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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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