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No customer of petitioner can cancel an order that is
executed in accordance with the customer’s instructions. If
petitioner made an error, the customer is made whole by canceling
the transaction and rebilling it. When transactions are canceled
and rebilled, new trade confirmations are generated and sent to
the customer, showing both the canceled trade information and the
corrected trade information. When petitioner cancels and rebills
a customer for a trade that it incorrectly executed, the customer
is liable only for the amount determined according to
circumstances existing on the original trade date.
Individual trades may be canceled if an entire transaction
is canceled. For example, a customer’s trade would be canceled
if an initial public offering were canceled after trading was
initiated. In these instances, the trades never settle and
petitioner collects no commission.
For the taxable year ended December 31, 1988, petitioner
accrued commission income on the purchase or sale of securities
on the settlement date for tax and book purposes. Petitioner’s
trades that were executed in 1988, but settled in 1989, resulted
in $3,357,576 net commission income.
Franchise Tax Issue
Petitioner qualified to do business in California on
February 9, 1987. Petitioner commenced business in California on
April 1, 1987.
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