- 15 - corporate tax return, petitioner reported the approximate $2.9 million in current year retained earnings, and petitioner reflected the approximate $11.6 million in retained earnings accumulated in prior years. Similar to the situation in the prior taxable year, essentially all of the earnings reported as retained earnings in petitioner’s October 10, 1997, short taxable year were merely allocated to petitioner from and through ADCS- Limited, Holdings LLC, and Operating LLC. None of the retained earnings were actually distributed to petitioner. On audit, respondent determined that during petitioner’s short taxable years ending December 31, 1996, and October 10, 1997, petitioner constituted a mere holding company, that petitioner did not establish reasonable business needs for retaining the approximate $1.9 million and $2.9 million in current year earnings allocated to petitioner from and through ADCS-Limited, Holdings LLC, and Operating LLC, and that petitioner, therefore, was subject to the accumulated earnings tax for each of the short taxable years in issue. On July 31, 2000, respondent issued to petitioner a notice of deficiency with respect to petitioner’s short taxable years ending December 31, 1996, and October 10, 1997, wherein respondent, relying on the provisions of section 535, calculated petitioner’s accumulated taxable income and accumulated earnings tax thereon as follows:Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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