Chugach Alaska Corporation's ("Chugach") objection to the claim of the Internal Revenue Service ("IRS") and motion for determination of tax liability are before the court. The IRS opposes Chugach's motion. Two issues which have been fully briefed by the parties are:

        1.   Whether Chugach may carry back a net operating loss ("NOL") suffered in 1990 to its tax year ended March 31, 1988 (Chugach's "1987 Tax Year") to offset income assigned to Chugach in transactions providing for the sale of Chugachs NOL's; and

        2.   Whether the IRS may disallow the assignment of income to Chugach to the extent that Chugach does not have sufficient deductions available in its 1987 Tax Year to offset the income assigned to it in connection with its NOL transactions.

        A third issue, whether Chugach is liable for an alternative minimum tax in its 1987 Tax Year, has not been fully briefed and will not be considered in this memorandum.

        On the limited issues before me, I find for Chugach as to the first issue and for the IRS on the second issue, to the extent of any excess income remaining after carryback of Chugach's 1990 NOL.

Factual Background

        Chugach was created as an Alaskan Native Corporation under the Alaska Native Claims Settlement Act of 1971, 43 U.S.C. § 1601 et. seq. In 1984, Congress tightened restrictions against the "sale" ⁽¹⁾ of net operating losses ("NOLS") and investment tax credits ("ITCS") through use of consolidated income tax returns. Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 60 (the "1984 Act"). Congress excepted Native Corporations from these new requirements, however. This exception provided Chugach and other Alaskan Native Corporations little opportunity to sell their NOLS and ITCS, because it did not expressly exempt the Native Corporations from Sections 269 and 482 of the Internal Revenue Code, or other general legal principles, which had been applied by the IRS to preclude such sales. In 1986, Congress expanded the 1984 exception by enacting legislation which provided in part:

[N]o provision of the Internal Revenue Code of 1986 (including Sections 269 and 482) or principle of law shall apply to deny the benefit or use of losses incurred or credits earned by a [Native] corporation . . .

        Because of these expanded provisions, Chugach was able to sell its NOLS and ITCS to profitable corporations in 1986 and 1987. While the original legislation provided a sunset for the 1986 exemption in 1992, Congress terminated the privilege in 1988. It allowed certain sales entered prior to July 26, 1988 to be honored, however. Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, § 5201 (the "1988 Act").

        Chugach claimed losses of $161.2 million in 1987 largely through the sale of timber lands and a coal property. Chugach in turn sold these losses to Winn Dixie and Waste Management, Inc. ("WMI"). Winn Dixie and WMI assigned income of $141.8 million to Chugach to apply against the losses and thus avoid taxes. The IRS challenged the valuation that formed the basis of the losses and filed a proof of claim in excess of $69 million dollars against Chugach in this proceeding. The valuation dispute was settled. The parties agreed that the values of the properties were $110.7 million, rather than the $161.2 million originally claimed by Chugach. This reduced Chugach's losses by about $50 million.

        Because the losses for 1987 were reduced under the settlement, Chugach's revised 1987 losses became insufficient to offset all the 1987 income assigned by Winn Dixie and WMI. Chugach now seeks to carryback 1990 losses of $22.3 million to replace a portion of the losses eliminated through the settlement. The IRS

objects to the carryback of losses. It contends that the assignment of income doctrine prevents Chugach from utilizing its 1990 losses in this manner.

Assignment of Income and "Spring Back"

        The assignment of income doctrine is a principle of law which requires that income be reported by the person or entity that earns it. Lucas v. Earl, 281 U.S. 111 (1930); Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949). Under the IRS position, the assignment of income doctrine is inapplicable to Chugach's sale of NOLS actually incurred or in existence in 1987 but somehow applies prospectively to preclude Chugach from carrying losses from future years back to 1987. The IRS contends that the excess assigned income not offset by Chugach's 1987 losses •(as revised by settlement) automatically "springs back" to Winn Dixie and WMI, leaving no income against which to offset the 1990 NOLS.

        I find no statutory basis for the IRS's position for several reasons. First, it is inconsistent with the section of the Internal Revenue Code which discusses net operating losses. Section 172 of the Internal Revenue Code allows carrybacks of losses. It provides, in part:

        (b)(1)(A) Except as otherwise provided in this paragraph, a net operating loss for any taxable year - (i) shall be a net operating loss carryback to each of the 3 taxable years preceding the taxable year of such loss . . .

