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to 1972, California corporations could not generally have accrued
franchise tax based on an "income year" until the first day of
the following "taxable year". While the revenue ruling is based
in part on our holdings in Central Inv. Corp. v. Commissioner, 9
T.C. 128 (1947), and Epoch Food Serv., Inc. v. Commissioner, 72
T.C. 1051 (1979), those cases did not address the effect of
section 23222(a) of the California code on the accruability of
California franchise tax in a corporation's second taxable year
where the first taxable year was less than 12 months.11 The
impact of section 23222(a) on the case before us is a "fact"
determining whether the all events test has been met.
Petitioner's initial misconstruction of the facts in reliance on
respondent's revenue ruling should not be viewed as a method of
accounting other than the accrual method. Applying petitioner's
method of accounting to the correct facts is not a change in
accounting method requiring respondent's approval. We hold that
petitioner is entitled to accrue and deduct franchise tax in the
amount of $932,979 for purposes of computing its Federal income
tax for the taxable year ended December 31, 1988.
Decision will be entered
under Rule 155.
11We note that the facts described in Rev. Rul. 79-410,
1979-2 C.B. 213, 213-214, address the impact of California law
prior to the 1972 amendment where a corporation's first year was
"other than a short year". (Emphasis added.)
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