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C. Reasonable Accumulation for Business Needs
1. Background
A business may accumulate earnings to meet its reasonably
anticipated needs. Sec. 537(a); sec. 1.537-1(a)(1), Income Tax
Regs. The corporation must have specific, definite, and feasible
plans to use the accumulation. Sec. 1.537-1(b)(1), Income Tax
Regs.14 We consider the judgment of corporate management in
deciding if its accumulation of earnings was reasonable. Raymond
I. Smith, Inc. v. Commissioner, 292 F.2d 470, 475-476 (9th Cir.
1961), affg. 33 T.C. 141 (1959); Technalysis Corp. v.
Commissioner, supra at 411.
A corporation's reasonably anticipated needs are considered
based on the facts at the end of the taxable year. Sec. 1.537-
1(b)(2), Income Tax Regs.15 Treasury regulations state that
14 Sec. 1.537-2(b), Income Tax Regs., lists several
nonexclusive examples of reasonable grounds for accumulating
earnings and profits: (1) To provide for bona fide expansion of
business or replacement of plant; (2) To acquire a business
enterprise through purchasing stock or assets; (3) To provide for
the retirement of bona fide indebtedness created in connection
with the trade or business * * *; (4) To provide necessary
working capital for the business, such as, for the procurement of
inventories; (5) To provide for investments or loans to suppliers
or customers if necessary in order to maintain the business of
the corporation; or (6) To provide for the payment of reasonably
anticipated product liability losses * * *.
15 Sec. 1.537-1(b)(2), Income Tax Regs., provides:
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