Advanced Delivery and Chemical Systems Nevada, Inc. - Page 16

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          Short Taxable       Accumulated        Accumulated                          
           Year Ending       Taxable Income      Earnings Tax                         
          Dec. 31, 1996        $1,247,731         $  494,101                          
          Oct. 10, 1997         3,985,131          1,578,112                          

                                       OPINION                                        
               Generally, under section 532(a), a corporation that permits            
          earnings and profits to accumulate for the purpose of avoiding              
          the Federal income tax that would be imposed on its shareholders            
          with respect to distributions of earnings and profits made to the           
          shareholders is subject to the accumulated earnings tax of                  
          sections 531 through 537.  S corporations, however, are not                 
          subject to the accumulated earnings tax.  See sec. 1363(a).                 
               Whether a corporation accumulated earnings for the                     
          prohibited purpose of avoiding the Federal income tax with                  
          respect to its shareholders involves a question of fact.  E.g.,             
          Snow Manufacturing Co. v. Commissioner, 86 T.C. 260, 269 (1986)             
          (citing Bremerton Sun Publg. Co. v. Commissioner, 44 T.C. 566,              
          582 (1965)).  A conclusion as to whether a corporation was formed           
          or availed of for the prohibited purpose of avoiding Federal                
          income tax is made with respect to the state of mind of those               
          individuals who were in control of the corporation.  Helvering v.           
          Natl. Grocery Co., 304 U.S. 282, 292-294 (1938).                            
               A conclusion that a corporation is to be treated as a “mere            
          holding company” or that the management of the corporation has              
          permitted its earnings and profits to accumulate beyond the                 





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