                                                 THRIFTY OIL CO. & SUBSIDIARIES, PETITIONER v.
                                                     COMMISSIONER OF INTERNAL REVENUE,
                                                                 RESPONDENT
                                                    Docket No. 1376–10.                       Filed August 30, 2012.

                                                  P filed consolidated Federal income tax returns for the
                                               years at issue (TYE Sept. 30, 2000, 2001, and 2002) on which
                                               it claimed environmental remediation expense deductions. R
                                               disallowed the claimed deductions after determining that they
                                               were each the second tax deduction P had claimed for a single
                                               economic loss. The first deduction had been reported as a cap-
                                               ital loss on P’s Federal income tax return for TYE Sept. 30,
                                               1996, and carried forward, with the last portion claimed on
                                               P’s Federal income tax return for TYE Sept. 30, 2001. Held:
                                               P is not entitled to the environmental remediation expense
                                               deductions claimed on its Federal income tax returns for TYE
                                               Sept. 30, 2000, 2001, and 2002.

                                       Gary S. Colton, Jr., Daniel A. Dumezich, and Richard E.
                                     Kurkowski, for petitioner.
                                       Kevin G. Croke, Davis G. Yee, and Matthew A. Williams,
                                     for respondent.

                                                                                  OPINION

                                       WHERRY, Judge: This case is before the Court on a petition
                                     for redetermination of income tax deficiencies determined by
                                     respondent for petitioner’s taxable years ended (TYE) Sep-
                                     tember 30, 2000, 2001, and 2002. In its simplest form, the
                                     issue is whether, given Charles Ilfeld Co. v. Hernandez, 292
                                     U.S. 62 (1934), and its progeny, petitioner is entitled to
                                     environmental remediation expense deductions claimed for
                                     the years at issue when, economically, those same losses
                                     were claimed as capital loss deductions for years not before
                                     the Court.




                                     198




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   199


                                                                               Background
                                       This case was submitted fully stipulated pursuant to Rule
                                     122. 1 The parties’ stipulations of issues and stipulations of
                                     facts, with accompanying exhibits, are incorporated herein by
                                     this reference. Petitioner is a California corporation and its
                                     subsidiaries with its principal place of business in Santa Fe
                                     Springs, California.
                                     I. Overview of Petitioner
                                       Thrifty Oil Co. (Thrifty) is the common parent of an affili-
                                     ated group of corporations that for 1995 through 2002 (rel-
                                     evant years) filed consolidated Federal income tax returns
                                     using a September 30 yearend and the accrual method of
                                     accounting. During the relevant years Thrifty’s direct and
                                     indirect subsidiaries included: (1) Earth Management Co.
                                     (Earth Management); (2) Golden West Refining Co. (Golden
                                     West); (3) Golden West Distribution Co. (Distribution Co.);
                                     and (4) Benzin Supply Co. (Benzin).
                                       Ted Orden was the president and controlling shareholder
                                     of petitioner during the relevant years. Moshe Sassover,
                                     Barry Berkett, and Robert Flesh are sons-in-law of Ted
                                     Orden. Mr. Sassover and Mr. Berkett were employees of
                                     Thrifty and Mr. Flesh worked for Thrifty and the Thrifty
                                     consolidated group as an independent contractor during the
                                     relevant years.
                                     II. Refinery Property and Bankruptcy
                                       In 1983 Thrifty, through Golden West, acquired property
                                     in Santa Fe Springs, California, on which an oil refinery was
                                     located (Golden West Refinery property). 2 The oil refinery
                                     proved unprofitable, and in February 1992 refining oper-
                                     ations were suspended. As a result of refining operations, the
                                     Golden West Refinery property had suffered environmental
                                     contamination, leaving Thrifty and Golden West with the
                                     responsibility for remediating the environmental problems.
                                       1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986

                                     (Code), as amended and in effect for the years at issue, and all Rule references are to the Tax
                                     Court Rules of Practice and Procedure.
                                       2 Before Sept. 28, 1998, Distribution Co., was the holding company for Golden West. On Sept.

                                     28, 1998, Distribution Co. was merged into Golden West. Until the merger, Golden West was
                                     100% owned by Distribution Co., which was 100% owned by Thrifty. After the merger, Golden
                                     West was 100% owned by Thrifty.




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                                     200                 139 UNITED STATES TAX COURT REPORTS                                      (198)


                                        On July 31, 1992, Thrifty and certain of its subsidiaries
                                     including Golden West filed for bankruptcy protection under
                                     chapter 11 of the Bankruptcy Code. See Bankruptcy Petition
                                     In re Thirfty Oil, No. 92–09132–LA11 (Bankr. S.D. Cal.). On
                                     February 16, 1995, the bankruptcy court confirmed the plan
                                     of reorganization. Petitioner’s environmental remediation
                                     liabilities, which had a major impact on the chapter 11
                                     reorganization, were not discharged.
                                     III. Environmental Remediation Strategy
                                        In 1996 petitioner, on the advice of individuals at Deloitte
                                     & Touche LLP (Deloitte), including Robert Wenger, peti-
                                     tioner’s long-time adviser, decided to enter into a strategy to
                                     consolidate the contingent environmental remediation liabil-
                                     ities into one entity (environmental remediation strategy). 3
                                     As of September 1996, the contingent environmental remedi-
                                     ation liabilities with respect to the Golden West Refinery
                                     property totaled $29,070,000.
                                        In an interoffice memorandum dated August 1, 1996,
                                     detailing the environmental remediation strategy, Mr.
                                     Sassover stated:
                                     As a result of the strategy, Thrifty may be able to generate a capital loss
                                     of approximately $60 million. The basic concept is to contribute Thrifty
                                     and Golden West Refining’s environmental liabilities to a subsidiary of
                                     Thrifty while also contributing intercompany receivables. * * * Due to an
                                     IRS published ruling and the consolidated return regulations, the trans-
                                     action with the subsidiary generates a capital loss immediately. When the
                                     consolidated group expends funds on the environmental remediation, the
                                     consolidated group is entitled to a deduction.

                                       On September 27, 1996, Golden West and Earth Manage-
                                     ment engaged in a section 351 transaction. For 90 shares of
                                     Earth Management stock, Golden West transferred a
                                     $29,100,000 promissory note executed by Benzin (Benzin
                                     note) in favor of Golden West to Earth Management and
                                        3 In addition to the environmental liabilities at the Golden West Refinery property, Thrifty

                                     faced significant costs due to environmental regulations at gasoline stations that it operated.
                                     The environmental liabilities associated with the gasoline stations were estimated to be
                                     $19,126,000. Petitioner also entered into the environmental remediation strategy with respect
                                     to these environmental liabilities; the transaction gave rise to a $5,836 capital loss. However,
                                     because respondent has not challenged the transaction involving Thrifty’s liabilities at the gaso-
                                     line stations, we need not discuss it further. For a full expose´ of Deloitte’s proprietary ‘‘Double
                                     Deduction’’ tax product strategy during this timeframe see Gerdau Macsteel, Inc. v. Commis-
                                     sioner, 139 T.C. 67, 82–84 (2012).




