Reference no: EM133030887

Question - During a recent IRS audit, the revenue agent decided that the Piteo family used their closely held corporation, Victory, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Victory's taxable income was $1,030,000, it paid no dividends, and it had no business need to retain income. Victory'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 Victory's accumulated earnings tax assuming that it had accumulated $3 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 Victory's accumulated earnings tax assuming that it had accumulated $143,000 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.