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Petitioner elected a calendar taxable year for California
income and franchise tax purposes. Petitioner’s first Federal
taxable year ended on March 31, 1988, but petitioner changed its
Federal taxable year to a calendar year for its second and
subsequent years.
Petitioner reported California franchise tax in the amount
of $879,500 on its first California Franchise or Income Tax
Return (Form 100) for the income year ending December 31, 1987,
and paid such amount with its return. Petitioner deducted this
amount on its Federal return filed for the taxable year ended
March 31, 1988.
For the income year ending December 31, 1988, petitioner
reported California franchise tax in the amount of $932,979 on
its second California Franchise or Income Tax Return (Form 100)
and paid such amount with its return. On its Federal return
filed for the taxable year ended December 31, 1988, petitioner
did not deduct the franchise tax that it paid for California
income year 1988. Petitioner now claims that this was an error
and that it should be entitled to deduct the 1988 franchise tax
for its taxable year ended December 31, 1988.
OPINION
Commission Income Issue
The first issue we must decide is whether petitioner, an
accrual basis taxpayer, must accrue brokerage commission income
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