Accumulated Earnings Tax


Also found in: Financial.

Accumulated Earnings Tax

A special tax imposed on corporations that accumulate (rather than distribute via dividends) their earnings beyond the reasonable needs of the business. The accumulated earnings tax is imposed on accumulated taxable income in addition to the corporate Income Tax.

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Lim added that the TMAP also supports the proposal to revisit tax exemptions given to certain entities to allow for a more targeted system, as well as a proposal for the DOF to revisit the 10-percent improperly accumulated earnings tax (IAET).
Paying the profits to himself as a tax-deductible salary or bonus may bring Nick an IRS penalty for unreasonable compensation, yet retaining the dividends in the company might lead to the accumulated earnings tax.
A particularly suitable analogy can be found in the accumulated earnings tax rules.
Questions cover 21 topics, including shareholder-related issues, determination of corporate income tax liability, tax accounting and procedure, judicial doctrines, earnings and profits, constructive dividends, stock distributions, redemptions, bootstrap sales, accumulated earnings tax, complete liquidations, partnerships, comparison of entities, and Sections 351, 304, and 305.
9) In deciding whether a family owned bank was subject to the accumulated earnings tax, the IRS took into account the regulatory scheme the bank was operating under to determine its reasonable needs.
Accumulated earnings tax and purchase of business life insurance.
The accumulated earnings tax is a penalty tax against a corporation that holds profits beyond its normal business needs, thus keeping the profits from taxation upon distribution.
The purchase of life insurance to cover the potential loss of a bona fide key employee should not result in a significant risk of accumulated earnings tax exposure in most cases.
9) The accumulated earnings tax may be imposed on a corporation that has E&P in excess of the reasonable needs of the business.
The corporation is experiencing an accumulated earnings tax problem.
Moreover, there appears to be little possibility that the accumulated earnings tax would apply to the retained earnings of the U.
Question--Will life insurance owned by the corporation to fund the Section 303 redemption cause or aggravate an accumulated earnings tax problem?
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