Few penalty taxes have been imposed with the frequency of the tax on unreasonable accumulations of corporate earnings and profits. Any corporation "formed or availed of for the purpose of avoiding income tax with respect to its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed" is subject to the tax. However, the tax is not properly imposed where the accumulations are for the reasonable business needs of the corporation. Accordingly, the question of what constitutes reasonable business needs is critical. This article considers one aspect of the reasonable business needs question: Under what circumstances should a redemption of corporate stock or the funding of a proposed redemption be considered a reasonable business need?
Michael S. Weiner and Bruce M. Graham Jr.,
Accumulated Earnings Tax and Stock Redemptions - Further Thoughts on the Reasonable Business Needs Test,
28 Clev. St. L. Rev.
available at http://engagedscholarship.csuohio.edu/clevstlrev/vol28/iss3/6