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taxable income. Petitioner, however, has not included any
portion of that same income in its tax base for 1995.7
Petitioner’s interpretation of the subject regulation does
not comport with the section 535 statutory phrase “accrued during
the taxable year”. In addition, the modification of a taxpayer’s
overall tax accounting method does not appear to fit within the
regimen of section 535(b). “The adjustments prescribed by
section 535(a) and (b) are designed generally to assure that a
corporation’s ‘accumulated taxable income’ reflects more
accurately than ‘taxable income’ the amount actually available to
the corporation for business purposes.” Ivan Allen Co. v. United
States, 422 U.S. 617, 626 (1975).
The adjustments provided for in section 535(b) increase or
decrease taxable income, on an annualized basis, to arrive at a
base against which to apply the accumulated earnings tax of
section 531. For example, section 535(b)(1) provides for a
reduction for taxes accrued during the taxable year and section
535(b)(4) requires that net operating loss deductions from other
7 For example, if petitioner had included the income in its
tax base for 1995, its taxable income (the starting point for
computing accumulated taxable income) would have been
proportionately larger and, even after the reduction for the
“accrued tax” on future installment income, would have had the
potential to result in a larger accumulated earnings tax than the
$56,248 computed by respondent. In effect, petitioner seeks to
reduce the accumulated taxable income base by the future tax
liability without including the future income in the income
accumulation for the 1995 tax year.
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Last modified: May 25, 2011