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                    201


                                     Earth Management assumed Golden West’s $29,070,000
                                     contingent environmental remediation liabilities.
                                        The Benzin note required Benzin to pay Golden West prin-
                                     cipal of $29,100,000 together with interest at a rate of 11.5%
                                     per annum calculated from September 20, 1996, until the
                                     principal sum was paid in full. The Benzin note was a bal-
                                     loon note and specified a maturity date of September 30,
                                     2006. As of May 16, 2011, no payments of principal or
                                     interest had been made on the Benzin note. The Benzin note
                                     was intended to provide Earth Management with additional
                                     collateral to facilitate borrowing any funds needed to pay the
                                     environmental remediation liabilities as they came due, but
                                     it was never pledged as collateral on any borrowing by Earth
                                     Management.
                                        Golden West claimed a tax basis in its 90 shares of Earth
                                     Management stock equal to the face value of the Benzin note
                                     ($29,100,000) without adjusting for the $29,070,000 of contin-
                                     gent environmental remediation liabilities Earth Manage-
                                     ment assumed. See secs. 358(a), (d), 357(c)(3). 4 Petitioner
                                     filed a statement with its TYE September 30, 1996, Federal
                                     income tax return, disclosing the tax treatment of the trans-
                                     action (disclosure statement). The disclosure statement
                                     reported that Golden West had transferred a promissory note
                                     with a fair market value (FMV) and tax basis of $29,100,000
                                     and environmental remediation liabilities with an FMV of
                                     $29,070,000 and tax basis of zero to Earth Management for
                                     total property transferred with an FMV of $30,000 and a tax
                                     basis of $29,100,000. The disclosure statement also reported
                                     that the 90 shares of Earth Management stock Golden West
                                     received had an FMV of $400 per share. 5
                                       4 In cases with similar factual backgrounds, the Courts of Appeals for the Fourth and Federal

                                     Circuits have both held that pursuant to the Code, the basis of the stock received was increased
                                     by the value of the promissory note transferred but not reduced by contingent liabilities as-
                                     sumed. Coltec Indus. Inc. v. United States, 454 F.3d 1340, 1351 (Fed. Cir. 2006); Black & Decker
                                     Corp. v. United States, 436 F.3d 431, 434–440, 443 (4th Cir. 2006). The courts did not stop there.
                                     In Coltec Indus. Inc., the Court of Appeals for the Federal Circuit went on to find that the trans-
                                     fer ‘‘had no meaningful economic purpose, save the tax benefits to Coltec’’ and ‘‘must be ignored
                                     for tax purposes.’’ Coltec Indus. Inc., 454 F.3d at 1347. In Black & Decker Corp., the Court of
                                     Appeals for the Fourth Circuit remanded the case to the lower court for a determination of
                                     whether the transaction was a sham. Black & Decker Corp., 436 F.3d at 442–443. The case then
                                     settled before trial. Today, sec. 358(h) would require that basis be reduced by the amount of
                                     the transferred liabilities.
                                       5 Ninety shares received at a total value of $30,000 could lead to the conclusion that each

                                     share of stock was worth $333.33. And it is not exactly clear to this Court why each share of
                                     stock was reported as being worth $400. However, we surmise it was because Earth Manage-
                                                                                                   Continued




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                                     202                 139 UNITED STATES TAX COURT REPORTS                                     (198)


                                     IV. Double the Benefits
                                           A. First Tax Benefit
                                       On September 30, 1996, Golden West sold its Earth
                                     Management stock in equal amounts to Mr. Sassover, Mr.
                                     Berkett, and Mr. Flesh for $8,400 each (total of 90 shares
                                     sold for $25,200 or $280 per share). 6 Petitioner reported a
                                     capital loss of $29,074,800 on its TYE September 30, 1996,
                                     Federal income tax return from the sale (amount realized of
                                     $25,200 less basis of $29,100,000). Petitioner deducted
                                     $2,882,469 of the capital loss on its TYE September 30, 1996,
                                     Federal income tax return, and carried the remainder for-
                                     ward.
                                       Petitioner deducted a total of $18,347,205 of the capital
                                     loss on its TYE September 30, 1996, 1997, 1998, and 1999,
                                     Federal income tax returns. 7 Each of these four years was
                                     closed to adjustment by the statute of limitations at the time
                                     of this dispute. Petitioner claimed deductions for the
                                     remaining $10,727,595 of the capital loss on its TYE Sep-
                                     tember 30, 2000 and 2001, Federal income tax returns. As
                                     discussed infra, the capital loss carryforwards petitioner
                                     claimed on its TYE September 30, 2000 and 2001, Federal
                                     income tax returns were disallowed by respondent in his
                                     notice of deficiency.
                                           B. Second Tax Benefit
                                       Earth Management made expenditures during the relevant
                                     years for the actual cleanup of the Golden West Refinery
                                     property. Thrifty provided the funds Earth Management used
                                     to pay for the costs related to the environmental cleanup. For
                                     these expenditures, petitioner claimed environmental remedi-
                                     ation expense deductions of $339,435, $1,854,405, and
                                     ment was not a new subsidiary formed solely for the purpose of the environmental remediation
                                     strategy and therefore the $30,000 worth of property Golden West transferred was not the only
                                     property Earth Management held. See infra note 6.
                                       6 Deloitte determined the $280-per-share value by discounting the $400-per-share value re-

                                     ported in the disclosure statement by 30% to account for the stock’s lack of marketability. In
                                     addition to the 90 shares of Earth Management stock Golden West sold, there were another 150
                                     shares of Earth Management common stock outstanding. Sixty of these shares had been re-
                                     ceived by Thrifty when it entered into the environmental remediation strategy with regard to
                                     the environmental remediation liabilities at Thrifty’s gasoline stations. See supra note 3. The
                                     remaining 100 shares were also held by Thrifty and had been outstanding for some time.
                                       7 Specifically, petitioner claimed capital loss deductions of $2,882,469, $5,348,310, $3,755,873,

                                     and $6,360,553 on its Federal income tax returns for TYE September 30, 1996, 1997, 1998, and
                                     1999, respectively.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                               203


                                     $14,505,358 on its TYE September 30, 1997, 1998, and 1999,
                                     Federal income tax returns. These years are closed to adjust-
                                     ment by the statute of limitations. Petitioner claimed
                                     environmental remediation expense deductions for the years
                                     at issue in the following amounts:

                                              TYE Sept. 30                                                                       Amount
                                                    2000 ...................................................................     $3,109,962
                                                    2001 ...................................................................      4,108,429
                                                    2002 ...................................................................      3,891,571

                                                        Total ...............................................................    11,109,962

                                     V. Respondent’s Determination
                                        Respondent issued a notice of deficiency dated October 22,
                                     2009, in which he disallowed capital loss carryovers claimed
                                     for TYE September 30, 2000 and 2001, of $1,426,576 and
                                     $9,301,019, respectively, 8 and environmental expense deduc-
                                     tions claimed for TYE September 30, 2000, 2001, and 2002, of
                                     $4,370,802, $4,108,429, and $3,891,571, respectively. 9 The
                                     stated reasons for disallowing both the capital loss carryovers
                                     and the environmental remediation expense deductions
                                     included that they ‘‘duplicate tax benefits already claimed for
                                     a single economic loss.’’ Respondent determined the following
                                     deficiencies and penalties:

                                                                                                                    Penalties

                                            TYE Sept. 30                 Deficiency                 Sec. 6662(a)                Sec. 6662(h) 1
                                                 2000                     $1,552,450                     $310,490                    ---
                                                 2001                      5,192,608                      287,590                $1,501,863
                                                 2002                      1,325,984                      265,197                    ---
                                             1 Respondent determined that petitioner was liable for a sec. 6662(h)
                                           40% gross valuation misstatement penalty for the portion of the un-
                                           derpayment attributable to the capital loss carryforwards.

