107 T.C. No. 17
UNITED STATES TAX COURT
THE CHARLES SCHWAB CORPORATION AND INCLUDABLE SUBSIDIARIES,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
Respondent
Docket No. 1271-92. Filed November 14, 1996.
P, an accrual basis taxpayer, provides discount
securities brokerage services for which it earns a
commission fee. As a discount broker, P does not
engage in activities, such as research and portfolio
management, that are normally conducted by a full-
service broker. P executes a customer’s order to buy
or sell securities on the trade date, but the
securities are not actually transferred and payment is
not due until the settlement date, which was generally
5 days after the trade date. Between those dates, P
performs certain functions to record, confirm, and book
the customer’s trade.
P commenced business in the State of California on
Apr. 1, 1987. P deducted its California franchise
taxes based on income for its first year ended Dec. 31,
1987, on its Federal income tax return for the taxable
year ended Mar. 31, 1988. P then changed to a calendar
year for Federal income tax purposes and is attempting
to deduct its California franchise taxes based on
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