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return, petitioner deducted a total of $24,603 in franchise tax
paid in 1992 relating to privilege year 1992 ($10,603) and to
privilege year 1993 ($14,000). On its 1993 corporate Federal
income tax return, petitioner deducted a total of $36,229 in
franchise tax paid in 1993 relating to privilege year 1993
($11,029) and to privilege year 1994 ($25,200).
Respondent audited petitioner's corporate Federal income tax
returns for 1993, 1994, and 1995. During the audit, respondent
required petitioner for 1993 and subsequent years to change its
cash method of accounting for the franchise tax liabilities to
the accrual method of accounting, under which a deduction in the
privilege year is allowed only for franchise tax due for that
year.
Respondent concluded that the change in petitioner's
accounting method resulted in a deduction of the same $14,000
franchise tax both on petitioner's 1992 and 1993 corporate
Federal income tax returns. By the time respondent required the
above change in petitioner's method of accounting for California
franchise tax, under the period of limitations applicable to
1992, petitioner's 1992 corporate Federal income tax return was
closed for assessment.
Relying on section 481, respondent then charged petitioner
with a $14,000 section 481 adjustment for 1993.
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