The Charles Schwab Corporation and Subsidiaries - Page 10

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          for full years (that do not follow a short year) using the prior            
          year (1988) as the measuring year.  Because petitioner was                  
          permitted to deduct the same amount ($932,979) by the Court in              
          Schwab I for its short year ended December 31, 1988, respondent’s           
          trial position was that petitioner was not entitled to the                  
          franchise tax deduction it had claimed for 1989.                            
               Petitioner alleged in its petition in Schwab II that the               
          1972 law did not trigger section 461(d), and that petitioner was            
          entitled to deduct, for Federal purposes, franchise tax for 1989            
          and later years measured by the California income of the                    
          reporting year.  Under the 1972 law, petitioner’s actual 1989               
          obligation for franchise tax was $1,806,588, which petitioner               
          contends should be deductible for its 1989 Federal tax year.                
               In the notice of deficiency (which was issued after the                
          holding in Schwab I), respondent determined that petitioner was             
          entitled to the $932,979 deduction that petitioner had claimed on           
          its return for 1989.  After petitioner sought franchise tax                 
          deductions greater than those claimed on its returns, respondent            
          amended his answer in this proceeding (Schwab II) and argued, in            
          contravention of his determination in the notice of deficiency,             
          that petitioner was not entitled to deduct the $932,979 it had              
          claimed on its 1989 return.                                                 
               Accordingly, the controversy was framed in a context where             
          respondent contended that if section 461(d) applied, petitioner             

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