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the management of petitioner and of petitioner’s affiliated
corporations, limited liability companies, and partnership for
using the retained earnings were especially reasonable in light
of the short time in which petitioner had operated as a
corporation, having just been organized in June of 1996.
In light of the relatively rapid growth of ADCS from the
time of its formation in 1988 until its merger into petitioner in
1996, and in light of petitioner’s plans to continue growing and
expanding the business operations and activities after
petitioner’s merger with ADCS, we conclude that the $1.9 million
and the $2.9 million in earnings retained by ADCS-Limited and
reported by petitioner during the short taxable years in issue
did not exceed petitioner’s reasonable business needs and did not
exceed a reasonable accumulation of earnings.8
Respondent argues that the reorganization of petitioner’s
corporate structure to produce favorable Texas franchise tax
consequences represents strong evidence of the tax sensitivity
7(...continued)
manufacturing plant was never constructed by ADCS or by
petitioner, but, at the time of trial in 2002, a new 70,000-
square-foot chemical manufacturing plant was being constructed by
ATMI on 200 acres of land in Burnet, Texas, at an estimated cost
of $20 million.
8 In accord with Bardahl Manufacturing Corp. v.
Commissioner, T.C. Memo. 1965-200, on brief petitioner sets forth
calculations for its working capital needs for the 1996 and 1997
calendar years, but the record was incomplete for purposes of
verifying petitioner’s calculations. Respondent provided no
Bardahl working capital calculations for petitioner.
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