Hugo Black

“ Furthermore, the very mechanics of the 1942 amendment require that determination of rights to refund under it be based on consideration of something other than the tax meaning of the 1936 Act or other tax terminology. The right to recovery in every case depends ultimately upon whether federal law or federal regulatory bodies, or state law or state regulatory bodies, prohibit payments of dividends. ”

“ We think Congress was moved to relieve those corporations which it considered to be 'caught in a trap' whereby they were taxed by the Federal Government if they did not pay dividends and subject to prosecution and penalties by the Federal Government or the states if they did. ”

“ This amendment was designed to grant corporations a refund on account of payments of undistributed profits taxes for tax years in which they had an accumulated deficit, and where, for that reason, state law, federal law, or public regulatory orders of either prohibited distribution of dividends. ”

“ Acceptance of the Government's contention would mean that courts administering the 1942 Act must first determine whether a deficit exists unde federal law; if such a federal deficit exists, they must then turn to state law to decide whether under it a deficit exists such as prohibits the payment of dividends. We do not think that Congress intended the courts so to administer the 1942 amendment. The Government's argument that it does relies heavily upon the Senate Committee Report. ”

“ One subject of complaint was that under the income tax definitions only a fraction of capital losses were deductible from taxable net income. Corporations which had suffered large capital losses in a given year were required to pay undistributed profits taxes in that year as though they had made a profit. The 1942 amendment, as reported by the House Committee, met this complaint by recommending that refunds be authorized for corporations who had paid under this 1936 definition of net income. ”

“ Its application, therefore, raised new and sometimes wholly unexpected problems. Widespread opposition developed to the pointed out that under governing survived. See Revenue Act of 1938, 52 Stat. 447. ”