Acume Corp was originally operating as a manufacturing business, but sold most of its operating assets a number of years ago. The sole shareholder of Acume, Joe, comes to you for tax advice. You look at the balance sheet and notice the following items:

Raw land $2 million

Investments in securities $1.5 million

Loans to shareholders $500,000

Acume’s sole owner, Joe, tells you that the land was purchased as an investment, and there are no current plans to develop it.

Joe tells you that Acume has not paid any dividends in the last five years. The company’s retained earnings are over $4 million.

a. Discuss the potential accumulated earnings tax issues, and what Joe can do about them

b. You then take a look at the income statement, and notice that the only income is dividend income of $500,000. The company also has capital losses of $100,000, and operating expenses of $100,000. Calculate the Acume’s income tax expense and personal holding company tax.