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In re Avien Inc.

decided: March 10, 1976.

IN THE MATTER OF AVIEN, INC., DEBTOR. THE CITY OF NEW YORK, APPELLANT,
v.
AVIEN, INC., APPELLEE



Appeal from an order of the United States District Court for the Eastern District of New York, Edward R. Neaher, Judge, disallowing the City's amended claim for unpaid corporate taxes against the debtor Avien, Inc.

Moore, Feinberg and Van Graafeiland, Circuit Judges.

Author: Moore

MOORE, Circuit Judge:

The City of New York ("City") appeals from an order of the District Court, 390 F. Supp. 1335, affirming a decision of the bankruptcy judge expunging the City's claim against the bankrupt, Avien, Inc. ("Avien")*fn1 for allegedly unpaid corporation taxes in the amount of $17,789.32. The claim is predicated upon the following undisputed facts and the sole legal issue is the application of the loss carryback and carryover provisions of the City's General Corporation Tax, Administrative Code of the City of New York, ยง R46-2.0(8) (f),*fn2 which in turn, basically follow the federal income tax provisions on the subject.*fn3

I.

Avien's fiscal year ended June 30th. From the year ending June 30, 1963 it had a checkered financial career, and sustained the following losses:

Fiscal year ending Taxable income (loss)

1963 [762,423.73)

1965 (156,856.34)

1966 (993,52 9.48)

1969 (165,427.60)

1970 (337,177.85)

The year 1968, in contrast, showed a profit reported respectively on its tax returns as $282,598.52 (U.S.) and $286,969.82 (City). As the result of a City audit in 1973 of Avien's books for the period January 1966 through December 24, 1970, the City claimed that a corporate income tax was due of $17,789.32 based on Avien's profitable 1968 year but without allowance for the large losses sustained in the surrounding years.

To avoid a result which at first glance would seem to be obvious, namely, that the losses sustained on either side of 1968 would more than wipe out a 1968 income or tax thereon,*fn4 the ...


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