Question
During a recent IRS audit, the revenue agent determined that the Parker family used their closely held corporation to, Falco, to avoid shareholder tax by
During a recent IRS audit, the revenue agent determined that the Parker family used their closely held corporation to, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falcos taxable income was $900,000, it paid no dividends, and it had no business need to retain income. Falcos marginal tax rate in prior years was 34 percent. Compute Falcos accumulated earnings tax assuming that:
a. It had accumulated $4,000,000 of after-tax income in prior years.
b. It had accumulated $129,000 of after-tax income in prior years.
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