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279 F.2d 368
DENVER & RIO GRANDE WESTERN RAILROADCOMPANY, Petitioner,v.COMMISSIONER OF INTERNAL REVENUE, Respondent.
 No. 6270. No. 6271.
United States Court of Appeals Tenth Circuit.
 May 27, 1960.
Stanley Worth and Jules G. Korner III, Washington, D. C. (J. Gilmer Korner, Jr., Blair, Korner, Doyle & Worth, Washington, D. C., and T. A.White, General Attorney, Denver, Colo., of Counsel, on the brief), for  petitioner.Grant W. Wiprud, Attorney, Department of Justice, Washington, D. C.(Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and Carolyn R. Just,Attorneys, Department of Justice, Washington, D. C., on the brief), for respondent.Before PICKETT and BREITENSTEIN, Circuit Judges, and SAVAGE,District Judge.BREITENSTEIN, Circuit Judge.1These are petitions to review decisions of the Tax Court
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 affirming actions of the Commissioner in assessing deficiencies against the petitioning railroad,
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 acommon carrier by rail operating principally in the states of Colorado and Utah.Case No. 6270 involves deficiencies for the years 1951 and 1952 in theamounts of $32,191.99 and $102,325.05, respectively. Case No. 6271 concernsa deficiency for the year 1953 in the amount of $232,451.56.2The first issue is whether the taxpayer is entitled to deduct in each of the yearsthe amount of local benefit taxes levied by the Moffat Tunnel ImprovementDistrict, which was created by a 1922 act of the Colorado legislature
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 to
 
 provide for a transportation tunnel under the continental divide. The Districtincludes all of four, and portions of five other, Colorado counties. The taxpayer  paid and deducted, on account of Moffat District taxes, $11,737.47 in 1951,$9,778.08 in 1952, and $9,748.17 in 1953. From statements of the MoffatDistrict the Commissioner determined that 49% of the deductions were properly allocable to maintenance and interest charges and were allowable. Hedisallowed the remaining 51%. The apportionment made by the Commissioner is not challenged. The claim is that the entire amount of such taxes isdeductible.3Section 23(c) (1) (E) of the 1939 Internal Revenue Code, as amended, 26 U.S.C.A. § 23(c) (1) (E) allows as a deduction, from gross income in thecomputation of net income, taxes paid or accrued within the taxable year,except taxes assessed against local benefits "of a kind tending to increase thevalue of the property assessed." As to such taxes a deduction is allowed only asto so much thereof as is "allocable to maintenance or interest charges."Taxpayer argues that the local improvement in question did not tend to increasethe value of the assessed property.4There is both legislative and judicial determination contrary to the position of the taxpayer. The authorizing legislation declares that the construction of thefacilities provided "will be of especial benefit to the property within the boundaries of the improvement district."
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 In Milheim et al. v. Moffat TunnelImprovement District et al., 72 Colo. 268, 279, 211 P. 649, 654, affirmed 262U.S. 710, 43 S.Ct. 694, 67 L.Ed. 1194, the Colorado Supreme Court held that,in accordance with the express legislative declaration, lands within the District"will assuredly increase in value" with the construction of the tunnel andconsequent improvement in railroad transportation.5The taxpayer further contends that the tax is deductible under § 164(b) (5) (B)of the 1954 Internal Revenue Code, 26 U.S.C.A. § 164(b) (5) (B), and the provisions of such section are declaratory of what was well-settled law prior totheir enactment. Section 164(b) (5) (B) provides for the deduction of all taxeslevied by a special improvement district if; (1) the district covers the whole of at least one county; (2) at least 1,000 persons are subject to the tax; and, (3) thedistrict levies the assessment annually at a uniform rate. Under this section,Moffat District Taxes are admittedly deductible in full.
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 The difficulty is thatthe taxpayer insists upon a retroactive application. To sustain such position itrelies upon the report of the Senate Finance Committee on the 1954 House billto revise the internal revenue laws, particularly the following portion thereof:
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"Subsections (a), (b), and (c) of section 164 incorporate provisions contained in
 
6section 23(c) of the 1939 Code. There is some rearrangement of the provisions, particularly subsection (c), but no substantive change is made."7Taxpayer interprets the phrase, "but no substantive change is made," as adeclaration that no substantive change is made from § 23(c) of the 1939 Code.We do not agree. A reading of the Senate report adequately discloses that the phrase relied upon has no relation to the deductibility of special improvementtaxes but refers to the fact that the Senate had made no substantive changes inthis portion of the House bill as originally drafted. The inclusion in the 1954Code of numerous new provisions which were not in § 23(c) of the 1939 Codeand the amendments made to that section show that the Senate report could notmean that no changes were made.
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8In determining this issue against the taxpayer the Tax Court relied upon itsdecision in Western Products Company v. Commissioner of Internal Revenue,28 T.C. 1196, 1215, a case involving the deductibility of Moffat District taxesand holding that § 164(b) (5) (B) of the 1954 Code was not declaratory of prior law. It is clear to us that the 1954 Code substantially changed the law relatingto the deductibility of special improvement taxes. The fact that Moffat Districttaxes are now deductible does not mean that they were deductible before the1954 Code. The conclusion of the Tax Court on this issue was correct.9The second issue relates to the valuation base of certain of taxpayer's propertiesfor determination of gain or loss. Prior to 1943, the taxpayer, with the permission of the Interstate Commerce Commission, had followed theretirement system of accounting with respect to depreciable roadway properties.
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 The Interstate Commerce Commission, by order effective January1, 1943, required, for its purposes, that all steam roads, including the taxpayer,change from the retirement method to the depreciation method with respect tosuch properties.
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 Upon the application of the taxpayer, the Commissioner granted it permission to change from the retirement method to the straight-linedepreciation method on these properties. This permission was granted by whatis known as a "Terms Letter" in which the Commissioner imposed certainconditions, among which was the requirement that the taxpayer set up a reserveequal to 30% of the cost of the total depreciable roadway accounts as of December 31, 1942, and to allocate this reserve to the separate accounts in amanner acceptable to the Commissioner.10During the years in question the taxpayer sold, abandoned, or prematurelyretired by reason of casualty or obsolescence certain roadway propertiescovered by the Terms Letter. Deductible losses claimed thereon were computedwithout adjusting the base value by the 30% mentioned in the Terms Letter.

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