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The $4,760 deficiency determined by respondent is based on a
change in petitioner's method of accounting for its California
franchise tax liabilities. Petitioner does not dispute the
change in its method of accounting for California franchise tax
liabilities. Petitioner, however, contests the $14,000 section
481 adjustment relating thereto that respondent made.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner, a Delaware
corporation, maintained its principal place of business in Menlo
Park, California. Since December 26, 1989, petitioner has been
subject to the California Bank and Corporation Franchise Tax
(franchise tax). See Cal. Rev. & Tax. Code sec. 23151 (West 1992
& Supp. 1999).
The franchise tax is imposed on corporations for the
privilege of doing business in California each year (privilege
year). The franchise tax for the privilege year is computed on
the basis of the corporation's net income earned in the previous
year (income year).
From 1990 to 1995, for Federal income tax purposes,
petitioner generally used the accrual method of accounting to
compute its income and deductions. Petitioner, however, computed
its deductions for its franchise tax liabilities under the cash
method of accounting. On its 1992 corporate Federal income tax
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