The Charles Schwab Corporation and Subsidiaries - Page 7

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          ended December 31, 1988.  In that return, petitioner did not                
          claim a deduction for California franchise tax.  Under the pre-             
          1972 California franchise tax law, the tax for the first short              
          year (1987 in this case) was in the nature of an advance payment            
          on the franchise tax for the first full year.  The computation of           
          the first full year’s tax was also an exception to the general              
          pre-1972 franchise tax law and accrued on December 31 of the                
          reporting year (1988).  Petitioner’s 1988 obligation for                    
          franchise tax under the 1972 law was $932,979, the same amount as           
          under the pre-1972 law.  Petitioner, under the 1972 law, was                
          obligated for and paid $932,979 in California franchise tax for             
               For petitioner’s 1989 and later years, the pre-1972                    
          franchise tax was measured by the California income of the prior            
          year and accrued on January 1 of the reporting year.  The 1972              
          law changed the accrual date from January 1 of the reporting year           
          to December 31 of the prior year, thereby accelerating the                  
          accrual date.  Under the 1972 law, the reporting and measuring              
          year coincided so that the franchise tax obligation was based on            
          the current year’s income.  Accordingly, for petitioner’s 1989              
          and later years the amount of tax computed under the pre-1972 law           
          differed from the amount computed under the 1972 law.  Because              
          petitioner’s income was increasing during the years under                   

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