## Facts

- Inland Steel Company, a U.S. steel producer, operated iron ore mining properties in Ontario, Canada.
- Inland paid Ontario provincial taxes under the Ontario Mining Tax Act (OMT) for tax years 1964 and 1965.
- Inland sought a U.S. federal income tax refund, claiming (among other items) a foreign tax credit under I.R.C. § 901 for the OMT payments.
- The OMT was described as a graduated tax on “net profits” from mineral extraction and computed “gross revenue” using legislatively prescribed methods, including methods based on unprocessed ore and processed ore using a mine assessor’s appraisal.
- The OMT allowed deductions only in ten specified categories focused on mining-related expenditures.
- The OMT disallowed or excluded many expenses typically deductible in computing net income, including certain general business expenses and, by express statutory exclusion, items such as interest or dividends and certain royalty payments; the assessor also excluded costs such as land purchases and certain taxes not tied to extraction.
- The government denied creditability on the ground that the OMT’s base diverged substantially from net income because of constrained revenue measures and narrow deductions.

## Issues

1. Whether the Ontario Mining Tax qualifies as an “income, war profits, or excess profits tax” under I.R.C. § 901 because it is, in normal operation, likely to reach net gain (income in the U.S. sense).
2. Whether the limited deduction structure and revenue-computation methods under the OMT prevent it from being treated as an income tax for foreign tax credit purposes.

## Decision

- The Court of Claims held that the Ontario Mining Tax was not a creditable “income tax” under I.R.C. § 901.
- The court denied Inland’s claim to a foreign tax credit for the OMT payments for 1964 and 1965 and therefore denied the requested refund attributable to that credit.
- The court applied the requirement that a foreign levy must be likely to reach some net gain in the normal circumstances in which it applies and concluded the OMT failed that test.

## Legal Principles

- A foreign levy is creditable under I.R.C. § 901 only if it is an income tax in the U.S. sense, meaning its predominant character is to tax net gain rather than gross receipts or an artificial base materially divorced from net income.
- Labels used by foreign law (e.g., “net profits”) are not controlling; creditability depends on the levy’s substantive operation, including its tax base and deductions.
- A tax limited to a particular source of income (such as mining) may qualify, but only if the base reasonably approximates net income from that source.
- Deductions must meaningfully allow recovery of ordinary and necessary costs of earning the taxed income; categorical exclusion of significant expense classes indicates the levy is not an income tax for § 901 purposes.

## Conclusion

The Court of Claims rejected Inland’s foreign tax credit claim because the Ontario Mining Tax’s revenue definitions and restricted, mining-specific deductions caused the tax to operate on a base that could materially exceed true net income, making it unlikely in normal circumstances to reach net gain as required for creditability under I.R.C. § 901.


Inland Steel Co. v. United States, 230 Ct. Cl. 314 (1982)