Before WATERMAN, MOORE and KAUFMAN, Circuit Judges.
These cases raise abstruse questions as to the intricacies of interest, if any, payable under the Excess Profits Tax of World War II and the corporate income tax, all under the Internal Revenue Code of 1939. Perhaps the outlines of this tax structure should be described in brief compass to make the facts more meaningful.
In the tax years in question, the excess profits tax (EPT) was computed by applying the high EPT rate to adjusted excess profits net income (AEPNI). This item in substance equalled normal tax net income (NTNI) less the excess profits credit (EPC). If EPC exceeded NTNI (either initially or after redetermination of EPC), an unused excess profits credit (UEPC) resulted. The UEPC from prior or subsequent years, carried forward or back, could also be deducted from NTNI in computing AEPNI. The income tax (IT) was found by applying the lower income tax rate to NTNI less AEPNI. Thus, in simple algebraic terms:
EPT=EPT Rate (NTNI - EPC - UEPC)
All very easy so far - comparatively.
Therefore, if after the respective taxes were paid, there was an increase in EPC or UEPC, there would automatically be an overpayment of EPT and a deficiency in IT. Since the EPT rate was considerably higher than the IT rate, the net result, if the originally estimated EPT and IT had been paid in full, would always be some net overpayment. The converse would be true if EPC or UEPC were subsequently reduced.
EPC would initially be computed on the basis of an average base period net income (ABPNI) during 1936-39. However, if that figure caused inequitable adnormalities due to special circumstances during the base period, the taxpayer could, pursuant to § 722, file an application for relief under § 322. In brief, that meant that EPC could be computed on the basis of a higher constructive average base period net income (CABPNI) upon approval or modification (after some years of consideration) by the Excess Profits Tax Council. Although a wide range of time was allowed for filing a § 722 application, it often was filed, as here, simultaneously with the filing of the regular EPT return. The resulting redetermination of EPC, like the carryover or carryback of UEPC, meant that the ultimate deficiencies or overpayments would not be known when the tax was due or initially paid.
Because a § 722 application would tend to lead to a lower EPT, Congress provided in § 710(a)(5) for partial deferment of EPT. Thus, if a § 722 application had been filed and if AEPNI (without reference to § 722) exceeded 50% of NTNI, taxpayer could defer payment of 1/3 of the claimed reduction in tax due. With this deferred payment and with an eventual increase in EPC or UEPC it would be possible for the resulting IT deficiency to exceed the resulting actual overpayment. Briefly, then, overpayments could result from three relevant sources: (1) approval of a CABPNI for the tax year resulting in a higher EPC; (2) carryover or carryback of loss from different years resulting in a lower NTNI; or (3) a carryover or carryback of UEPC. The last could itself result from three relevant sources: (i) an initial excess of EPC over NTNI on a different year; (ii) carryover or carryback of loss resulting in a lower NTNI for a different year; or (iii) approval of a CABPNI for a different year leading to a higher EPC for that year.
The various time lags and redeterminations created possible interest problems. As to interest on deficiencies resulting from § 722 relief, § 292(b) provided that:
"If any part of a deficiency for a taxable year * * * is determined by the Commissioner to be attributable to the final determination of an application for relief or benefit under section 722 for any taxable year * * * no interest shall be assessed or paid with respect to such part of the deficiency for any period prior to one year after the filing of such application * * *."
As to interest on overpayments resulting from § 722 relief, § 3771(g), added at the same time, provided that:
"* * * If any part of an overpayment * * * is determined by the Commissioner to be attributable to the final determination of an application for relief or benefit under section 722 for any taxable year, no interest shall be allowed or paid with respect to such part of the overpayment for any period prior to one year after the filing of such application. * * *." (Emphasis added.) Section 3771(g) supplemented, without ...