- 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
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