- 17 -
Co., 393 U.S. 297, 303 (1969); Helvering v. Chicago Stock Yards
Co., 318 U.S. 693, 699 (1943). The tax is considered to be a
penalty and, therefore, has been strictly construed. See Ivan
Allen Co. v. United States, supra at 626.
Earnings and profits of a corporation permitted to
accumulate beyond the reasonable needs of the business are
determinative of the purpose to avoid the income tax with respect
to shareholders, unless the corporation proves otherwise by a
preponderance of the evidence to the contrary. See sec. 533(a);
Technalysis Corp. v. Commissioner, 101 T.C. 397, 403 (1993);
Hughes, Inc. v. Commissioner, 90 T.C. 1, 16 (1988); Snow
Manufacturing Co. v. Commissioner, 86 T.C. 260, 269 (1986).
Pursuant to section 534, the burden of proof was shifted to
respondent to demonstrate that petitioner’s accumulation of
earnings and profits for stockholder redemptions of stock and
business expansion plans was beyond petitioner’s reasonable
needs. The burden of proof remains on petitioner as to the other
grounds asserted. The ultimate burden of proving that petitioner
was not availed of for the prohibited statutory purpose is and
remains upon petitioner. See American Metal Prods. Corp. v.
Commissioner, 34 T.C. 89, 99 (1960), affd. 287 F.2d 860 (8th Cir.
1961); Pelton Steel Casting Co. v. Commissioner, 28 T.C. 153
(1957), affd. 251 F.2d 278 (7th Cir. 1958).
A. Net Liquid Assets
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011