Northwestern Indiana Telephone Company - Page 51

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            paid deduction (as defined in section 561) and the accumulated                             
            earnings credit (as defined in section 535(c)).  Insofar as                                
            relevant to the instant cases, this accumulated earnings credit                            
            is the amount of the corporation's earnings and profits that are                           
            retained for the reasonable needs of the business.  Where a                                
            taxpayer can show that all its current earnings were accumulated                           
            for the reasonable needs of the business, there is no accumulated                          
            earnings tax since the accumulated earnings credit eliminates the                          
            amount against which the tax is imposed.  E.g., Magic Mart, Inc.                           
            v. Commissioner, 51 T.C. 775, 799 (1969); Faber Cement Block Co.                           
            v. Commissioner, 50 T.C. 317, 336 (1968); John P. Scripps                                  
            Newspapers v. Commissioner, 44 T.C. 453, 474 (1965).                                       
                  Whether a taxpayer's accumulation of earnings and profits is                         
            in excess of its reasonable business needs is a factual question.                          
            Helvering v. National Grocery Co., 304 U.S. 282 (1938).  The                               
            "reasonable needs of the business" includes the reasonably                                 
            anticipated needs of the business.  Sec. 537(a)(1); sec. 1.537-                            
            1(a), Income Tax Regs.                                                                     
                  With respect to a corporation's reasonably anticipated                               
            future business needs, section 1.537-1(b), Income Tax Regs,                                
            provides:                                                                                  

                        (b) Reasonably anticipated needs. (1) In order for                             
                  a corporation to justify an accumulation of earnings                                 
                  and profits for reasonably anticipated future needs,                                 
                  there must be an indication that the future needs of                                 
                  the business require such accumulation, and the                                      
                  corporation must have specific, definite, and feasible                               




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Last modified: May 25, 2011