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similar facilities, and does not insure the lives of its
shareholders.
II. OPINION
A. Accumulated Earnings Tax
1. Basic Rules
A corporation is subject to the accumulated earnings tax if
it is formed or availed of to avoid income taxation of its
shareholders by accumulating earnings and profits. Sec. 532(a).
The most important factor in deciding if the accumulated earnings
tax applies is whether a corporation accumulates earnings and
profits beyond the reasonable needs of the business. United
States v. Donruss Co., 393 U.S. 297, 307 (1969); Technalysis
Corp. v. Commissioner, 101 T.C. 397, 403 (1993). A corporation
that accumulates earnings and profits beyond its reasonable
business needs is presumed to do so to avoid income tax of its
shareholders. Sec. 533(a). A taxpayer can rebut the presumption
with a preponderance of evidence to the contrary. Sec. 533(a).
The accumulated earnings tax does not apply if a corporation has
unreasonably accumulated earnings but lacks the proscribed
purpose. Technalysis Corp. v. Commissioner, supra at 403; Pelton
Steel Casting Co. v. Commissioner, 28 T.C. 153, 173 (1957), affd.
251 F.2d 278 (7th Cir. 1958).
The accumulated earnings tax is a penalty and is strictly
construed. Ivan Allen Co. v. United States, 422 U.S. 617, 626
(1975); Pelton Steel Casting Co. v. Commissioner, supra at 172-
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