                                       Petitioner timely petitioned this Court. In a stipulation of
                                     settled issues filed April 8, 2011, petitioner conceded that its
                                       8 The $1,426,576 capital loss disallowance for TYE September 30, 2000, resulted in no tax ef-

                                     fect for that year. Instead it reduced the capital loss carryover to the subsequent tax year and
                                     when combined with the disallowed 2001 capital loss carryover of $9,301,019 created a
                                     $10,727,595 adjustment to the capital loss for TYE September 30, 2001.
                                       9 See infra p. 204 and note 10 for a discussion of why respondent disallowed environmental

                                     remediation expense deductions for TYE September 30, 2000, in an amount greater than that
                                     claimed by petitioner.




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                                     204                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                     capital gain for TYE September 30, 2001, should be increased
                                     by $10,727,595, and respondent conceded petitioner was not
                                     liable for a section 6662(a) or (h) accuracy-related penalty
                                     with respect to the disallowed capital loss carryovers. In a
                                     stipulation of settled issues filed October 27, 2011,
                                     respondent conceded petitioner was not liable for a section
                                     6662(a) accuracy-related penalty with respect to the dis-
                                     allowed environmental remediation expense deductions. In a
                                     stipulation of settled issues filed December 13, 2011, the par-
                                     ties stipulated that petitioner claimed a deduction for
                                     environmental remediation expenses incurred in cleaning up
                                     the Golden West Refinery property for TYE September 30,
                                     2000, of only $3,109,962, and accordingly respondent con-
                                     ceded $1,260,840 of environmental remediation expense
                                     deductions originally disallowed in the notice of deficiency. 10
                                        On December 21, 2011, the parties filed a joint motion to
                                     submit this case under Rule 122. We granted the joint
                                     motion on January 3, 2012, and set a briefing schedule. On
                                     February 14, 2012, Duquesne Light Holdings, Inc. & Subsidi-
                                     aries (Duquesne) filed a motion for leave to file a brief
                                     amicus curiae in support of petitioner. 11 We granted
                                     Duquesne’s motion and filed the amicus brief on March 21,
                                     2012. On May 9, 2012, respondent’s reply to Duquesne’s
                                     amicus brief was filed. On May 30, 2012, Duquesne’s
                                     response to respondent’s reply was filed.

                                                                                Discussion
                                       After the stipulations, we are left with just one question:
                                     Is petitioner entitled to environmental remediation expense
                                     deductions claimed on its Federal income tax returns for TYE
                                     September 30, 2000, 2001, and 2002? Respondent’s sole argu-
                                        10 For financial accounting purposes, Earth Management’s assumption of Golden West’s con-

                                     tingent liabilities was accounted for by the creation of a reserve account. Specifically, the as-
                                     sumption was reflected on Earth Management’s books as a $29,070,000 credit to an account en-
                                     titled ‘‘Environmental Reserve—GWR’’. When the exact amount and the payee of an environ-
                                     mental expense were determined, the reserve account would be debited and accounts payable
                                     credited. When payments were made for the specific accounts payable, cash would be credited
                                     and accounts payable debited. Additionally, the reserve account was reviewed at the end of each
                                     year; and if an adjustment was needed, a postclosing entry would be made the following year.
                                     In a year in which there were no postclosing adjustments to the reserve account, the tax deduc-
                                     tion would equal the net change in the reserve account. For TYE September 30, 2000, the re-
                                     serve account showed a net decrease of $4,370,802. This is where respondent obtained the
                                     amount he disallowed in the notice of deficiency.
                                        11 Duquesne currently has a case pending before this Court at docket No. 9624–10.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   205


                                     ment is that the claimed deductions duplicate $18,347,205 in
                                     capital loss deductions petitioner claimed for years not before
                                     the Court, and hence petitioner is not entitled to up to
                                     $18,347,205 of the claimed environmental remediation
                                     expense deductions. 12
                                     I. Double Deductions—Generally, the Tax Court, and the
                                        Ninth Circuit
                                           A. Current State of the Law
                                        Double deductions (or their practical equivalent) for the
                                     same economic loss are impermissible absent a clear declara-
                                     tion of congressional intent. Charles Ilfeld Co., 292 U.S. at
                                     68; Marwais Steel Co. v. Commissioner, 354 F.2d 997, 998–
                                     999 (9th Cir. 1965) (stating the court would follow the mes-
                                     sage in Charles Ilfeld Co. ‘‘in cases having any similarity at
                                     all on double deductions for a single economic loss’’), aff ’g 38
                                     T.C. 633 (1962); see also McLaughlin v. Pac. Lumber Co., 293
                                     U.S. 351, 355 (1934) (holding that ‘‘a consolidated return
                                     must truly reflect taxable income of the unitary business and
                                     consequently it may not be employed to enable the taxpayer
                                     to use more than once the same losses for reduction of
                                     income’’); Spokane Dry Goods Co. v. Commissioner, 125 F.2d
                                     865, 867 (9th Cir. 1942) (noting that the court was con-
                                     strained ‘‘by the rule against interpretations which allow a
                                     double deduction’’), aff ’g 43 B.T.A. 793 (1941); Willamette
                                     Indus., Inc. v. Commissioner, T.C. Memo. 1991–389 (acknowl-
                                     edging that ‘‘[a] fundamental tax principle is that a taxpayer
                                     cannot receive a double deduction or claim a double credit for
                                     the same item’’); Mo. Pac. Corp. v. United States, 5 Cl. Ct.
                                     296, 302 (1984) (decreeing that it is a fundamental principle
                                     that one cannot get a double deduction for the same
                                     expense). This rule applies even when the deductions are
                                     based on separate and distinct sections of the Code. Rome I,
                                     Ltd. v. Commissioner, 96 T.C. 697, 704–705 (1991) (citing
                                     Charles Ilfeld Co., 292 U.S. at 68, United States v. Skelly Oil
                                     Co., 394 U.S. 678, 684 (1969), and O’Brien v. Commissioner,
                                     79 T.C. 776, 786–788 (1982), aff ’d and remanded on other
                                     issues, 771 F.2d 476 (10th Cir. 1985)).
                                        12 Whether the claimed deductions meet the deductibility requirements of secs. 162 and 461

                                     is not at issue. Respondent concedes that they do.




