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the second year.10 All events necessary to fix petitioner's
liability for franchise tax in the amount of $932,979 based on
income earned during its second year would have occurred at the
end of the second year under the law as it existed prior to
December 31, 1960. It follows that petitioner's liability to the
State of California for franchise tax based on income earned
during its second year, which ended December 31, 1988, would have
accrued at the end of its second taxable year, regardless of the
1972 amendment to the franchise tax. We hold that section 461(d)
does not prevent petitioner from accruing its liability for
franchise tax in the amount of $932,979.
Respondent argues that even if petitioner's liability for
the franchise tax in the amount of $932,979, is otherwise
accruable in 1988, petitioner should not be allowed the deduction
because it would constitute a change in petitioner's accounting
method to which respondent has not consented. We disagree.
Petitioner used the accrual method of accounting. It
apparently did not accrue the $932,979 on its Federal income tax
return because it relied on Rev. Rul. 79-410, 1979-2 C.B. 213.
That ruling relied on section 461(d) and the premise that prior
10Under Cal. Rev. & Tax Code sec. 23222(a), as it applied
prior to 1972, the second taxable year would also have been the
income year for purposes of computing the franchise tax for
petitioner's third taxable year. Prior to the 1972 amendment,
the franchise tax for the third taxable year would not be
accruable until Jan. 1, 1989, and the franchise tax for each
succeeding year would have been accruable in similar fashion.
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