Metro Leasing and Development Corporation, East Bay Chevrolet Company, a Corporation - Page 8




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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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