Cir

This dispute concerns when the taxpayer may deduct on its federal return payment of its California state franchise tax. The appellant taxpayer is the Charles Schwab Corporation and its subsidiaries, Schwab Holdings, Inc. and Charles Schwab & Co., Inc. (referred to collectively as “Schwab”). Schwab’s California income has grown greatly since it began doing business in the state in April 1987. It would like to deduct its franchise tax payments earlier than the Tax Court ruled it could.

Schwab uses the accrual method of accounting and thus may deduct expenses on its federal tax return for the year in which they accrue. See I.R.C. § 461(a). Pursuant to California law in effect at all times material to this litigation, Schwab’s state franchise tax liability accrued on the last day of the year in which Schwab earned the income forming the basis for the tax assessment (December 31 of the “income” or “measuring” year). See Epoch Food Serv., Inc. v. Comm’r, 72 T.C. 1051, 1054 , 1979 WL 3706 (1979). Federal law, however, provides that a taxpayer’s accrual date for federal tax purposes may be no earlier than it would have been under state law as it existed at the end of 1960. See I.R.C. §…