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Petitioner also effectively controlled and operated ADCS-
Korea. Further, petitioner held certain patents and intangibles
relating to the business activities of its controlled entities.
On the facts of this case and for accumulated earnings tax
purposes, we conclude that petitioner is not to be regarded as a
mere holding company for purposes of the accumulated earnings
tax.
Reasonableness of Retained Earnings
In general, a corporation is allowed to retain earnings to
provide for the reasonable needs of its business without
imposition of the accumulated earnings tax. Secs. 533(a),
535(c), 537(a)(1).
Generally, for the following purposes, among others, a
corporation may retain earnings without incurring an accumulated
earnings tax liability: (1) To provide for bona fide business
expansion and plant replacement, sec. 1.537-2(b)(1), Income Tax
Regs.; (2) to provide necessary working capital for the business,
sec. 1.537-2(b)(4), Income Tax Regs.; (3) to provide for
contingent business liabilities such as product liability losses,
sec. 537(b)(4); sec. 1.537-2(b)(6), Income Tax Regs.; and (4) to
provide for anticipated litigation involving intellectual
property. See Steelmasters, Inc. v. Commissioner, T.C. Memo.
1976-324; Fotocrafters, Inc. v. Commissioner, T.C. Memo. 1960-
254.
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