Metro Leasing and Development Corporation, East Bay Chevrolet Company, a Corporation - Page 7




                                                - 7 -                                                   
                  We agree with respondent.  The regulation permits petitioner                          
            to deduct its tax liability which had accrued but had not been                              
            paid by the end of 1995.  The regulation does not change                                    
            petitioner’s tax accounting method for reporting income.                                    
            Respondent’s interpretation of the regulation would result in                               
            equal treatment for corporate taxpayers with respect to the                                 
            accrual of a tax liability for the year(s) under consideration.5                            
            Petitioner’s interpretation, for purposes of computing                                      
            accumulated taxable income, would place all taxpayers on the                                
            accrual method for reporting income.6                                                       
                  We find petitioner’s approach to be inherently inconsistent                           
            with and contradictory to the statutory scheme, especially when                             
            considered in the factual context of this case.  In that regard,                            
            petitioner seeks the benefit of a reduction attributable to tax                             
            on unrealized installment sale income in computing accumulated                              






                  5  For example, under the cash method a taxpayer’s tax                                
            liability would not be deductible until such time as it is paid.                            
            Under respondent’s interpretation, a cash basis taxpayer would be                           
            entitled to deduct unpaid, but established (“accrued”), income                              
            tax liability that, but for payment, had accrued during the                                 
            taxable year.                                                                               
                  6 Under petitioner’s interpretation of the statute, its                               
            sales transaction would have to be treated as an accrual method                             
            transaction as though the installment reporting method had not                              
            been elected.                                                                               





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