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UNITED STATES STEEL CORP. v. UNITED STATES

July 1, 1969

United States Steel Corporation, Plaintiff
v.
United States of America, Defendant


Levet, District Judge.


The opinion of the court was delivered by: LEVET

Motion No. 3

LEVET, District Judge:

 The United States of America, the above-entitled defendant, has moved under Rule 56 of the Federal Rules of Civil Procedure for summary judgment with respect to the claim of the plaintiff for refund of 1950 excess profits tax payments set forth in paragraphs 9, 10, 11 and 12 of the complaint, dealing with cost-price relationships.

 The relevant claims alleged in the complaint are as follows:

 
" Denial of Application of § 442
 
"9. Plaintiff duly filed with its consolidated Federal income and excess profits tax return for 1950 a claim that, in determining its excess profits credit, its consolidated 'average base period net income' should be determined in accordance with § 442 of the Internal Revenue Code of 1939.
 
"10. In determining the Federal income tax for 1950 which Plaintiff has paid, Plaintiff's aforesaid claim for the application of § 442 has been denied.
 
"11. For 1950, Plaintiff's consolidated 'average base period net income' should have been calculated by reference to § 442 because, within the meaning of § 442(a), during the base period years 1947 and 1948, Plaintiff's business was depressed because of temporary economic circumstances unusual in the case of the Plaintiff. Such temporary economic circumstances were abnormal cost-price relationships, resulting in the depression of Plaintiff's business and earnings.
 
"12. Plaintiff's consolidated 'average base period net income' for 1950 should be computed in accordance with § 442."

 The complaint is an action under Section 1346(a)(1) of Title 28 United States Code to recover federal income tax for the year 1950 and assessed interest on additional payments of such tax, which plaintiff claims were erroneously and illegally assessed and collected.

 Relevant Statute

 The relevant statute from the Internal Revenue Code of 1939 is as follows:

 
"§ 442. Average base period net income - abnormalities during base period
 
"(a) In general. If a taxpayer which commenced business on or before the first day of its base period establishes that, for any taxable year within, or beginning or ending within, its base period:
 
* * *
 
"(2) the business of the taxpayer was depressed because of temporary economic circumstances unusual in the case of such taxpayer, [emphasis added]
 
the taxpayer's average base period net income [shall be] * * * determined under this section * * *."

 The Claim of The United States

 The United States contends that the occurrences put forth by the United States Steel Corporation as abnormalities during the base period years of 1947 and 1948 do not qualify as "temporary economic circumstances unusual in the case of such taxpayer" within the meaning of 26 U.S.C. Excess Profits Taxes, § 442(a)(2). More specifically, the defendant's contention is as follows: Plaintiff has failed to establish that the factors which prompted management to forego additional price increases during 1947 and 1948 consisted of more than (1) valid exercise of governmental regulatory authority, and (2) reasonably-expected competitive pressures.

 The Contention of the Plaintiff

 The plaintiff, on the other hand, contends that the occurrences cited qualify as abnormalities justifying general relief within the meaning of the statute.

 Issue

 The issue before the court on this motion for summary judgment involves the excess profits tax provided for by the Internal Revenue Code of 1939 and may be stated as follows:

 
"Do the alleged factors which prompted plaintiff's management to forego price increases beyond those actually made during 1947 and 1948 constitute 'temporary economic circumstances unusual in the case of such taxpayer' within ...

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