- 27 -
corporate resources to identified business needs must be
unambiguously evidenced by some contemporaneous course of action
toward this end. Cheyenne Newspapers, Inc. v. Commissioner, 494
F.2d 429, 433-434 (10th Cir. 1974), affg. T.C. Memo. 1973-52;
Smoot Sand & Gravel Corp. v. Commissioner, 241 F.2d 197, 202 (4th
Cir. 1957), affg. in part and revg. in part T.C. Memo. 1956-82;
Snow Manufacturing Co. v. Commissioner, 86 T.C. 260, 273-274, 277
(1986). Section 534 provides that under certain circumstances
the burden of proof with respect to the question whether earnings
and profits have accumulated beyond the reasonable needs of the
business may be shifted to the Government. The parties have
stipulated that petitioner continues to bear the burden of proof.
Rule 142(a).
Working Capital
A corporation may accumulate earnings in order to provide
necessary working capital for its business. Sec. 1.537-2(b)(4),
Income Tax Regs. Respondent determined the amount of working
capital that petitioner needed for one operating cycle by the
approach originally expounded in Bardahl Manufacturing Corp. v.
Commissioner, T.C. Memo. 1965-200. Petitioner has offered its
own Bardahl calculations.4 The details of our own calculations
4 In its trial memorandum and on cross-examination, however,
petitioner questioned the use of the Bardahl analysis to
determine working capital needs of a business like petitioner’s
that involves substantial services in addition to the sale of
inventory. The measurement of petitioner’s working capital needs
(continued...)
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011