The Tax Treatment of Foreign War Losses

Abstract

The Revenue Act of I942, from the point of view of revenue yield, is the greatest tax law in our national history. But it is also preeminent in point of the number of important provisions it contains which were motivated by considerations of equity and the prevention of gross hardship to taxpayers.1 Some of these, such as the net operating loss and unused excess profits tax credit carry-backs, have the characteristics of basic reforms. It is to be hoped that they will become permanent features of the income tax structure. Section I27 of the Internal Revenue Code,2 added by Section 156 of the I942 Act, to which this article is devoted, can hardly claim the distinction of being in itself a basic reform, since it was framed to meet an emergency situation which may not recur. Nevertheless, the fairness and practicality of its approach may afford a helpful precedent in the equitable solution of other unforeseeable problems of the future. Also, the new war loss provisions are sufficiently important in themselves, because of the magnitude of the interests affcted, to warrant some comment, although a complete analysis of the details of the section's application would transcend the space limitations on the present article. Such a comment is not out of place in a symposium devoted to the excess profits tax, for not only is the section, like the tax, a response to the war emergency but also the extremely high rate of tax imposed on excess profits by the I942 Act was one