[286 U.S. 319, 320] Mr. William A. Sutherland, of Atlanta, Ga. (Messrs. Elbert P. Tuttle and Joseph B. Brennan, both of Atlanta, Ga., on the brief), for petitioner.

[286 U.S. 319, 323] The Attorney General and Mr. Whitney North Seymour, of Washington, D. C. (Messrs. Thomas D. Thacher, Sol. Gen., of Washington, D. C., G. A. Youngquist, Asst. Atty. Gen., Sewall Key, John H. McEvers, and Wilbur H. Friedman, all of Washington, D. C., on the brief), for respondent. [286 U.S. 319, 324] Messrs. Frederick L. Pearce, George M. Morris, Louis Titus, and Henry M. Ward, all of Washington, D. C., amici curiae.

Mr. Justice CARDOZO delivered the opinion of the Court.

Petitioner and Piedmont Savings Company are separate corporations organized in Georgia. They became affiliated in 1927 when the petitioner became the owner of 96 per cent. of the Piedmont stock. In March, 1928, the two corporations [286 U.S. 319, 325] filed a consolidated income tax return for 1927 under section 240 of the Revenue Act of 1926. Revenue Act of 1926, c. 27, 44 Stat. 9, 46 (26 USCA 993). During 1927, the petitioner had a net taxable income of $36,587.62, and Piedmont had suffered during the same year a net loss of $453.80. Before its affiliation with the petitioner, it had suffered other and greater losses. Its net loss in 1925 was $43,478.25, and in 1926 $410.82, a total for the two years of $43,889.07. In the assessment of the tax for 1927, the Commissioner deducted from the petitioners net income for that year the loss of $453.80 suffered by its affiliated corporation in the course of the same year. The consolidated net taxable income as thus adjusted was $36,133.82, on which a tax of $5,026.22 was assessed and paid. On the other hand, the Commissioner refused to deduct the Piedmont losses suffered in 1925 and 1926 before the year of affiliation. The deductions, if allowed, would have wiped out the tax. A refund having been refused, the petitioner brought this suit against the collector to recover the moneys paid. The District Court sustained a demurrer to the petition, 44 F.( 2d) 856, and the Court of Appeals affirmed, 53 F.(2d) 821. The case is here on certiorari, 284 U.S. 615, 52 S. Ct. 209, 76 L. Ed. -.

Section 240(a) of the Revenue Act of 1926 provides that corporations which are affiliated within the meaning of this section may, for any taxable year, make separate returns or, under regulations prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income for the purpose of this chapter, in which case the taxes thereunder shall be computed and determined upon the basis of such return.

Section 240(b) provides that in any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agree- [286 U.S. 319, 326] ment, then on the basis of the net income properly assignable to each. ... (26 USCA 993(a, b).

The general principal underlying the income tax statutes, ever since the adoption of the Sixteenth Amendment, has been the computation of gains and losses on the basis of an annual accounting for the transactions of the year. Burnet v. Sanford & Brooks Co., 282 U.S. 359, 363, 51 S. Ct. 150. A taxpayer who seeks an allowance for losses suffered in an earlier year must be able to point to a specific provision of the statute permitting the deduction, and must bring himself within its terms. Unless he can do this, the operations of the current year must be the measure of his burden.

The only section of the Revenue Act that made allowance in 1927 for the losses of earlier years was section 206(b), 26 USCA 937(b), upon which this controversy hinges. Its provisi