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accumulated earnings tax base.9 Respondent disagrees, contending
that the income tax deficiency did not accrue during the taxable
year as required by section 535(b)(1) because petitioner
continues to contest it. In support of his argument, respondent
relies on the well-established standards for accrual (the “all
events test”), contending that a contested tax liability does not
meet that test.
Petitioner relies on the holding in J.H. Rutter Rex
Manufacturing. Co. v. Commissioner, 853 F.2d 1275 (5th Cir.
1988), revg. T.C. Memo. 1987-296 (Rutter Rex).10 The rationale
of that case focuses on the word “unpaid” in section 1.535-
9 A taxpayer’s Federal income tax liability is not
deductible in arriving at taxable income. See sec. 275. A
Federal income tax liability that “accrued during the taxable
year” is allowed as a deduction from the tax base for the
accumulated earnings tax. See sec. 535(b)(1).
10 Our J.H. Rutter Rex Manufacturing Co. v. Commissioner
opinion (T.C. Memo. 1987-296) (Rutter Rex) was reversed during
1988 (Rutter Rex, 853 F.2d 1275 (5th Cir. 1988). We consider in
this opinion whether we will follow the holding of the Court of
Appeals for the Fifth Circuit or adhere to our established
holding on this question. Since the reversal, this point has not
been addressed by this Court or any other court. Any appeal of
our decision in these consolidated cases would normally lie with
the Court of Appeals for the Ninth Circuit because petitioner’s
principal place of business was in California. See sec.
7482(b)(1)(B). The Court of Appeals for the Ninth Circuit has
not addressed the question we consider here. Even though this
Court may disagree with an appellate court holding that is
squarely on point, we shall follow the appellate court holding if
that court is the venue for appeal. See Golsen v. Commissioner,
54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
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