The Charles Schwab Corporation and Subsidiaries - Page 12

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          obligations for 1987, 1988, and 1989, without considering the               
          limitation of section 461(d), were $879,500, $932,979, and                  
          $1,806,588, respectively.  Considering respondent’s concession              
          and the section 461(d) limitation on the amount deductible under            
          pre-1972 California law, petitioner is entitled to deduct                   
          $879,500, $932,979, and $932,979 for the three reporting periods.           
               The confusion arises from the confluence of petitioner’s               
          conversion from a fiscal to a calendar year and the proscription            
          of section 461(d) limiting the amount deductible to amounts that            
          would have accrued in accord with the pre-1972 California law.              
          The net effect of employing section 461(d) is to limit                      
          petitioner’s deductions for the 1987, 1988, and 1989 years to               
          amounts which total $873,609 less than was accrued and paid to              
          the State of California for franchise tax under the 1972 law.               
               The following table reflects how the $873,609 difference               
          occurs:                                                                     
          Year   Tax Accrued and Paid   Deduction Allowed   Difference                
          1987         $879,500         $879,500            -0-                       
          1988      932,979                  932,979        -0-                       
          1989      1,806,588                932,979        $873,609                  
          Accordingly, for 1989 and each successive year, petitioner will             
          be paying California franchise tax based on the reporting year’s            
          California income but is only entitled, for Federal tax purposes,           
          to deduct an amount of franchise tax measured by the prior year’s           
          California income.                                                          






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