The Charles Schwab Corporation and Includable Subsidiaries - Page 13

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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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Last modified: May 25, 2011