- 21 -
$36,326 net operating loss deduction, petitioner reported taxable
income of only $17,825.
The $17,825 of taxable income reported by petitioner
resulted in a $2,674 tax liability. It is that $2,674 which
petitioner argues should limit the “tax attributable” to net
capital gains within the meaning of section 535(b)(6). We note
that the $2,674 of tax liability reported by petitioner has
already been deducted from taxable income in the process of
arriving at accumulated taxable income.21
The problem with petitioner’s position is that $2,674 is not
the “tax imposed” on petitioner’s 1995 taxable income. The tax
imposed on petitioner’s 1995 taxable income is $110,203, the
amount decided by this Court in our earlier opinion Metro Leasing
& Dev. Corp. East Bay Chevrolet Co. v. Commissioner, T.C. Memo.
2001-119, which concerned the underlying tax issues. The
$110,203 amount decided by this Court is the tax imposed under
section 535(b)(6)(B)(i). If $110,203 is used as the tax imposed
in the section 535(b)(6) calculation, respondent’s computation of
accumulated taxable income is correct.
Section 535(b) contains several adjustments, some of which
are intended to remove certain items from the accumulated
earnings tax base. In that regard, section 535(b)(5),(6), and
(7) provides for adjustments pertaining to capital gains. In
21 That adjustment was made under sec. 535(b)(1) as
discussed earlier in this Opinion.
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