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According to petitioner, the quoted phrase changes all
taxpayers’ methods of reporting income for purposes of section
535(b)(1) to the accrual method. Petitioner contends that the
phrase “regardless of whether the corporation uses an accrual
method of accounting, the cash receipts and disbursements method,
or any other allowable method of accounting” modifies the
statutory phrase “taxes accrued during the taxable year”. In
other words, petitioner argues that the taxes that accrued during
the 1995 year should include future years’ installment sale
income as though petitioner had reported the entire sale under
the accrual method for 1995. Computing the accrued tax in the
manner proposed by petitioner would result in no accumulated
taxable income and, therefore, no accumulated earnings tax
liability.
Respondent disagrees with petitioner and points out that the
language of section 1.535-2(a)(1), Income Tax Regs., was not
intended to change petitioner’s method for reporting income from
the installment to the accrual method. In that regard,
respondent contends that section 535(b)(1) and the underlying
regulation concern the amount of tax that “accrued during the
taxable year”. Respondent also contends that petitioner’s post-
1995 installment sale income does not meet the well-established
standard for accrual of the income and/or tax during petitioner’s
1995 Federal tax year.
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