The Charles Schwab Corporation and Subsidiaries - Page 6

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          petitioner’s actual obligations and payments under the 1972 law5            
          (000 omitted):                                                              
                     1987     1988      1989      1990      1991     1992             
          Pre-1972   $879     $932      $932     $1,806    $2,066   $3,778            
          1972        879     932     1,806      2,066     3,778    5,578             
               Petitioner commenced doing business in California on April             
          1, 1987, and for purposes of reporting California franchise tax             
          it was on a calendar year basis.  Under pre-1972 California law,            
          the exception to the general rule applied for petitioner’s short            
          1987 year, and its $879,500 franchise tax liability accrued on              
          December 31, 1987.  That accrual fell within petitioner’s first             
          Federal tax year ended March 31, 1988, and petitioner claimed an            
          $879,500 deduction for California franchise tax on its first                
          Federal tax return.6  The same liability and accrual date                   
          pertained under the 1972 California law.                                    
               Complicating this situation, petitioner changed its Federal            
          filing period from a fiscal year ending March 31 to a calendar              
          year and filed a short year Federal return for the 9-month period           

               5 We note that in spite of the proscription of sec. 461(d),            
          petitioner remains obligated to pay California franchise tax on             
          the basis of the California law as modified by the 1972 law.  In            
          each year before the Court, the amount of tax petitioner paid is            
          substantially greater than the amount that would have been due              
          under the pre-1972 California franchise tax law.  In effect, the            
          question we consider is the amount by which sec. 461(d) may limit           
          petitioner’s deduction.                                                     
               6 Coinciding with the commencement of its business,                    
          petitioner’s first tax year for Federal income tax purposes was a           
          fiscal year ended Mar. 31, 1988.                                            





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