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considerations may suggest a taxes-as-finally-determined rule,
the use of a commonly understood term suggests the common
meaning, and the legislature’s design, as revealed, does not
contradict such usage.5
4(...continued)
that Congress intended a taxes-as-finally-determined rule as
opposed to, say, a taxes-as-actually-reported rule.
5 The Court of Appeals for the Fifth Circuit in J.H. Rutter
Rex Manufacturing Co. v. Commissioner, 853 F.2d 1275, 1297-1298
(5th Cir. 1988), cites a line of cases beginning with Stern Bros.
Co. v. Commissioner, 16 T.C. 295 (1951), in support of its
position. Those cases uphold the accrual of contested taxes in
the year in which the contested tax liability arises when
computing accumulated earnings and profits for invested capital
purposes under the excess profits tax imposed in World War II.
Id. at 322-323. See also Estate of Stein v. Commissioner, 25
T.C. 940, 966 (1956), which extends the Stern Bros. Co. rationale
to permit the accrual of contested taxes in computing earnings
and profits for purposes of determining whether corporate
distributions are taxable dividends or nontaxable distributions
from capital. In Stern Bros. Co., we were interpreting a
regulation that required an accrual basis taxpayer to subtract
income and excess profit taxes “for the preceding taxable year”.
That is not necessarily the same as allowing a deduction for any
such taxes as are “accrued” during such preceding taxable year.
Moreover, Stern Bros. Co. and its progeny, including Estate of
Stein, specifically distinguish the computation of accumulated
earnings and profits from the computation of taxable income,
where Dixie Pine Prods. Co. v. Commissioner, 320 U.S. 516 (1944),
is acknowledged to be applicable. See, e.g., Stern Bros. Co. v.
Commissioner, supra at 322-323. The concept of taxable income is
not so different from that of “accumulated taxable income”, upon
which the accumulated earnings tax is imposed, as to make the
extension of Dixie Pine Prods. Co. to the latter an unreasonable
interpretation of the term “accrued” as it is used in sec.
535(b)(1).
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