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                                     206                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                        To find a clear declaration of congressional intent, a tax-
                                     payer must point to ‘‘a specific statutory provision author-
                                     izing a double deduction’’. United Telecomms., Inc. v.
                                     Commissioner, 589 F.2d 1383, 1388 (10th Cir. 1978), aff ’g 65
                                     T.C. 278 (1975). General allowance provisions are insuffi-
                                     cient; and when the statute is silent, it is presumed that
                                     double deductions are not allowed. O’Brien v. Commissioner,
                                     79 T.C. at 786–788; see also Rome I, Ltd. v. Commissioner,
                                     96 T.C. at 704–705 (finding an impermissible double tax ben-
                                     efit when a taxpayer claimed both a tax credit and a chari-
                                     table contribution deduction); Brenner v. Commissioner, 62
                                     T.C. 878, 884–885 (1974) (pointing out that section 162(a) did
                                     not reflect a ‘‘clear declaration of intent by Congress’’ to allow
                                     a double deduction).
                                           B. Tax Court
                                        The Tax Court has applied the Supreme Court’s
                                     pronouncement of the Ilfeld doctrine in several cases, three
                                     of which we will examine here. In Woods Inv. Co. v. Commis-
                                     sioner, 85 T.C. 274, 276–277 (1985), the taxpayer sold all of
                                     the stock of four wholly owned subsidiaries. The subsidiaries
                                     had used accelerated methods to depreciate their business
                                     property when permitted. Id. at 276. The issue was the
                                     amount of the taxpayer’s basis in the stock of its subsidiaries
                                     for purposes of determining the gain on the sale. Id. at 277.
                                     The Court first looked at section 1.1502–32, Income Tax
                                     Regs., which provided rules for adjusting the basis of a
                                     subsidiary’s stock held by a parent. Id. at 278. Pursuant to
                                     this section, basis adjustments were made in accordance with
                                     the subsidiaries’ earnings and profits. 13 Id. at 278–279. Then
                                     the Court looked at section 312(k), which provided that in
                                     computing earnings and profits, the allowance for deprecia-
                                     tion was deemed to be the amount which would be allowable
                                     if the straight-line method of depreciation were used. Id. at
                                     278.
                                        13 The parent’s basis in the stock of its subsidiary is adjusted by the difference between the

                                     required positive adjustments and the required negative adjustments. Sec. 1.1502–32, Income
                                     Tax Regs. Generally, the amount of a subsidiary’s yearend undistributed earnings and profits
                                     that increases consolidated taxable income results in a positive adjustment and increases the
                                     parent’s basis in the stock. Sec. 1.1502–32(b)(1)(i), Income Tax Regs. A loss of a subsidiary that
                                     is used to reduce the affiliated group’s consolidated income results in a negative adjustment and
                                     decreases the parent’s basis in the subsidiary’s stock. Sec. 1.1502–32(b)(2)(i), Income Tax Regs.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   207


                                        The taxpayer computed earnings and profits in accordance
                                     with section 312(k), arguing this was proper. The Commis-
                                     sioner found fault with this and argued that the taxpayer
                                     had to use accelerated depreciation because otherwise the
                                     taxpayer was obtaining a ‘‘double deduction’’. 14 Id. at 279.
                                     We agreed with the taxpayer. We distinguished Charles
                                     Ilfeld Co. on the grounds that the Supreme Court had stated
                                     that a double deduction would not be allowed ‘‘ ‘in the
                                     absence of a provision in the Act or regulations that fairly
                                     may be read to authorize it’ ’’ and here there was such a
                                     provision. Id. at 282.
                                     Section 1.1502–32, Income Tax Regs., however, deals comprehensively with
                                     this problem by requiring in paragraph (b)(2)(i) that the basis of the stock
                                     of the loss subsidiary in the hands of the parent be reduced by any deficit
                                     in the earnings and profits. That regulation also prevents a double inclu-
                                     sion in income by providing in paragraph (b)(1)(i) that the basis of the
                                     subsidiary’s stock be increased by the subsidiary’s undistributed earnings
                                     and profits. Thus, even assuming petitioner is receiving a double deduc-
                                     tion, we believe that the detailed rules in section 1.1502–32 * * * together
                                     with section 312(k), can fairly be read to authorize the result herein, and,
                                     therefore, Ilfeld Co. is inapplicable. [Id. at 282–283.]

                                     We later acknowledged our holding in CSI Hydrostatic
                                     Testers, Inc. v. Commissioner, 103 T.C. 398, 405 (1994), aff ’d,
                                     62 F.3d 136 (5th Cir. 1995), where we stated that in Woods
                                     Inv. we concluded Charles Ilfeld Co. was ‘‘inapplicable
                                     because section 312(k) together with section 1.1502–32,
                                     Income Tax Regs., authorized the result we reached.’’
                                       Wyman-Gordon Co. & Rome Indus. Inc. v. Commissioner,
                                     89 T.C. 207 (1987), also involved the determination of a
                                     subsidiary’s earnings and profits. The specific issue was
                                     whether discharge of indebtedness income realized by the
                                     subsidiary should be included in earnings and profits,
                                     reducing the parent’s excess loss account to zero, 15 even
                                       14 Essentially, the lower the amount of depreciation used in the calculations, the higher earn-

                                     ings and profit would be, which in turn would make the parent’s basis in the stock of the sub-
                                     sidiaries higher and lead to a lower amount of gain on the sale of stock.
                                       15 As discussed supra note 13, a parent’s basis in its subsidiary’s stock is adjusted according

                                     to the subsidiary’s earnings and profits, the annual adjustment being the net of the positive and
                                     negative adjustments. If a yearend net negative adjustment exceeds the parent’s basis in the
                                     stock of a subsidiary, the parent must establish an ‘‘excess loss account’’ with respect to the
                                     stock it owns. Sec. 1.1502–32, Income Tax Regs. When a parent corporation sells or otherwise
                                     disposes of stock in a subsidiary, the parent is required to include in income the balance of any
                                     excess loss account outstanding with respect to its stock in that subsidiary immediately before
                                     the disposition event occurred. Sec. 1.1502–19(a)(1)(i), Income Tax Regs. In Wyman-Gordon Co.
                                                                                                   Continued




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                                     208                 139 UNITED STATES TAX COURT REPORTS                                      (198)


                                     though the discharge of indebtedness income was not
                                     included in consolidated taxable income pursuant to section
                                     108(a)(1) (the subsidiary was insolvent). Id. at 215. Including
                                     it in earnings and profits would effectively allow the affili-
                                     ated group of corporations excessive tax benefits by avoiding
                                     recognition of latent income otherwise existing in the excess
                                     loss account balance. Id. The Court looked at the regulations
                                     and found no provision as to how discharge of indebtedness
                                     income factors into the computation of earnings and profits
                                     and so held it should not increase earnings and profit in this
                                     situation. Id. at 218–219. We distinguished Woods Inv. on
                                     the grounds that there section 312(k) specifically required
                                     earnings and profits to be computed on the basis of straight-
                                     line depreciation, whereas in Wyman-Gordon there existed
                                     no comparable statutory provision requiring inclusion of dis-
                                     charge of indebtedness income in earnings and profits. Id. at
                                     219.
                                        Finally, in CSI Hydrostatic Testers, Inc. v. Commissioner,
                                     103 T.C. at 403, 405, we considered the same issue as in
                                     Wyman-Gordon. However, in the years intervening between
                                     the two cases Congress had enacted section 312(l), which
                                     required discharge of indebtedness income to be included in
                                     earnings and profits. Because there was a specific provision
                                     leading to the double deduction, the Court allowed it. Id. at
                                     411.
                                        These three cases illustrate how the Ilfeld doctrine has
                                     been applied by the Court. In two of the cases, Woods Inv.
                                     and CSI Hydrostatic, the taxpayer could point to a specific
                                     provision showing Congress’ intent to allow the double deduc-
                                     tions, and so we allowed the second deduction. In the third
                                     there was no provision, and so the Court disallowed the
                                     second deduction.
                                           C. The Ninth Circuit
                                       Because of this Court’s holding in Golsen v. Commissioner,
                                     54 T.C. 742 (1970), aff ’d, 445 F.2d 985 (10th Cir. 1971), we
                                     & Rome Indus. Inc. v. Commissioner, 89 T.C. 207 (1987), the subsidiary had realized net oper-
                                     ating losses which reduced the consolidated taxable income and left the subsidiary with a deficit
                                     earnings and profits account. This, in turn, reduced the parent’s basis in the subsidiary’s stock
                                     below zero and created an excess loss account. The regulations also expressly provided that the
                                     realization of discharge of indebtedness income not included in taxable income constitutes a dis-
                                     position event and triggers recognition of the excess loss account. Sec. 1.1502–19(a)(2)(ii), Income
                                     Tax Regs.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                    209


