The Charles Schwab Corporation and Subsidiaries - Page 9

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          years prior to 1989, including the short year ended December 31,            
          1988.                                                                       
               The Court in Schwab I held that petitioner was entitled to             
          deduct California franchise tax for the short year ended December           
          31, 1988, of $932,979, which, for California franchise tax                  
          purposes, accrued on December 31, 1988, and was also measured by            
          petitioner’s 1988 California income.  As previously explained,              
          under one of the exceptions to pre-1972 California law, the                 
          franchise tax obligation for a year (1988) after a short year               
          (1987) accrued on December 31 of the reporting year (1988) and              
          was measured by the California income of the reporting year.                
          Accordingly, in Schwab I, petitioner, for its short Federal tax             
          year ended December 31, 1988, was allowed to deduct $932,979 in             
          franchise taxes that had accrued on December 31, 1988, and were             
          based on petitioner’s 1988 California income.  As noted above,              
          petitioner did not claim a California franchise tax deduction for           
          its short year ended December 31, 1988.  Also, as noted above,              
          petitioner, under the 1972 law, incurred a $932,979 obligation              
          for franchise tax on December 31, 1988.                                     
               Petitioner claimed a $932,979 franchise tax deduction on its           
          1989 corporate Federal income tax return, which, as explained               
          above, was computed on petitioner’s 1988 California income.  The            
          $932,979 claimed for 1989 Federal tax purposes was computed in              
          accord with the pre-1972 California franchise tax general rule              






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