Advanced Delivery and Chemical Systems Nevada, Inc. - Page 25

                                       - 25 -                                         
               Whether a corporation has permitted its earnings and profits           
          to accumulate beyond the reasonable needs of its business                   
          constitutes a question of fact, and we generally defer to the               
          determinations of the reasonable business needs that were made by           
          corporate officers and directors, unless the facts and                      
          circumstances require us to substitute our business judgment for            
          theirs.6  Snow Manufacturing Co. v. Commissioner, 86 T.C. 260,              
          269 (1986) (citing Atl. Prop., Inc. v. Commissioner, 62 T.C. 644,           
          656 (1974), affd. 519 F.2d 1233 (1st Cir. 1975); Faber Cement               
          Block Co. v. Commissioner, 50 T.C. 317, 329 (1968)).                        
               In order to classify retained earnings as accumulations for            
          reasonable business needs, a corporation is required to have                
          specific, definite, and feasible plans for using the retained               
          earnings.  Sec. 1.537-1(b)(1), Income Tax Regs.  The plans for              
          use of retained earnings that will be treated as reasonable are             
          those that project use of the earnings within a reasonable time             
          period viewed in light of all of the facts and circumstances.               
          Id.  It is not necessary that plans for the use of retained                 
          earnings be set forth in formal minutes, but evidence of a                  
          definitive plan coupled with action taken toward the realization            
          thereof are expected.  See Doug-Long, Inc. v. Commissioner, 72              


               6  Under the procedures outlined in sec. 534, the burden of            
          proof regarding whether petitioner accumulated earnings and                 
          profits beyond the reasonable needs of its business has been                
          placed on respondent.                                                       





Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011