-34-
could not quantify the amount it needed for this potential
problem does not make it any less of a concern.
Respondent contends that petitioner formed the Super Trust
solely to conceal income and avoid the accumulated earnings tax.
Respondent argues that petitioner incorrectly accounted for its
contributions to the Super Trust and that petitioner should have
reported income from the Super Trust during the years in issue.
We disagree that petitioner created the Super Trust to avoid
the accumulated earnings tax. Also, the Super Trust properly
filed Forms 1041 for 1988 and 1989, and petitioner reported its
transfers to the Super Trust on Schedule M-2 of its 1988 and 1989
returns. The Super Trust served many legitimate purposes; for
example, it helped to induce the shareholders to pledge their
funds for the long-term benefit of the company. Respondent
admitted in the answer to petitioner's amended petition13 that
the Super Trust funds were pledged for the reasonable business
needs of petitioner.
Respondent contends that, in estimating its reasonable
business needs, petitioner's CEP erroneously failed to consider
petitioner's projected future revenues. We disagree. Respondent
cites Dixie, Inc. v. Commissioner, 277 F.2d 526, 528 (2d Cir.
13 Petitioner amended paragraph 5(s) of its petition as
follows:
5(s). The funds in the Super Trust are held for the
reasonable business needs of the Petitioner.
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