The following section discusses some of the most commonly found issues in the examinations that were performed. These issues may be present in examinations of purchasers or sellers. While not all issues will be present in every examination, this summary may help you in your pre-audits. Accumulated Earnings IRC section 531 imposes a tax on corporations that retain earnings and profits instead of distributing them.
Corporations can retain earnings and profits for the reasonable needs of the business.
Unreasonable accumulations of earning and profits as listed in Treas. The tax is computed on accumulated taxable income, which is the corporation's taxable income with certain adjustments. The tax rate is currently 39.6 percent. Generally, built-in gain is the amount by which the fair market value of a corporate asset exceeds its adjusted basis on the first day of S corporation status. The corporation may use C corporation tax attributes to reduce tax liability, subject to limitations.