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consideration, the amount of tax under the pre-1972 law was
always less than the amount computed under the 1972 law.
For Federal reporting purposes, on all of petitioner’s
returns through the years under consideration in these cases,
petitioner looked to California pre-1972 franchise tax law.7
Under the pre-1972 California law, petitioner had claimed
deductions for franchise taxes for all Federal reporting periods
except for the short year ending December 31, 1988. Because
petitioner was obligated to accrue and pay franchise taxes under
the 1972 law, it was obligated for and paid franchise taxes for
all periods under consideration, including the short year ending
December 31, 1988.
Some of the confusion in these cases arises from the fact
that, for Federal tax purposes, petitioner’s deduction for
California franchise tax is limited to the amount computed under
pre-1972 California law, but petitioner’s actual franchise tax
obligation is based on the 1972 law. Our prior Opinion in these
cases, Charles Schwab Corp. & Subs. v. Commissioner, 122 T.C. 191
(2004) (Schwab II), involves petitioner’s 1989 and later years,
whereas an earlier case, Charles Schwab Corp. & Includable Subs.
v. Commissioner, 107 T.C. 282 (1996) (Schwab I), involved certain
7 By applying pre-1972 California franchise tax provisions,
petitioner admitted or agreed that sec. 461(d) applied with
respect to the 1972 changes to California law.
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