Reasonable needs of the business

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Reference no: EM13916455

During a recent IRS audit, the revenue agent decided that the FP family used their closely held corporation, Falco, to avoid tax at the shareholder level by accumulating earnings beyond the reasonable needs of the business. Falco's taxable income was $900,000, it paid no dividends for the year, and it had no business need to retain any of this income. Compute Falco's accumulated earnings tax assuming that:

a) It had accumulated $4 million of after-tax income in prior years.

b) It had accumulated $129,000 after-tax income in prior years. (Remember you are allowed a $250,000 "no questions asked" accumulation.)

Reference no: EM13916455

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