- 20 -
Petitioner argues that if the “total amount of Federal
income tax attributable to the year 1995 for purposes of the
section 535(b)(1) calculation is determined to be $2,674, * * *
then the total amount of income tax attributable to the capital
gain cannot logically exceed $2,674.” In other words, petitioner
contends that respondent’s net capital gain deduction from
taxable income in the process of arriving at accumulated taxable
income is $13,064 too small.19
The question raised by petitioner’s argument is whether the
amount of tax, in the context of the section 535(b)(6) phrase tax
“attributable to the net capital gain”, is limited by the amount
of a taxpayer’s total combined income tax liability20 that was
reported for the year. This is a question of first impression.
In order to understand better the distinctions between the
parties’ positions, we review petitioner’s 1995 Form 1120, U.S.
Corporation Income Tax Return. Petitioner reported “Total
Income” of $898,479, of which $35,884 was reported as “Capital
gain net income”. The remainder of the income reported appears
to be from sources of “ordinary income”, such as rents,
royalties, etc. After ordinary deductions of $844,327 and a
19 In support of its position, petitioner argues that
respondent’s approach results in a duplication or “doubling-up of
the tax element”. Essentially, respondent’s computation results
in removing the capital gain and its tax effect from the tax base
for computing accumulated earnings tax.
20The liability when considering both ordinary and net
capital gain income.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011