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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011