In short
The accumulated earnings tax is a 20% penalty tax on a C corporation's earnings retained beyond the reasonable needs of the business, to avoid shareholder-level tax on dividends.
Key takeaways
- A minimum accumulated earnings credit of $250,000 ($150,000 for certain personal service corporations) is allowed.
- Documented plans for expansion, debt repayment or working capital support reasonable needs.
- It is assessed by the Internal Revenue Service, not reported on the regular return.
Where it's tested
TCP: C Corporation Tax Compliance — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The accumulated earnings tax is imposed on a corporation that: