
    Appeal of AMERICAN VARNISH CO.
    Docket No. 2253.
    Submitted June 2, 1925.
    Decided June 30, 1925.
    Net income, as that term is used in section 236 (b) of tbe Revenue Act of 1921, is tbe net income defined in section 232 of that Act. In determining whether the net income is in excess of $25,000 and the credit of $2,000 is allowable, the net loss provided for in section 204 (b) may not be deducted.
    
      
      F. B. Andrews, G. P. A., for the taxpayer.
    
      Blount Balls, Esq., for the Commissioner.
    Before James, LittletoN, Smith, and Tkussell.
    This is an appeal from the determination of a deficiency in income and profits taxes for the fiscal year ended June 30, 1922, in the amount of $110.52.
    FINDINGS OF FACT.
    The taxpayer is an Illinois corporation having its principal office in Chicago.
    For the fiscal period here in question the taxpayer reported a net income of $33,490.98, which net income was accepted by the Commissioner in his determination of the deficiency. For the fiscal-year ended June 30, 1921, the taxpayer and the Commissioner are agreed that the taxpayer sustained a net loss of $21,114.02, of which one-half, or $10,557.01, is available as a reduction of the net taxable income of the taxpayer for computation of the tax, under the provisions of section 204 (b) of the Revenue Act of 1921.
    In computing the deficiency here in question the Commissioner denied to the taxpayer the specific credit of $2,000 provided for under section 236 (b) of the Revenue Act of 1921 upon the ground that the net income of the taxpayer was in excess of $25,000. The taxpayer contends that its net income, after making due allowance for the net loss as above set forth, is less than $25,000, and that it is thereby entitled to the $2,000 credit.
    DECISION.
    The determination of the Commissioner is approved.
   OPINION.

James:

The provisions of section 236, material to this issue, read as follows:

See. 236. That for the purpose only of the tax imposed by section 230 there shall be allowed the following credits:
* * * * * * *
(b) In the ease of a domestic corporation the net income of which is $25,000 • or less, a specific credit of $2,000; * * *.

Net income is defined in section 232 as “ the gross income as defined in section 233 less the deductions allowed by section 234.” Among the deductions listed in section 234, the net loss of the preceding year is not included. Provision is made specially for this further reduction of taxable net income in section 204. The provisions of that section material here are contained in section 204 (b), which reads in full as follows:

(b) If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year; the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.

The taxes on corporations are imposed under the Revenue Act of 1021 by section 230, the material portion of which reads:

* * * there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax at the following rates: * * *

This section imposes a tax upon the net income, and net income is defined as gross income less certain deductions which do not include the net loss allowed to be deducted under section 204. In like manner section 236 grants a specific credit to corporations the net income of which does not exceed $25,000, and denies that benefit to corporations the net income of which does exceed that amount.  