                                     are bound by precedent from the Court of Appeals for the
                                     Ninth Circuit, the court to which this case is appealable
                                     absent a stipulation of facts to the contrary. Three Ninth Cir-
                                     cuit cases are of importance here: Commissioner v. Laguna
                                     Land & Water Co., 118 F.2d 112 (9th Cir. 1941), Marwais
                                     Steel Co. v. Commissioner, 354 F.2d 997, and Stewart v.
                                     United States, 739 F.2d 411 (9th Cir. 1984).
                                       In Commissioner v. Laguna Land & Water Co., 118 F.2d
                                     at 114, the taxpayer bought a tract of land and subdivided
                                     it into lots. In early years not before the court, an erro-
                                     neously high basis had been applied and the entire basis
                                     used. Id. at 114–116. The Commissioner argued that no basis
                                     should be allocated to sales in years before the court because
                                     this would be a double deduction. Id. at 117. The taxpayer
                                     asserted that a proportionate amount of the true basis should
                                     be allowed in the years at issue. Id. The Board of Tax
                                     Appeals held for the taxpayer, and the Court of Appeals
                                     affirmed. Important to this holding was a regulation in effect
                                     at the time which provided:
                                     Sale of real property in lots.—Where a tract of land is purchased with a
                                     view to dividing it into lots or parcels of ground to be sold as such, the
                                     cost or other basis shall be equitably apportioned to the several lots or par-
                                     cels and made a matter of record on the books of the taxpayer, to the end
                                     that any gain derived from the sale of any such lots or parcels which con-
                                     stitutes taxable income may be returned as income for the year in which
                                     the sale is made. This rule contemplates that there will be a measure of
                                     gain or loss on every lot or parcel sold, and not that the capital in the
                                     entire tract shall be returned. The sale of each lot or parcel will be treated
                                     as a separate transaction, and gain or loss computed accordingly. [Id. at
                                     114–115. 16]

                                     The Court of Appeals found that the regulation had the effect
                                     and force of law and mandated the result the taxpayer
                                     sought. Id. at 115, 117–118. 17
                                       16 The quoted regulation appeared as art. 61 of Treasury Regulation 74 promulgated under

                                     the Internal Revenue Act of 1928. See Commissioner v. Laguna Land & Water, 118 F.2d 112,
                                     114 (9th Cir. 1941).
                                       17 Important here is the Court of Appeals’ statement in Commissioner v. Laguna Land &

                                     Water, 118 F.2d at 117, that
                                       Nor is the contention of the Commissioner correct that an over allowance of base cost to cer-
                                     tain lots sold in earlier years makes the proper base cost deduction on other lots sold in a subse-
                                     quent year a ‘double deduction’ such as is considered in * * * Ilfeld Co. v. Hernandez, * * *.
                                     None of these cases holds that an improper deduction from the gross receipts from a specific
                                     piece of property sold in one year may be corrected by refusing a deduction upon the sale of
                                     a difference piece of property in a different year.
                                                                                                   Continued




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                                     210                 139 UNITED STATES TAX COURT REPORTS                                     (198)


                                        Marwais Steel Co. v. Commissioner, 354 F.2d at 997,
                                     involved bad debt deductions claimed by the parent on loans
                                     made to a subsidiary and the subsidiary’s operating losses
                                     the parent later assumed. Marwais Steel Co. (Marwais) lent
                                     its wholly owned subsidiary, Wilmington Metal Manufac-
                                     turing Co. (Wilmington), $57,857.35. Id. Wilmington was
                                     never successful, and the amount was forgiven on the eve of
                                     Wilmington’s eventual dissolution. Id. Marwais had pre-
                                     viously claimed additions to its reserve for bad debts
                                     resulting in tax deductions of $22,000 on its 1953 tax return
                                     and $35,122.35 on its 1957 tax return as a result of the loans
                                     it had made to Wilmington. Id. at 997–998. At the time of
                                     Wilmington’s liquidation, Marwais claimed a deduction that
                                     represented the net operating losses of $59,774.87 of Wil-
                                     mington. Id. at 997. Specifically, Marwais claimed a deduc-
                                     tion of $23,967.52 on its 1957 tax return and carried the
                                     remaining $35,807.35 over to its 1958 tax return. Id. The
                                     Commissioner argued that because Marwais had claimed
                                     $57,122.35 in bad debt deductions, it was not entitled to
                                     $57,122.35 of the claimed operating loss deductions because
                                     they represented the same economic loss. Id. at 998. We
                                     agreed with the Commissioner, and the Court of Appeals
                                     affirmed. Id. Importantly, the Court of Appeals stated:
                                        We conclude, as the tax court did, plausible as the position of Marwais
                                     is, there is a message in Ilfeld Co. v. Hernandez, Collector, 292 U.S. 62, 54
                                     S.Ct. 596, 78 L.Ed. 1127, another double tax deduction disallowed. We fol-
                                     low taxpayer’s argument that part of what was there said was dicta. And,
                                     of course, the sequence of facts there is reversed from what we have here.
                                     If what it said there was dicta, we believe that it is dicta the court will
                                     follow in cases having any similarity at all on double deductions for a
                                     single economic loss. [Id. at 998–999; emphasis added. 18]

                                     We do not read this case as being inconsistent with the law on double deductions. It simply
                                     acknowledges the regulation providing that the determination of cost and the gain or loss for
                                     each parcel should be separately determined for tax purposes. See Stewart v. United States, 739
                                     F.2d 411, 415 (9th Cir. 1984).
                                        18 In its amicus brief, Duquesne states: ‘‘The First Circuit Court of Appeals, however, reached

                                     the opposite conclusion on facts very similar to Marwais.’’ See Textron, Inc. v. United States,
                                     561 F.2d 1023 (1st Cir. 1977). Even if true, this case is not appealable in the First Circuit. We
                                     also note Textron dealt with a parent and a subsidiary that did not file a consolidated return,
                                     a point which was carefully noted by the court in Textron. Id. at 1026 (stating: ‘‘We have grave
                                     doubts about the dissent’s casual eliding of the distinction between parent and subsidiary. They
                                     are separate taxpayers. In the absence of a consolidated return, * * * treating the two corpora-
                                     tions as one may not be justified.’’). We recognize that Marwais Steel Co. did not involve a con-
                                     solidated return. Marwais Steel Co. v. Commissioner, 354 F.2d 997, 997 n.1 (9th Cir. 1965), aff ’g
                                     38 T.C. 633 (1962). But petitioner files consolidated returns, thus distinguishing it from the tax-
                                     payer in Textron.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   211


                                       In Stewart, the taxpayers reported gain from the sale of a
                                     water utility using the installment sale method. Stewart, 739
                                     F.2d at 412. In determining the amount of the gain, the tax-
                                     payers originally calculated their basis in the water utility
                                     sold as $671,758.88 and deducted $161,593 against a
                                     $325,000 installment payment as a return of basis for 1968,
                                     a year closed to adjustment by the statute of limitations. Id.
                                     at 412, 414. They then discovered they were wrong and that
                                     the actual basis was $28,268. Id. at 412. The taxpayers
                                     wanted to deduct a proportionate share of the true basis for
                                     1969 and 1970 even though they had already erroneously
                                     deducted more than the total basis for 1968. Id. at 414. The
                                     District Court allowed the taxpayers to do so, but the Court
                                     of Appeals reversed. Id. at 415 (citing Robinson v. Commis-
                                     sioner, 181 F.2d 17, 18 (5th Cir. 1950), aff ’g 12 T.C. 246
                                     (1949)). In response to the taxpayer’s reliance on Laguna
                                     Land & Water Co., the Court of Appeals stated that
                                     the Laguna decision rested on the fact that the regulations required the
                                     taxpayer ‘‘to treat each parcel sold as a separate capital transaction having
                                     a separate basic cost and yielding a separate profit in the year of its sale.’’
                                     * * * [118 F.2d at 117.] In contrast, there is no indication that Congress
                                     intended installment sales to be treated as a number of separate trans-
                                     actions. Installment reporting is not even required; the taxpayer may elect
                                     not to use it. * * * [Id.]

