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for State taxes in any one taxable year where the State
legislature has changed the accrual date, and would
thus eliminate the additional deduction available under
existing law. * * *
Conf. Rept. 2213, 86th Cong., 2d Sess. (1960), 1960-2 C.B. 902,
905.
The operation of section 461(d) is illustrated by section
1.461-1(d)(3), Example (1), Income Tax Regs. In that example,
the tax assessment (and therefore accrual) date was July 1 each
year, and in 1961 the State changed the law to move the
assessment date from July 1, 1962, to December 31, 1961. But for
section 461(d), taxpayers, under the accrual method of
accounting, would have been entitled to accrue and deduct, for
the Federal tax year 1962, the State tax assessed on both July 1,
1962 (for the 1961 State tax year), and December 31, 1962 (for
the 1962 State tax year), because of the change in the law.
To better understand the factual context in which this
controversy arises, we must consider the events that occurred
before petitioner’s 1989 tax year (the first taxable year we
consider). The 2 years immediately preceding 1989 were the
subject of a controversy before this Court and addressed in an
Opinion. See Charles Schwab Corp. & Includable Subs. v.
Commissioner, 107 T.C. 282 (1996). That case involved
petitioner’s first years of operation in California and its
initial experience with the California franchise tax.
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