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of the stock of minority, dissenting stockholders began in
January 1996; thus, it was reasonable for petitioner to
accumulate its 1995 earnings and profits for the purpose of
redeeming the stock of stockholders. The events continued into
1996 with the redemption of Paul Pedigo’s stock and the
continuing opposition to the board of directors election at the
1996 and 1997 annual stockholders meetings. Thus, petitioner’s
accumulation of earnings was also reasonable at the end of both
1996 and 1997.
A complete redemption of all of the stock held by the Pedigo
family members would have required $1,975,750, $2,044,847, and
$1,697,657 in 1995, 1996, and 1997, respectively. We conclude
that the amounts needed to redeem the stock of minority
stockholders were a reasonable business need that justified the
accumulation of earnings and profits.
3. Class Action Lawsuit
Petitioner contends that the accumulation of its earnings
and profits was a direct result of being named as a defendant in
a class action lawsuit and was a provision for attorney’s fees in
the defense of the lawsuit and a reserve for the potential
liability of an unspecified amount of damages. Petitioner argues
that these circumstances justify the accumulation of reserves to
meet a contingency, which is a reasonable need of the business.
Respondent contends that the accumulation of earnings and
profits was not necessary to defend against the lawsuit or to
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