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the corporation itself and must be for bona fide business
purposes. Id. The regulations provide a “prudent businessman”
test to determine whether earnings have been accumulated beyond
the business’s present and reasonably anticipated future needs.
Under this test, “An accumulation of the earnings and profits * *
* is in excess of the reasonable needs of the business if it
exceeds the amount that a prudent businessman would consider
appropriate for the present business purposes and for the
reasonable anticipated future needs of the business.” Id.
The determination of the reasonable needs of a business is
in the first instance a question for the corporation’s officers
and directors, and courts should only reject the officers’ and
directors’ judgment to accumulate earnings where the facts and
circumstances warrant the conclusion that an earnings
accumulation is unreasonable and for tax-motivated purposes.
Snow Manufacturing Co. v. Commissioner, 86 T.C. 260, 269 (1986);
Atl. Props., Inc. v. Commissioner, 62 T.C. 644, 656 (1974), affd.
519 F.2d 1233 (1st Cir. 1975). The mere fact that a
corporation’s officers and/or directors have consciously decided
to retain earnings for a stated anticipated future need, however,
does not necessarily mean that an accumulation for that need
satisfies the reasonable needs of the business test. A
corporation must justify an accumulation for reasonably
anticipated future needs by demonstrating, as of the end of each
relevant year, a specific, definite, and feasible plan to use the
accumulation to meet the stated need within a reasonable time.
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