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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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