Collapse to view only § 535. Accumulated taxable income
- § 531. Imposition of accumulated earnings tax
- § 532. Corporations subject to accumulated earnings tax
- § 533. Evidence of purpose to avoid income tax
- § 534. Burden of proof
- § 535. Accumulated taxable income
- § 536. Income not placed on annual basis
- § 537. Reasonable needs of the business
§ 531. Imposition of accumulated earnings tax
In addition to other taxes imposed by this chapter, there is hereby imposed for each taxable year on the accumulated taxable income (as defined in section 535) of each corporation described in section 532, an accumulated earnings tax equal to 20 percent of the accumulated taxable income.
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 100–647, title I, § 1001(a)(2)(A), Nov. 10, 1988, 102 Stat. 3349; Pub. L. 103–66, title XIII, §§ 13201(b)(1), 13202(b), Aug. 10, 1993, 107 Stat. 459, 461; Pub. L. 107–16, title I, § 101(c)(4), June 7, 2001, 115 Stat. 43; Pub. L. 108–27, title III, § 302(e)(5), May 28, 2003, 117 Stat. 764; Pub. L. 112–240, title I, § 102(c)(1)(A), Jan. 2, 2013, 126 Stat. 2319.)
§ 532. Corporations subject to accumulated earnings tax
(a) General rule
(b) Exceptions
The accumulated earnings tax imposed by section 531 shall not apply to—
(1) a personal holding company (as defined in section 542),
(2) a corporation exempt from tax under subchapter F (section 501 and following), or
(3) a passive foreign investment company (as defined in section 1297).
(c) Application determined without regard to number of shareholders
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 98–369, div. A, title I, § 58(a), July 18, 1984, 98 Stat. 574; Pub. L. 99–514, title XII, § 1235(f)(1), Oct. 22, 1986, 100 Stat. 2575; Pub. L. 105–34, title XI, § 1122(d)(1), Aug. 5, 1997, 111 Stat. 977; Pub. L. 109–135, title IV, § 403(n)(1), Dec. 21, 2005, 119 Stat. 2626.)
§ 533. Evidence of purpose to avoid income tax
(a) Unreasonable accumulation determinative of purpose
(b) Holding or investment company
(Aug. 16, 1954, ch. 736, 68A Stat. 179.)
§ 534. Burden of proof
(a) General rule
In any proceeding before the Tax Court involving a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business, the burden of proof with respect to such allegation shall—
(1) if notification has not been sent in accordance with subsection (b), be on the Secretary, or
(2) if the taxpayer has submitted the statement described in subsection (c), be on the Secretary with respect to the grounds set forth in such statement in accordance with the provisions of such subsection.
(b) Notification by Secretary
(c) Statement by taxpayer
(d) Jeopardy assessment
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Aug. 11, 1955, ch. 805, §§ 4, 5, 69 Stat. 690, 691; Pub. L. 85–866, title I, § 89(b), Sept. 2, 1958, 72 Stat. 1665; Pub. L. 94–455, title XIX, §§ 1901(a)(73), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834.)
§ 535. Accumulated taxable income
(a) Definition
(b) Adjustments to taxable income
For purposes of subsection (a), taxable income shall be adjusted as follows:
(1) Taxes
(2) Charitable contributions
(3) Special deductions disallowed
(4) Net operating loss
(5) Capital losses
(A) In general
(B) Recapture of previous deductions for capital gains
The aggregate amount allowable as a deduction under subparagraph (A) for any taxable year shall be reduced by the lesser of—
(i) the nonrecaptured capital gains deductions, or
(ii) the amount of the accumulated earnings and profits of the corporation as of the close of the preceding taxable year.
(C) Nonrecaptured capital gains deductions
For purposes of subparagraph (B), the term “nonrecaptured capital gains deductions” means the excess of—
(i) the aggregate amount allowable as a deduction under paragraph (6) for preceding taxable years beginning after July 18, 1984, over
(ii) the aggregate of the reductions under subparagraph (B) for preceding taxable years.
(6) Net capital gains
(A) In general
There shall be allowed as a deduction—
(i) the net capital gain for the taxable year (determined with the application of paragraph (7)), reduced by
(ii) the taxes attributable to such net capital gain.
(B) Attributable taxes
For purposes of subparagraph (A), the taxes attributable to the net capital gain shall be an amount equal to the difference between—
(i) the taxes imposed by this subtitle (except the tax imposed by this part) for the taxable year, and
(ii) such taxes computed for such year without including in taxable income the net capital gain for the taxable year (determined without the application of paragraph (7)).
