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In the case of a taxpayer whose taxable income is
computed under an accrual method of accounting, to the
extent that the time for accruing taxes is earlier than
it would be but for any action of any taxing
jurisdiction taken after December 31, 1960, then, under
regulations prescribed by the Secretary, such taxes
shall be treated as accruing at the time they would
have accrued but for such action by such taxing
jurisdiction.
Under the regulations, any action of a taxing jurisdiction that
would accelerate the time for accruing a tax is to be disregarded
in determining the time for accruing such tax for purposes of the
deduction allowed under section 164(a). Sec. 1.461-1(d)(1),
Income Tax Regs. This applies to a taxpayer upon which the tax
is imposed at the time of the taxing jurisdiction's action, as
well as a taxpayer upon which the tax is imposed at any time
subsequent to such action. Id.
Respondent argues that section 461(d)(1) governs and that
petitioner may not accrue any deduction for California franchise
taxes based on 1988 income until 1989. Petitioner, on the other
hand, argues that respondent’s position fails to take into
account the special California statutory rules that applied to a
commencing corporation’s first and second income and taxable
years under pre-1972 California franchise tax law. Petitioner
contends those rules would have applied to petitioner's first and
second taxable years so that under the pre-1972 State law,
petitioner's liability would have become fixed on December 31,
1988, for the $932,979 franchise tax based on its 1988 income.
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