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apply in certain cases, none are relevant on these facts. Sec.
1371(c)(2) and (3), (d)(3). It follows that after its conversion
to an S corporation, through the end of 1989 there was no change
in the amount of Company's earnings and profits computed on the
basis of estimates made as of October 31, 1988.
Petitioners' argument starts with the proposition that
earnings and profits for a given taxable year should measure as
accurately as possible the current ability of the corporation to
make distributions to shareholders without impairing its capital.
They concede that in preparing annual tax returns using the
percentage of completion method Company would have been required
to compute earnings and profits on the basis of the limited
information that was available at the time. Yet, they contend,
where, as here, earnings and profits for the years at issue can
be recomputed when more information about the costs of Company's
long-term contracts is known, they should not be bound by the
estimates reflected on Company's original returns. In
petitioners' view, accuracy requires the use of additional
information that has subsequently become available. Although
petitioners' primary position is that the concern for accuracy in
computation of earnings and profits should override the freeze on
earnings and profits provided for by section 1371(c)(1), they
argue in the alternative that even if earnings and profits were
frozen as of the effective date of Company's subchapter S
election, "I.R.C sec. 1371(c)(1) does not disallow or forbid
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