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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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