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contested taxes in connection with the adjustment for “taxes
accrued during the year”, whereas the tax imposed would include
the deficiency decided by a court. See Kluger Associates, Inc.
v. Commissioner, 69 T.C. 925, 940-941 (1978), affd. 617 F.2d 323,
333 (2d Cir. 1980); Ellis Corp. v. Commissioner, 57 T.C. 520, 523
(1972).
We are aware of the paradox that has been occasioned by
petitioner’s choice to continue contesting the income tax
deficiency. That choice has resulted in petitioner’s inability
to treat the income tax deficiency, decided by this Court, as
accrued during the taxable year for purposes of the section
535(b)(1) adjustment. Conversely, petitioner may not use the
$2,674 tax liability it originally reported in its computation of
the section 535(b)(6) adjustment. Although the two items are
conceptually related, by definition they are not interdependent.
For the section 535(b)(1) adjustment, the tax must have accrued.
Whereas the section 535(b)(6)(B)(i) aspect of the capital gain
adjustment is dependent upon the amount of the tax imposed. The
tax “imposed” and the tax “accrued” for a particular year could
be the same amount. But where the tax “imposed” is contested, it
is not treated as “accrued”.
We therefore hold that respondent correctly computed the
adjustment for net capital gains under section 535(b)(6) and that
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