- 25 -
other than holding or investment companies, the credit is
generally an amount equal to the part of earnings and profits
that is retained for the reasonable needs of the business. See
sec. 535(c)(1). The term “reasonable needs of the business”
includes the reasonably anticipated needs of the business. Sec.
537(a)(1). The accumulated earnings tax is imposed on
corporations “formed or availed of for the purpose of avoiding
the income tax * * * by permitting earnings and profits to
accumulate instead of being divided or distributed.” Sec.
532(a).
The controversy here focuses on two questions: (1) Whether
petitioner was a “mere holding or investment company” so as to
not be entitled to accumulate income for reasonable needs beyond
$250,000, and, if not, (2) whether petitioner accumulated income
beyond its reasonable needs. Respondent argues that petitioner
meets the definition of a holding company as set forth in the
statute and the regulations. A corporation is a “holding
company” if it has “practically no activities except holding
property and collecting the income therefrom or investing
therein”. Sec. 1.533-1(c), Income Tax Regs. A corporation is
also considered an investment company if, in addition to holding
properties and collecting income, it actively trades stocks,
securities, real estate, or other investments. See id.
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011