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31, 1989. The Court in Schwab I, however, held that the accrual
for petitioner’s short year ended December 31, 1988, was not
affected by the 1972 amendments. Charles Schwab Corp. &
Includable Subs. v. Commissioner, supra at 300.
In holding that petitioner was entitled to the $932,979
franchise tax deduction for its short year ended December 31,
1988, the Court in Schwab I reasoned that the California
franchise tax law, as it existed before the 1972 amendments,
would have permitted petitioner to accrue the $932,979 franchise
tax deduction as of December 31, 1988. Id. at 298-300.
Accordingly, the Court in Schwab I did not have to decide whether
section 461(d)(1) applied or whether it was triggered by
California’s 1972 amendments.
In these cases, we consider petitioner’s entitlement to
deductions of California franchise tax for 1989 and later years.
As in Schwab I, respondent contends here that the 1972 amendments
trigger the application of section 461(d)(1). Under respondent’s
position, petitioner would be limited to the accrual of franchise
tax on the January 1 date as provided for in the pre-1972
California franchise tax statute.9
9 Under respondent’s interpretation, petitioner would not be
entitled to deduct the 1989 franchise tax until 1990, leaving a
gap in the 1989 year due to the holding in Schwab I.
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