved on November 15 or December 15 showing a loss as of either date, would the result be different? This question is somewhat similar to the question involved in the case of United States v. Kingman, 170 F. 2d 408 (C. A. 5, 1948), in which it was held that where a corporation was not formally dissolved, it was taxable for income and excess profits tax purposes on a 12-month basis rather than on a short taxable year. Under the latter treatment, it would have been required to annualize its profits under 711 (a) (3) of the Code. Such result was reached on the theory that the taxpayer there retained, among other assets, a claim under section 722 for excess profits tax relief. Such result was held to be the proper one despite the fact that the stockholders' resolution prevented the directors of the corporation from carrying on any business of the corporation other than those activities necessary for liquidating. Much the same facts exist in the instant case. Here, petitioner has not dissolved to date because of the pendency of this case. It had a 722 claim for relief from excess profits tax which it did not abandon until shortly before the hearing of this case. Here, as in the Kingman case, petitioner carried on activities until the date of liquidation. The Kingman case has been followed by this Court in Roeser & Pendleton, Inc., 15 T. C. 966 (1950), affd. 196 F. 2d 221 (C. A. 10, 1952). See also the discussion of the Kingman case in Winter & Co., (Indiana), 13 T. C. 108 (1949). Under such circumstances, I would hold that petitioner was entitled to carry back its net operating loss and its unused excess profits tax credit from the year 1945 to 1943. BLACK, J., concurring in part in Judge Rice's dissent: I concur in Judge Rice's dissenting opinion in so far as it dissents from the majority opinion which denies petitioner the right to carry back its net operating loss for 1945 to 1943, and also denies petitioner's right to carry back its unused excess profits credit in 1945 to 1943. It seems to me that under the language of the applicable statutes which govern these matters the petitioner has the right to carry back its net operating loss in 1945 to reduce taxable income for 1943, and has the right to carry back its unused excess profits credit in 1945 to 1943 and thereby reduce its excess profits tax liability for 1943. I join with Judge Rice in dissenting from the conclusion reached by the majority opinion on these two points. FRED MACMURRAY, ET AL.,1 PETITIONERS, V. COMMISSIONER OF INTERNAL REVenue, RespondENT. Docket Nos. 35201, 35202, 35203, 37394, 37395, 40290, 40291, 40292. Promulgated October 9, 1953. 1. Husband and wife owned a ranch business as community property. The total deductions (other than taxes and interest) attributable to the business as a whole exceeded by more than $50,000 the gross income derived therefrom for each of 5 successive years, 1 Lillian MacMurray, Docket No. 35202; Leslie Fenton, Docket No. 35203; Frederick M. MacMurray, Docket No. 37394; Lillian MacMurray, Docket No. 37395; Fred MacMurray, Docket No. 40290; Lillian MacMurray, Docket No. 40291; Frederick MacMurray and Lillian MacMurray, Docket No. 40292. Lillian MacMurray died after the trial and "Estate of Lillian Wehmhoener MacMurray, Deceased, Bo C. Roos, Executor" was substituted as a party in Nos. 35202, 37395, 40291, and 40292. However, for convenience, Lillian MacMurray will be referred to herein as petitioner in those cases. but the share of those deductions available to each spouse did not 2. Petitioners MacMurray, Fenton, and a third person purchased James L. Wood, Esq., and Joseph D. Brady, Esq., for the petitioners. Donald P. Chehock, Esq., for the respondent. RAUM, Judge: The respondent determined the following deficiencies in income tax: "Frederick M.," "Frederick," and "Fred" MacMurray are the same petitioner. The issues are: (1) When a business operated by a marital community in California sustains losses for 5 consecutive years, does the $50,000 limitation provided for in section 130 of the Internal Revenue Code apply to the total loss sustained in each year by the community or to the share of such loss of each member of the community? (2) Did the $64,000 and $31,000 received by petitioners Fred MacMurray and Leslie Fenton, respectively, in 1946, from the producersdistributors of the movie, "Pardon My Past," constitute ordinary income or capital gain to the petitioners? If the latter, was it short-term or long-term capital gain? Certain issues raised by the pleadings have been waived by stipulation. Other adjustments in the notices of deficiency were not contested in the petitions. Issue 1. FINDINGS OF FACT. The stipulated facts are found accordingly. Fred and Lillian MacMurray were married in 1936, and thereafter resided in California. They filed their income tax returns for the taxable years with the collector of internal revenue for the sixth district of California. The returns filed by them for each of the taxable years were separate returns, with the exception of 1949, when they filed a joint return. Since her marriage, Lillian MacMurray, a housewife, was not gainfully employed, and did not have any separate income of her own. Fred MacMurray has been a "star" in the motion pictures since 1934. During the years 1942 to 1949, inclusive, his net income from this source averaged approximately $250,000 a year. During the years 1942 to 1949, inclusive, the MacMurrays owned as community property ranch properties acquired after their marriage in 1936. These properties were acquired with money earned by Fred MacMurray in his motion picture work. The income, expenses, and losses from these ranch operations during this period constituted community income, expenses, and losses of the spouses. The ranch operations constituted a business, which was carried on by Fred MacMurray, with most of the detail of management left to a business manager. In the two years 1942 and 1943, the MacMurrays incurred total losses from the operation of the ranches (exclusive of interest and taxes) of $64,981.22 and $84,545.03, respectively. For these years, all income, expenses, and ranch losses of the community were reported in the returns of Fred MacMurray alone, with one-half of the losses from these operations deducted in the individual returns of each spouse. For the years 1944 to 1948, inclusive, all income, expenses, and ranch losses of the community were reported in the returns filed by each spouse, and each deducted one-half of the losses sustained. All income, expenses, and ranch losses of the community for 1949 were reported in a joint return filed by both spouses. During each of the taxable years 1944 to 1949, inclusive, substantial losses were sustained from the operation of the ranch properties. The deductions (other than taxes and interest) allowable to petitioners under section 23 of the Internal Revenue Code (except for the provisions of section 130), and attributable to ranch operations, exceeded the gross income derived from such operations in the following amounts: |