During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business Falcos taxable income was $970,000, it paid no dividends, and it had no business need to retain income Falco's marginal tax rate in prior years was 34 percent Assume the accumulated earnings tax rate is 20 for all applicable years in this problem Required Compute Falcos accumulated earnings tax assuming that it had accumulated $6 million after tax income in prior years Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation Compute Falcos accumulated earnings tax assuming that it had accumulated $137,000 after tax income in prior years Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation a accumulated earnings tax b accumulated earnings tax

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Posted on Jul 20, 2024

During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating

During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falcos taxable income was $970,000, it paid no dividends, and it had no business need to retain income. Falco's marginal tax rate in prior years was 34 percent. Assume the accumulated earnings tax rate is 20% for all applicable years in this problem.

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Compute Falcos accumulated earnings tax assuming that it had accumulated $6 million after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation.
Compute Falcos accumulated earnings tax assuming that it had accumulated $137,000 after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation.

a. accumulated earnings tax-

b. accumulated earnings tax-