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Section 535(b)(6)(A) provides for a deduction from taxable
income in arriving at accumulated taxable income of “the net
capital gain * * * reduced by * * * the taxes attributable to
such net capital gain.” Section 535(b)(6)(B) defines “the taxes
attributable to the net capital gain” as the difference between
“the taxes imposed by this subtitle (except the tax imposed by
this part) for the taxable year, and * * * such taxes computed
for such year without including in taxable income the net capital
gain for the taxable year”.
The section 535(b)(6)(B)(i) language “the taxes imposed by
this subtitle”, is the focus of the parties’ dispute. Petitioner
contends that the “taxes imposed” should be limited to the amount
of tax liability it reported on its 1995 return or $2,674. On
the other hand, respondent’s computation is based on “taxes
imposed” of $110,203, the amount of income tax this Court decided
is imposed under the statute.
In applying the above-quoted adjustment in his Rule 155
computation, respondent computed the accumulated earnings tax as
follows:17
17 There appear to be two errors in respondent’s computation
of petitioner’s accumulated earnings tax. First, there appears
to be an error in subtraction. If $325,000 is reduced by $2,674
and $24,616, the result should be $297,710 and not $300,384.
Second, the amount shown as taxable income on Form 5278,
Statement--Income Tax Changes, of respondent’s computation is
$325,522 and not $325,000. The parties will be asked to address
these apparent discrepancies in a Rule 155 computation to be
prepared in accord with this Supplemental Opinion.
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