                                        Petitioner, focusing on language in Commissioner v.
                                     Laguna Land & Water Co., 118 F.2d at 117, and quoting
                                     from Stewart, 739 F.2d at 415, contends ‘‘that the govern-
                                     ment cannot make up for its failure to correct an erroneous
                                     deduction in one year by disallowing a deduction in a sepa-
                                     rate transaction.’’ Petitioner then paraphrases this language
                                     to argue that ‘‘the government is attempting to make up for
                                     its failure to correct an erroneous deduction in one trans-
                                     action [Great West’s sale of its Earth Management stock] by
                                     disallowing a deduction in a separate transaction [Earth
                                     Management’s environmental clean-up activities with respect
                                     to the Refinery property].’’
                                        We do not believe the language warrants the emphasis
                                     petitioner gives to it. It simply arose out of the regulation in
                                     Laguna Land & Water mandating that ‘‘The sale of each lot
                                     or parcel will be treated as a separate transaction.’’ As
                                     already discussed supra note 17, the court in Laguna Land




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                                     212                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                     & Water found that regulations in effect at that time man-
                                     dated that the sale of each lot be treated as a separate trans-
                                     action. This was sufficient to demonstrate congressional
                                     intent to allow the double deduction. Over 20 years after
                                     Laguna Land & Water was decided, the Court of Appeals
                                     held it would follow Charles Ilfeld Co. in ‘‘cases having any
                                     similarity at all on double deductions for a single economic
                                     loss’’. Marwais Steel Co. v. Commissioner, 354 F.2d at 998–
                                     999. In that case, no mention was made of Laguna Land &
                                     Water Co. or separate and different transactions. The Court
                                     of Appeals for the Ninth Circuit, like the Tax Court, follows
                                     the Ilfeld doctrine. If a taxpayer can point to a specific provi-
                                     sion demonstrating congressional intent to allow the double
                                     deduction, the second deduction would be authorized. If the
                                     taxpayer cannot show congressional intent, then the double
                                     deduction would not be allowed.
                                     II. The Law Applied to Petitioner
                                        If the deductions represent the same economic loss to peti-
                                     tioner and petitioner cannot point to a specific provision dem-
                                     onstrating Congress’ intent to allow the double deductions,
                                     then the claimed environmental remediation expense deduc-
                                     tions must be disallowed.
                                           A. Whether the Deductions Represent the Same Economic
                                              Loss
                                        Petitioner asserts that the capital loss and the environ-
                                     mental remediation expense deductions do not represent the
                                     same economic loss. We disagree. Both the capital loss and
                                     the environmental remediation expense deductions represent
                                     costs associated with the cleanup of the Golden West
                                     Refinery property. The capital loss represents the unpaid
                                     liability, and the environmental remediation expense deduc-
                                     tions represent the actual cost when paid. This—deducting
                                     the unpaid liability in the form of a capital loss and then
                                     deducting it again when paid—is the core problem of this
                                     case. Petitioner raises two arguments which we will address
                                     as to why they do not represent the same economic loss.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   213


                                           1. Calculation of Basis
                                        Petitioner states: ‘‘GWRC’s [Golden West’s] capital loss on
                                     the sale of its EMC [Earth Management] stock did not rep-
                                     resent an economic loss for the environmental cleanup of the
                                     Refinery Property, but rather was the result of the manner
                                     in which basis was required to be computed under the provi-
                                     sions of the Code’’. Section 1001(a) provides that loss ‘‘from
                                     the sale or other disposition of property * * * shall be the
                                     excess of the adjusted basis * * * over the amount realized.’’
                                     (Emphasis added.) Hence, contrary to petitioner’s assertion,
                                     calculation of basis, while important, is not the only factor
                                     when determining a loss. One must also consider amount
                                     realized. Section 1001(b) provides that ‘‘[t]he amount realized
                                     from the sale or other disposition of property shall be the
                                     sum of any money received’’.
                                        The amount realized was $25,200 and basis was
                                     $29,100,000, leading to a loss of $29,074,800. 19 Basis took
                                     into account the face value of the Benzin note but did not
                                     take into account the contingent environmental remediation
                                     liabilities (the expected amount it would cost to clean up the
                                     Golden West Refinery property). The amount realized took
                                     into account both the Benzin note and the contingent
                                     environmental remediation liabilities. Therefore, the capital
                                     loss arose not as a result of how basis was calculated but as
                                     a result of the contingent environmental remediation liabil-
                                     ities being taken into account in calculating the amount
                                     realized (or fair market value) but not in calculating basis. 20
                                       19 The sale price of the Earth Management stock was $280 per share for a total of $25,200

                                     (90 shares × $280). An appraisal report prepared by Deloitte states: ‘‘as of September 1, 1996,
                                     the fair market value of a minority and noncontrolling interest in the common equity of Earth
                                     Management Company is reasonably estimated to be $70,000 or $280 per share.’’ Therefore, the
                                     amount realized equals the fair market value in this case.
                                       20 Petitioner also argues that ‘‘Because GWRC’s [Golden West’s] capital loss did not represent

                                     an economic loss from the cleanup of the Refinery Property, Earth Management’s subsequent
                                     environmental remediation expense deductions cannot constitute a second deduction for the
                                     same economic loss.’’ We recognize that no economic loss occurred when petitioner sold the
                                     Earth Management stock, leading to the capital loss; however, we consider this to be immate-
                                     rial. That one economic loss occurs and two tax losses are claimed is a trademark of double de-
                                     duction cases. For example, in Comar Oil Co. v. Helvering, 107 F.2d 709 (8th Cir. 1939), the
                                     taxpayer opened a reserve account in 1926 in anticipation of losses that would be incurred when
                                     warehouse material was sold or junked. Id. at 710. It credited to the reserve $120,000 and
                                     claimed a deduction in that amount on its 1926 tax return. Id. In 1929 the taxpayer’s actual
                                     losses from the warehouse were $208,189.04, and on its 1929 tax return the taxpayer claimed
                                     a deduction in that amount. Id. The court agreed with the Commissioner that the claimed
                                     $208,189.04 deduction should be reduced by the remaining reserve account balance of
                                                                                                  Continued