[I]n the recomputation of a prior year's taxes by incorporation of a later year's losses (the carryback situation), the taxpayer must recalculate the prior year's tax liability in its entirety. That is, start anew. A taxpayer is not permitted to selectively blend the tax years involved. This rule was established long ago in Commissioner v. Van Bergh, 209 F.2d 23, 25 (2d Cir. 1954), where Judge Learned Hand wrote:

        [W]e can see no reason to suppose that, when Congress decided to allow the loss (under section 172] to be treated as though it had in fact occurred in the earlier, or later, year, it did not mean it to be so treated for all purposes.

        Similarly, the language of the 1986 and 1988 Acts is consistent with the allowance of carrybacks by Alaskan Native Corporations. The 1986 Act provided that no "principle of law shall apply to deny the benefit or use of losses incurred or credits earned by a [Native) corporation . . . ." The assignment of income doctrine is a principle of law that was limited by the 1986 Act. Although the 1988 Act eliminated post-April 26, 1988 NOL transactions by Alaskan Native Corporations, it did provide a window to permit certain limited transactions. The transaction would be allowed if the Native Corporation was in existence on April 26, 1988, the loss sold was used to offset income assigned pursuant to a contract entered prior to July 26, 1988, and the maximum amount of loss utilized was $40,000. Chugach's proposed carryback applies to contracts entered in 1987. The aggregate loss is about $22 million. Carryback of the 1990 NOL falls within the window provided under the 1988 Act.

        Allowance of the 1990 carryback is consistent with the statutes pertaining to both NOL deductions and the sale of NOLS by Native Corporations. It is unnecessary to delve into the legislative history to interpret these statutes. As the Supreme Court stated a case cited by the IRS regarding statutory construction:

There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to     2 ABR 392  determine the purpose of the legislation. In such cases we have followed their plain meaning.

        The plain meaning of the 1986 Act is clear: the assignment of income doctrine, a principle of law, may not be utilized to deny the benefit or use of losses incurred by a Native Corporation. The 1986 Act does not restrict carryback losses. It manifests an unequivocal congressional intent, within its terms, to aid Native Corporations through the extraordinary allowance of consolidated returns and the consequence sale of NOLS and ITCS. There need be no further inquiry into Congressional intent. There are no "rare or unusual circumstances" that warrant looking beyond the statute. The statute is not unclear or ambiguous. Indeed, this is an instance where Congress has expressed its intent in a distinctive and unusually forceful manner.

        While I understand the IRS's concern over the large     2 ABR 393  amount of taxes lost through the unrestricted sale of NOLS and ITCS in 1987, I will not, under the guise of statutory interpretation, circumvent Congress's clearly established directive to ignore the assignment of income doctrine. Neither the assignment of income doctrine nor the IRS's "spring back" theory will apply to deny Chugach the benefit or use of these carried back losses. I conclude that Chugach may carryback 1990 losses to offset 1987 income assigned by Winn Dixie and WMI.

        With regard to the excess assigned income remaining after carryback of the 1990 NOLS, Chugach has argued that it is entitled to retain this income, listing several grounds which it contends should be perceived as "real-life problems" rather than a "parade of horribles." Brief of Chugach, p. 38. One such ground is that the return of the excess income to the assignor corporations will deny Chugach, and other Native Corporations in similar situations, the right to obtain judicial review of disallowance of NOLS and related transactions unless, like Chugach, the Native Corporation happens to file bankruptcy. Chugach argues that this, in itself, will deny the Native Corporation the benefit of its losses, as intended by the 1986 Act.

        I find Chugach's arguments unpersuasive. The 1988 Act contains provisions detailing the rights of Native Corporations in the event the IRS disallows or proposes an adjustment in tax liability in connection with their NOL transactions. See § 5021(c), Technical and Miscellaneous Revenue Act of 1988, Pub. L.     2 ABR 394  No. 100-647. Congress anticipated the concerns voiced by Chugach and has attempted to provide a remedy. Further, Chugach has benefitted from its losses by being permitted to sell them to profitable corporations to be offset against their income. Retention by Chugach of any excess assigned income, after application of its losses, was not a benefit anticipated by Congress under the 1986 Act. Once the benefit of the losses has been obtained, "spring back" applies to the remaining income.

        An order will be entered that is consistent with this memorandum. This order will be an interlocutory order not subject to appeal. No final judgment will be entered in regard to the motion for determination of tax liability and objection to claim until the remaining issue regarding payment of alternative minimum tax is resolved.

        DATED:   May 4, 1992.

BY THE COURT




DONALD MacDONALD IV
United States Bankruptcy Judge

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