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1. What is the purpose of the Accumulated Earnings Tax? 2. For purposes of the Accumulated...

1. What is the purpose of the Accumulated Earnings Tax?

2. For purposes of the Accumulated Earnings Tax, what are some examples of reasonable business needs for a corp to retain (accumulate) its earnings?

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Accumulated earnings tax: Accumulated earning tax is tax imposed by the federal government on compaines with retained earnings which are deemed to be unreasonable and in excess of what is considered odinary .This tax encourages compaines to issues divedends rather to retain the earnings Purpose:The purpose is to discourage the accumulation of earnings if the reason for such accumulation isto allow the shareholders to avoid paying taxes on such earnings by not paying dividends Examples:For the purpose of the accumulated earning tax,the purpose is to avoid the taxes for the shareholders of the company so they have to retain their earnings

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