(7) Capital loss carryovers
(A) Unlimited carryforward
(B) Section 1212 inapplicable
(8) Special rules for mere holding or investment companies
In the case of a mere holding or investment company—
(A) Capital loss deduction, etc., not allowed
(B) Deduction for certain offsets
(C) Earnings and profits
(9) Special rule for capital gains and losses of foreign corporations
(10) Controlled foreign corporations
(c) Accumulated earnings credit
(1) General rule
(2) Minimum credit
(A) In general
(B) Certain service corporations
(3) Holding and investment companies
(4) Accumulated earnings and profits
(5) Cross reference
(d) Income distributed to United States-owned foreign corporation retains United States connection
(1) In general
For purposes of this part, if 10 percent or more of the earnings and profits of any foreign corporation for any taxable year—
(A) is derived from sources within the United States, or
(B) is effectively connected with the conduct of a trade or business within the United States,
any distribution out of such earnings and profits (and any interest payment) received (directly or through 1 or more other entities) by a United States-owned foreign corporation shall be treated as derived by such corporation from sources within the United States.
(2) United States-owned foreign corporation
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Pub. L. 85–866, title I, § 31, title II, § 205(a), Sept. 2, 1958, 72 Stat. 1631, 1680; Pub. L. 87–403, § 3(b), Feb. 2, 1962, 76 Stat. 6; Pub. L. 87–834, § 9(d)(2), Oct. 16, 1962, 76 Stat. 1001; Pub. L. 88–272, title II, § 207(b)(4), Feb. 26, 1964, 78 Stat. 42; Pub. L. 91–172, title IV, § 401(b)(2)(C), title V, § 512(f)(5), (6), Dec. 30, 1969, 83 Stat. 602, 641; Pub. L. 94–12, title III, § 304(a), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94–455, title X, § 1033(b)(3), title XIX, §§ 1901(a)(74), (b)(20)(A), (32)(C), (33)(D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797, 1800, 1801, 1834; Pub. L. 97–34, title II, § 232(a), (b)(1), Aug. 13, 1981, 95 Stat. 250; Pub. L. 98–369, div. A, title I, §§ 58(b), 125(a), July 18, 1984, 98 Stat. 575, 647; Pub. L. 99–514, title XII, § 1225(a), title XVIII, § 1899A(17), Oct. 22, 1986, 100 Stat. 2558, 2959; Pub. L. 101–508, title XI, § 11801(c)(18), Nov. 5, 1990, 104 Stat. 1388–528; Pub. L. 108–357, title IV, § 402(b)(1), Oct. 22, 2004, 118 Stat. 1492; Pub. L. 109–135, title IV, § 403(n)(2), Dec. 21, 2005, 119 Stat. 2626; Pub. L. 113–295, div. A, title II, § 221(a)(64), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, §§ 13001(b)(5)(B), 14301(c)(4), Dec. 22, 2017, 131 Stat. 2098, 2222.)
§ 536. Income not placed on annual basis
Section 443(b) (relating to computation of tax on change of annual accounting period) shall not apply in the computation of the accumulated earnings tax imposed by section 531.
(Aug. 16, 1954, ch. 736, 68A Stat. 182.)
§ 537. Reasonable needs of the business
(a) General rule
For purposes of this part, the term “reasonable needs of the business” includes—
(1) the reasonably anticipated needs of the business,
(2) the section 303 redemption needs of the business, and
(3) the excess business holdings redemption needs of the business.
(b) Special rules
For purposes of subsection (a)—
(1) Section 303 redemption needs
(2) Excess business holdings redemption needs
The term “excess business holdings redemption needs” means the amount needed (or reasonably anticipated to be needed) to redeem from a private foundation stock which—
(A) such foundation held on May 26, 1969 (or which was received by such foundation pursuant to a will or irrevocable trust to which section 4943(c)(5) applies), and
(B) constituted excess business holdings on May 26, 1969, or would have constituted excess business holdings as of such date if there were taken into account (i) stock received pursuant to a will or trust described in subparagraph (A), and (ii) the reduction in the total outstanding stock of the corporation which would have resulted solely from the redemption of stock held by the private foundation.
(3) Obligations incurred to make redemptions
(4) Product liability loss reserves
(5) No inference as to prior taxable years
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91–172, title IX, § 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94–455, title XIX, § 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95–600, title III, § 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L. 104–188, title I, § 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889; Pub. L. 115–97, title I, § 13302(c)(2)(B), Dec. 22, 2017, 131 Stat. 2123.)