Pell and Stevens, Circuit Judges, and Campbell, Senior District Judge.*fn*
This appeal from a decision of the tax court while involving a narrow issue is not without broader significance because of underlying implications bearing on the scope of judicial review of statutes, particularly the Internal Revenue Code. The issue for decision is whether the corporate taxpayer was entitled to claim and carryover a loss resulting from the sale of improved real estate not claimed either to be used in trade or business or held for the production of income. The underlying issue is whether we should take the legislation as clearly written by the Congress or whether we should in effect read the statute on the basis of what Congress might have, possibly should have, but has not written into the legislation. We decline to engage in what amounts to judicial legislation.
Both the taxpayer, International Trading Company, and the property involved have previously been before this court. International Trading Co. v. Commissioner of Internal Revenue, 275 F.2d 578 (7th Cir. 1960), aff'g T.C. Memo 1958-104 (International I). In that case, it was held that International could not deduct maintenance expenses on resort property and was not entitled to a depreciation allowance on the same property under the 1939 precursory sections of the 1954 Code Sections 162(a) and 167(a).*fn1
There is no indication in the record that the property between the years involved in International I (1951-3) and the year of the sale at a loss of some $300,000 (1957) changed from its status of being neither related to the carrying on of a trade or business nor to the production of income. In the tax court, International was attempting to establish the loss as being deductible under Code Section 165(a) and thereupon to carryover the loss to subsequent years in which it had realized capital gains. The tax court, however, rather than granting the relief requested, carried over the business and income requirements of International I to the present proceedings primarily on the basis of an integrated approach to the Code. Six judges dissented. 57 T. C. 455 (1971).
The sections of the Code involved in International I and the section involved in the present matter have, however, striking and, in our opinion, dispositive differences. Insofar as the deduction of maintenance costs was concerned, this fell within a section of the Code concerned with "expenses." Even a casual reading of the various Revenue Acts reveals a careful segregation between expense items and loss items. More significantly, the sections of the Code involved in International I applied across the board to taxpayers without differentiation between corporations and individuals.
Contrariwise, the loss-deduction section, 26 U.S.C. § 165, after stating the general rule allowing uncompensated losses then limits this deduction, in the case of individuals only, to business, profit, and casualty categories:
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
"(c) Limitation on losses of individuals.
In the case of an individual, the deduction under subsection (a) shall be limited to --
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. . . ."
The Commissioner cites us to several text writers*fn2 for the proposition, notwithstanding the lack of any business or profit qualification being imposed on corporate losses, that Section 165(a) and its predecessors only apply to losses incurred by corporations in their business or profit-making endeavors, since it was not contemplated that corporations would sustain other than business losses. As we read the cited authorities, the most they say is that the Code does not impose the business-profit requirement on corporations as presumably corporate losses will have been incurred in a trade or business. This is scarcely a statement that corporate losses therefore must have a business-profit nexus to be deductible.
The fact that there was a differentiation of treatment, irrespective of its rationale, is illustrated not only by the authorities cited by the Commissioner but by ...