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                                     214                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                           2. The Benzin Note v. Cash Advances From Thrifty
                                        Petitioner next argues the deductions are economically not
                                     the same because ‘‘the asset that established GWRC’s [Golden
                                     West’s] basis in the EMC [Earth Management] stock (the
                                     Benzin note) was not the same asset that gave rise to EMC’s
                                     [Earth Management] environmental remediation expense
                                     deductions (the Thrifty cash advances).’’ Petitioner appar-
                                     ently believes that if the Benzin note had been used to pay
                                     the environmental expenses to clean up the Golden West
                                     Refinery property, then the capital loss and the environ-
                                     mental remediation liabilities would represent the same eco-
                                     nomic loss. But because the liabilities were paid from money
                                     Thrifty advanced to Earth Management, they are not. We
                                     view this as nothing more than a distinction without a dif-
                                     ference. 21 Payment of the environmental remediation liabil-
                                     ities reduced Earth Management’s assets (and the consoli-
                                     dated group’s as a whole) regardless of where that money
                                     came from.
                                           B. No Specific Provision Demonstrating Intent
                                        As the capital loss deductions and the environmental
                                     remediation expense deductions represent the same economic
                                     loss, petitioner must point to a specific provision authorizing
                                     the double deduction. Petitioner fails in this regard, pointing
                                     only to section 162. As stated, general allowance provisions
                                     are insufficient, and this Court has previously held that sec-
                                     tion 162 does not reflect a ‘‘clear declaration of intent’’ to
                                     allow a double deduction. O’Brien v. Commissioner, 79 T.C.
                                     at 786–788; Brenner v. Commissioner, 62 T.C. at 884–885.
                                     Accordingly, petitioner is not entitled to the environmental
                                     remediation expense deductions claimed on its Federal
                                     $87,824.30 for which a deduction had previously been allowed in 1926. Id. at 711. The fact that
                                     the deduction claimed on the 1926 tax return did not represent an economic loss whereas the
                                     deduction claimed on the 1929 return did represent an economic loss did not matter. The court
                                     acknowledged that the double deduction cases cited involved situations where an economic loss
                                     had actually occurred and been allowed as a deduction for a preceding year and then claimed
                                     a second time. In the case before it ‘‘the loss was anticipated and a deduction claimed and al-
                                     lowed for it in a year preceding the occurrence of the actual loss.’’ Id. However, the court found
                                     ‘‘no difference in principle’’, and the claimed second loss was not allowed. Id.
                                        21 The Benzin note’s stated purpose was to provide Earth Management with additional collat-

                                     eral to facilitate borrowing any funds needed to pay the contingent environmental remediation
                                     liabilities as they came due. However, the Benzin Note was never pledged as collateral on any
                                     borrowing by Earth Management and as of May 16, 2011, no payments of principal or interest
                                     had been made on the Benzin Note, despite the September 30, 2006, maturity date.




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                    215


                                     income tax returns for TYE September 30, 2000, 2001, and
                                     2002. 22 For completeness, we next briefly discuss petitioner’s
                                     remaining arguments.
                                     III. Petitioner’s Remaining Arguments
                                           A. Whether Respondent Ignored Taxable Periods
                                        Petitioner argues respondent is ignoring the taxable
                                     periods for which the deductions were claimed and is
                                     impermissibly matching capital loss carryforwards claimed
                                     for years not before the Court with environmental remedi-
                                     ation expense deductions claimed for years before the Court.
                                     Petitioner states that the capital loss carryforwards of
                                     $18,347,205 claimed for closed years correspond to
                                     $16,699,198 of environmental remediation expense deduc-
                                     tions claimed for closed years and that capital loss deduc-
                                     tions of $10,727,802 claimed for open years and conceded by
                                     petitioner correspond to $11,109,962 of environmental
                                     expense deductions claimed for open years. Petitioner
                                     believes that because it conceded the capital loss
                                     carryforwards claimed for years before the Court, ‘‘there is no
                                     ‘first tax benefit’ in the years at issue and therefore, there
                                     can be no ‘double tax benefit’ in the years at issue.’’
                                        Again, we disagree with petitioner. As of September 1996
                                     the contingent environmental remediation liabilities associ-
                                     ated with the Golden West Refinery property totaled
                                     $29,070,000. By engaging in the environmental remediation
                                     strategy, petitioner essentially accelerated the deductions
                                     attributable to payment of the environmental remediation
                                     liabilities. The capital loss was realized in a single year—
                                     1996. The second deduction was claimed for the years in
                                     which the actual remediation cleanup expenses were paid.
                                        22 We are mindful of the result we have reached. For years closed by the statute of limitations,

                                     petitioner claimed capital loss deductions of $18,347,205 and environmental remediation ex-
                                     pense deductions of $16,699,198 for total deductions of $35,046,403 for the cleanup of the Golden
                                     West Refinery property. Then for years not closed by the statute of limitations, petitioner
                                     claimed capital loss deductions of $10,727,595 and environmental remediation expense deduc-
                                     tions of $11,109,962. Petitioner conceded the capital loss deductions, and we have disallowed the
                                     environmental remediation expense deductions. In effect, petitioner was allowed both capital
                                     loss and environmental remediation expense deductions for closed years and then was not al-
                                     lowed deductions for both for open years. We believe this result is in line with the Supreme
                                     Court’s pronouncement that double deductions (or their practical equivalent) for the same eco-
                                     nomic loss are impermissible absent a clear declaration of congressional intent. Charles Ilfeld
                                     Co. v. Hernandez, 292 U.S. 62, 68 (1934); see also Marwais Steel Co. v. Commissioner, 354 F.2d
                                     at 998–999.




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                                     216                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                     Both deductions arose from the same economic loss, which is
                                     the cleanup of the Golden West Refinery property. To the
                                     extent of the first deduction, petitioner is not entitled to a
                                     second deduction for the same economic loss.
                                        Petitioner argues that ‘‘[i]t is clear that Petitioner is not
                                     receiving a ‘double tax benefit’ in the years before Court and,
                                     in fact, Respondent is seeking a double disallowance of Peti-
                                     tioner’s ‘tax benefits’ in the years at issue’’. We still disagree.
                                     What is in fact clear to this Court is that if we grant peti-
                                     tioner’s request and sustain the claimed $11,109,962 in
                                     environmental remediation expense deductions, petitioner in
                                     total will have claimed $46,156,365 in tax deductions for an
                                     economic event that was estimated to cost $29,070,000 and
                                     has, at least to date, incurred $27,759,160 of actual cost. 23
                                           B. Whether the First Deduction Was Erroneous and There-
                                              fore Charles Ilfeld Co. Is Inapplicable
                                        Petitioner argues that Charles Ilfeld Co. is inapplicable
                                     because it is limited to situations where the taxpayer cor-
                                     rectly treated an item for an earlier barred year. According
                                     to petitioner, since the capital loss deductions claimed for
                                     closed years were improper, Charles Ilfeld Co. is inapplicable.
                                     Petitioner places great emphasis on B.C. Cook & Sons, Inc.
                                     v. Commissioner, 59 T.C. 516, 521–522 (1972).
                                        In B.C. Cook & Sons we stated: ‘‘The prohibition against
                                     double deductions evolved in the context of cases where the
                                     taxpayer correctly treated an item in an earlier barred year
                                     and received a tax benefit therefrom and then sought to
                                     obtain a similar tax benefit in a later year.’’ Id. at 521. We
                                     went on to state:
                                        If we were to apply the doctrine prohibiting double deductions in a situa-
                                     tion such as this, where the petitioner’s action in earlier years was erro-
                                     neous, we would turn that doctrine into a sword to pierce the shield of
                                     repose provided by the statute of limitations, and there would appear to
                                     be little need for the mitigation provisions applicable to double deductions
                                     contained in sections 1311–1315 * * *. * * * Moreover, a deduction which
                                     is incorrectly taken in one year should be corrected by eliminating it from
                                     the year in which it was taken. * * * [Id.]

