6
Computation of Accumulated Earnings Credit
9/30/92 9/30/93 9/30/94
Minimum credit $250,000 $250,000 $250,000
Less: Accumulated earnings
as of close of prior year 339,981 431,171 508,836
Allowable minimum credit
(sec. 535(c)(2)) -0- -0- -0-
Current earnings and profits
retained for reasonable needs
of business
(sec. 535(c)(1)(A)) -0- -0- -0-
Less: Deduction for LTCG
(sec. 535(b)(6)) -- -- --
Allowable credit
(sec. 535(c)(1)) -0- -0- -0-
Respondent's only explanation for determining that
petitioner was liable for accumulated earnings tax was that
petitioner was "formed or availed of for the purpose of [its]
shareholders avoiding income tax".
Respondent did not state the basis for determining that
petitioner had no reasonable needs to retain earnings for the
years at issue. The notice of deficiency contained no Bardahl6
computation or other analysis of petitioner's need for working
capital. Respondent issued the notice of deficiency before
5(...continued)
the taxpayer's earnings and profits for the taxable year that is
retained for the reasonable needs of the business. Sec.
535(c)(1). The accumulated earnings credit is subtracted from
the taxpayer's taxable income in calculating accumulated taxable
income. Sec. 535(a).
6 A Bardahl computation is an estimate of a taxpayer's
working capital needs based on its business needs for one
operating cycle. Bardahl Manufacturing Corp. v. Commissioner,
T.C. Memo. 1965-200.
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Last modified: May 25, 2011