Hotel chain entitled to $22 million in specified loss carrybacks.A district court in Maryland has ruled that Host Marriott Corporation is entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to specified liability loss carrybacks Loss Carryback An accounting technique with which a company retroactively applies net operating losses to a preceding year's income in order to reduce tax liabilities present in that previous year. for workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. payments and Federal income tax deficiency interest, resulting in a $22 million tax reduction. The district court granted summary judgment in the taxpayer's favor in Host Marriott Corp., 113 F Supp F SUPP Federal Supplement (decisions of US district courts) 2d 790 (DC Md 2000). The loss carryback issue has been a contentious one in recent years, with the Service consistently denying attempts by taxpayers to claim the Sec. 172(f) 10-year carryback. Host Marriott reported a net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. (NOL NOL - Never Offline ) of over $139 million, including $60 million in specified liability losses, for its 1991 tax year. The specified liability losses were $7 million in workers' compensation payments (from injuries sustained prior to Host Marriott's 1988 tax year) and $46 million in Federal income tax deficiency interest (from returns for fiscal years 1977-1979). Host Marriott argued it was entitled under Sec. 172(f) to carry back both types of losses to its 1984 and 1985 tax years, resulting in a reduction in its tax liability of over $22 million. The Service disagreed, limiting the availability of loss carrybacks to include only those with an element of inherent delay. The district court rejected the IRS's interpretation of Sec. 172(f), concluding that Host Marriott's claimed deductions meet the statute's two requirements. Namely, the losses arose out of Federal or state law and the claims arose out of acts (or failures to act) that occurred more than three years earlier. The district court specifically rejected the inherent delay argument. The district court noted that, in Sealy, 107 TC 177 (1996), the Tax Court relied on the legislative history of Sec. 172(f)(1)(B) and imposed an additional requirement that the NOL be a liability for which a deduction was deferred by economic performance rules. However, the district court reasoned that "[s]uch a diversion A turning aside or altering of the natural course or route of a thing. The term is chiefly applied to the unauthorized change or alteration of a water course to the prejudice of a lower riparian, or to the unauthorized use of funds. into the legislative history was unnecessary and inappropriate given the ... plain language of the statute," and specifically rejected the Tax Court's holding that the class of items qualifying for specified liability loss treatment be limited to those deferred by the economic performance rules. FROM DIANE HERNDON, WASHINGTON, DC |
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