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contest an unpaid income tax deficiency differently from
taxpayers who choose or are able to pay a contested deficiency.
Our holding in Rutter Rex, T.C. Memo. 1987-296, was
consistent with our holding in Doug-Long, Inc. v. Commissioner,
73 T.C. 71 (1979), which, in turn, followed the Supreme Court’s
reasoning in Dixie Pine Prods. Co. v. Commissioner, 320 U.S. 516
(1944), and related precedent. See also Estate of Goodall v.
Commissioner, 391 F.2d 775 (8th Cir. 1968). Those cases follow
traditional accrual principles holding that a contested tax
liability is not deductible because it has not accrued.
In Doug-Long, Inc. v. Commissioner, supra, we held that the
questioned phrase in the regulation was a valid interpretation of
section 535 when determining a corporation’s Federal income tax
that had accrued during the taxable year. The Commissioner has
also provided guidance on this point, consistent with his
position that contested deficiencies may not be reduced from the
accumulated earnings tax base. See Rev. Rul. 72-306, 1972-1 C.B.
166. Moreover, the rationale employed in the Rutter Rex
appellate opinion rests upon perceived inequities and varies from
the requirements of section 461(f) and traditional accrual
principles.15 In that regard, the Court of Appeals for the
15 The Court of Appeals for the Fifth Circuit, in a
footnote, also acknowledged that their holding was contrary to
cases interpreting the phrase “taxes * * * accrued during the
taxable year” in the context of personal holding tax cases under
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