- 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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