Metro Leasing and Development Corporation, East Bay Chevrolet Company, a Corporation - Page 16




                                                - 16 -                                                  
            Eighth Circuit, relying on Dixie Pine Prods. Co. v. Commissioner,                           
            320 U.S. 516 (1944), held that the all events test applied in                               
            deciding “what may be regarded as Federal income taxes of the                               
            corporation properly ‘paid or accrued during the taxable year’”.                            
            Estate of Goodall v. Commissioner, supra at 800.                                            
                  Significantly, Congress in section 535(b) has specifically                            
            provided for adjustments that cause the accumulated earnings tax                            
            to be applied or not to be applied to various items.  There is no                           
            indication that Congress intended that the term “accrual” have a                            
            different meaning for purposes of section 535(b) and section                                
            1.535-2(a)(1), Income Tax Regs., than its traditional and well-                             
            established meaning.  In that context, we interpret the last line                           
            of section 1.535-2(a)(1), Income Tax Regs., as simply explaining                            
            that an accrued but unpaid tax liability may not be used to                                 
            reduce the base for the accumulated earnings tax, if the tax is                             
            contested.16  Accordingly, in a situation where a taxpayer                                  


                  15(...continued)                                                                      
            secs. 541-547, a companion penalty regimen.  See LX Cattle Co. v.                           
            United States, 629 F.2d 1096 (5th Cir. 1980); Kluger Associates,                            
            Inc. v. Commissioner, 617 F.2d 323 (2d Cir. 1980), affg. 69 T.C.                            
            925 (1978); Hart Metal Prods. Corp. v. Commissioner, 437 F.2d 946                           
            (7th Cir. 1971), affg. T.C. Memo. 1969-164; Mariani Frozen Foods,                           
            Inc. v. Commissioner, 81 T.C. 448 (1983), affd. sub nom. Gee                                
            Trust v. Commissioner, 761 F.2d 1410 (9th Cir. 1985).  For                                  
            additional discussion by the Court of Appeals on this point, see                            
            Rutter Rex, 853 F.2d at 1297 n.37.                                                          
                  16 Although not decisive, it is interesting to note that in                           
            the context of a prepayment forum, the income tax deficiency is                             
            not assessed and, as a technical matter, could not be paid.  By                             
                                                                          (continued...)                





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