Metro Leasing and Development Corporation, East Bay Chevrolet Company, a Corporation - Page 12




                                                - 12 -                                                  
            2(a)(1), Income Tax Regs.,11 to reach the conclusion that a                                 
            contested12 income tax deficiency that has been paid is                                     
            deductible within the meaning of section 535(b)(1).  Rutter Rex,                            
            supra at 1296.  We note that the Court of Appeals for the Fifth                             
            Circuit did not invalidate section 1.535-2(a)(1), Income Tax                                
            Regs., in the process of reaching its holding.  The factual                                 
            predicates for the taxpayer in Rutter Rex and petitioner are                                
            substantially identical.13                                                                  


                  11 The word “unpaid” appears in the last sentence of the                              
            pertinent part of sec. 1.535-2(a)(1), Income Tax Regs., as                                  
            follows:                                                                                    
                  for taxes accrued during the taxable year, regardless                                 
                  of whether the corporation uses an accrual method of                                  
                  accounting, the cash receipts and disbursements method,                               
                  or any other allowable method of accounting.  In                                      
                  computing the amount of taxes accrued, an unpaid tax                                  
                  which is being contested is not considered accrued                                    
                  until the contest is resolved.                                                        
            (Emphasis supplied.)                                                                        
                  12 In its opinion, the Court of Appeals acknowledged that                             
            the income tax deficiency remained in controversy, even though                              
            payment had been proffered.  Accordingly, the Court was aware                               
            that, ultimately, the taxpayer’s accumulation might not have been                           
            subjected to the contested tax deficiency.                                                  
                  13 The taxpayer in Rutter Rex petitioned this Court to                                
            contest income and accumulated earning tax deficiencies                                     
            determined by the Commissioner.  After the filing of the petition                           
            and this Court’s opinion as to the amount of the income tax                                 
            deficiency, but prior to the final computation of the accumulated                           
            earning tax and the entry of a decision, the taxpayer “apparently                           
            offered to pay” the contested income tax deficiencies.  See                                 
            Rutter Rex, 853 F.2d at 1295.   We surmise from the quoted                                  
            language that the deficiency under consideration in Rutter Rex                              
            had not been assessed.  Likewise, in the case we consider,                                  
                                                                          (continued...)                





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