                                        23 This $46,156,365 is the sum of (1) $18,347,205 of capital loss deductions claimed for years

                                     not before the Court; (2) $16,699,198 of environmental remediation expense deductions claimed
                                     for years not before the Court; and (3) $11,109,962 in environmental remediation expense deduc-
                                     tions claimed for years before the Court (and at issue in this case).




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                                     (198)              THRIFTY OIL CO. & SUBS. v. COMMISSIONER                                   217


                                        While we acknowledge the holding in B.C. Cook & Sons
                                     supports petitioner, we also recognize that the precedential
                                     value of the decision has been questioned. See Alling v.
                                     Commissioner, 102 T.C. 323, 333 (1994), aff ’d without pub-
                                     lished opinion sub nom. Handelman v. Commissioner, 57
                                     F.3d 1063 (2d Cir. 1995), and aff ’d without published opinion
                                     sub nom. Eisenman v. Commissioner, 67 F.3d 291 (3d Cir.
                                     1995).
                                        Regardless of our holding in B.C. Cook & Sons, the Court
                                     of Appeals for the Ninth Circuit has stated: ‘‘The applicable
                                     principle here is that ‘when a taxpayer receives a tax advan-
                                     tage from an erroneous deduction, he may not deduct the
                                     same amount in a subsequent year after the Commissioner
                                     is barred from adjusting the tax for the prior year.’’ Stewart,
                                     739 F.2d at 415 (citing Robinson v. Commissioner, 181 F.2d
                                     at 18). 24 Accordingly, we conclude that, as we are bound by
                                     Ninth Circuit precedent, the fact that the capital loss deduc-
                                     tions claimed for earlier years may have been erroneous is
                                     immaterial. 25 See Golsen v. Commissioner, 54 T.C. 742.
                                       24 We find further support for the Court of Appeals for the Ninth Circuit’s not placing empha-

                                     sis on whether the original deduction was improper in Unvert v. Commissioner, 656 F.2d 483
                                     (9th Cir. 1981), aff ’g 72 T.C. 807 (1979). The taxpayers in Unvert concluded they had erro-
                                     neously claimed a $54,500 deduction for prepaid interest on their 1969 Federal income tax re-
                                     turn. Id. at 484. In 1972 the taxpayers were refunded the $54,500 they had paid. Id. The Inter-
                                     nal Revenue Service argued that the $54,500 was taxable income to the taxpayers in 1972 under
                                     the tax benefit rule. Id. The taxpayers argued that the tax benefit rule was inapplicable on the
                                     basis of cases which have held that the rule did not apply when the original deduction was im-
                                     proper. Id. at 485. This Court held for the Internal Revenue Service on the basis that the tax-
                                     payers were estopped from contending their 1969 deductions improper. Id. The Court of Appeals
                                     affirmed, but for a different reason. It stated:
                                       Because we affirm on the basis that the erroneous deduction exception should be rejected, we
                                     do not consider the Tax Court’s estoppel theory.
                                       The logic of the erroneous deduction exception is that an improper deduction should be cor-
                                     rected by assessing a deficiency before the statute of limitations has run, not by treating recov-
                                     ery of the expenditure as income. This rationale was explained most comprehensively in Canelo:
                                       ‘‘We realize that petitioners herein have received a windfall through the improper deductions.
                                     But the statue of limitations requires eventual repose. * * * Here the deduction was improper,
                                     and respondent should have challenged it before the years prior to 1960 were closed by the stat-
                                     ute of limitations.’’ * * * [Canelo v. Commissioner, 53 T.C. 217, 226–227 (1969), aff ’d, 447 F.2d
                                     484 (9th Cir. 1971).].
                                       We find this unpersuasive. * * *
                                       [Id. (fn. ref. omitted).]
                                       The Court of Appeals went on to state that ‘‘[t]he erroneous deduction exception is also poor
                                     public policy. * * * [and] improperly taken tax deductions should not be rewarded.’’ Id. at 486.
                                       25 In B.C. Cook & Sons, Inc. v. Commissioner, 59 T.C. 516 (1972), we stated that the earlier

                                     deduction the taxpayer claimed was ‘‘erroneous’’. In the case at hand, while petitioner has con-
                                     ceded the capital loss and states that ‘‘its capital loss carry-forwards should have been dis-
                                     allowed’’, petitioner also states:
                                                                                                  Continued




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                                     218                 139 UNITED STATES TAX COURT REPORTS                                    (198)


                                        As previously noted, other courts have also held that
                                     whether the first deduction was erroneous is immaterial. See
                                     Robinson v. Commissioner, 181 F.2d at 18; Comar Oil Co. v.
                                     Helvering, 107 F.2d 709, 711 (8th Cir. 1939) (holding that
                                     whether the original claimed deductions were correctly
                                     allowed was immaterial and the first deductions ‘‘were
                                     allowed with * * * [the taxpayer’s] approval and by its
                                     inducement, if not its direct request. Under these cir-
                                     cumstances it can not complain because it is not allowed a
                                     second deduction for the same losses after the bar of the
                                     statute has run against a correction of the error made in
                                     1926.’’); Stoecklin v. Commissioner, T.C. Memo. 1987–453
                                     (citing Robinson), aff ’d, 865 F.2d 1221 (11th Cir. 1989); see
                                     also Cincinnati Milling Mac. Co. v. United States, 83 Ct. Cl.
                                     392 (1936).
                                     IV. Conclusion
                                       For the reasons discussed above, petitioner is not entitled
                                     to environmental remediation expense deductions claimed for
                                     TYE September 30, 2000, 2001, and 2002, of $3,109,962,
                                     $4,108,429, and $3,891,571, respectively. The Court has
                                     considered all of petitioner’s contentions, arguments,
                                     requests, and statements. To the extent not discussed herein,
                                     we conclude that they are meritless, moot, or irrelevant.
                                       To reflect the foregoing,
                                                                         Decision will be entered under Rule 155.

                                                                               f



                                     Petitioner conceded this issue years after it entered into the transaction which produced the cap-
                                     ital loss carry-forward, after courts found that similar transactions lacked economic substance,
                                     and thus the capital loss was not properly deductible. While Petitioner believed its transaction
                                     did have economic substance when it engaged in the transaction, Petitioner determined that the
                                     risk and cost of litigation given the subsequent development of the case law did not justify fur-
                                     ther litigation of the matter. * * *
                                     These seemingly conflicting statements lead us to question whether petitioner is conceding that
                                     the capital loss was erroneous or whether petitioner conceded the capital loss issue simply be-
                                     cause it foresaw a probable litigation defeat. Even if the former is correct, there are and will
                                     be cases where whether the first deduction was erroneous is at issue. The Court of Appeals for
                                     the Ninth Circuit recognized this problem and concluded that ‘‘[i]f the erroneous deduction ex-
                                     ception is retained in any form, there always will be inquiry as to whether the original deduc-
                                     tion was erroneous. In this sense, the erroneous deduction exception actually undermines the
                                     policies of the statute of limitations.’’ Unvert v. Commissioner, 656 F.2d at 483, 486 n.2.




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