'Late' statement on accumulations still can be effective

Article Abstract:

Sec. 531 creates a 39.6% tax on corporations with accumulated earnings higher than reasonable business needs. This is aimed at preventing the use of a corporation to shield earnings from tax on a high-bracket shareholder. Sec. 535(c), however, allows a credit against this tax. The credit may be computed by adding $250,000 to dividends paid for the first two and a half months of the succeeding year, and then subtracting accumulated E&P at the close of the previous year. Another way to calculate the credit is to subtract capital gains, net of losses and taxes on the gains from the fraction of the E&P that is kept for its reasonable needs. Sec. 534 enables the corporation to transfer the responsibility of proof to the IRS by submitting a statement justifying the accumulation 60 days after being informed that the IRS plans to challenge it. 'Gabelli Funds Inc.' and 'Manson Western Corp.' provide guidelines.

Tax Law, Public Finance Activities, Accumulated earnings tax

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Bargain purchase can't be changed to a stock redemption

Article Abstract:

The Tax Court has ruled on a case where the taxpayers recast a property transaction as a stock redemption rather than as a constructive dividend. The court's ruling, in 'Estate of Durkin, Sr,' rejected the taxpayers' contention that the recasting of the transaction in a form more advantageous to them was supported by the 'Zenz vs Quinvilan' ruling in 1954. The court also rejected the taxpayers' argument that they had not intended to disguise the bargain purchase of property. Citing the 'Danielson' rule that is the basis for Section 1060(a), the court ruled that taxpayers could disavow their chosen transaction form only if they could prove that it was rendered invalid by fraud, error, duress or undue influence.

United States. Tax Court

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