26 U.S.C. § 537 — Reasonable needs of the business

Page 1754 TITLE 26—INTERNAL REVENUE CODE § 536 amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 536. Income not placed on annual basis Section 443(b) (relating to computation of tax on change of annual accounting period) shall not apply in the computation of the accumulated earnings tax imposed by section 531. (Aug. 16, 1954, ch. 736, 68A Stat. 182.) § 537. Reasonable needs of the business (a) General rule For purposes of this part, the term ‘‘reason- able needs of the business’’ includes— (1) the reasonably anticipated needs of the business, (2) the section 303 redemption needs of the business, and (3) the excess business holdings redemption needs of the business. (b) Special rules For purposes of subsection (a)— (1) Section 303 redemption needs The term ‘‘section 303 redemption needs’’ means, with respect to the taxable year of the corporation in which a shareholder of the cor- poration died or any taxable year thereafter, the amount needed (or reasonably anticipated to be needed) to make a redemption of stock included in the gross estate of the decedent (but not in excess of the maximum amount of stock to which section 303(a) may apply). (2) Excess business holdings redemption needs The term ‘‘excess business holdings redemp- tion needs’’ means the amount needed (or rea- sonably anticipated to be needed) to redeem from a private foundation stock which— (A) such foundation held on May 26, 1969 (or which was received by such foundation pursuant to a will or irrevocable trust to which section 4943(c)(5) applies), and (B) constituted excess business holdings on May 26, 1969, or would have constituted ex- cess business holdings as of such date if there were taken into account (i) stock re- ceived pursuant to a will or trust described in subparagraph (A), and (ii) the reduction in the total outstanding stock of the corpora- tion which would have resulted solely from the redemption of stock held by the private foundation. (3) Obligations incurred to make redemptions In applying paragraphs (1) and (2), the dis- charge of any obligation incurred to make a redemption described in such paragraphs shall be treated as the making of such redemption. (4) Product liability loss reserves The accumulation of reasonable amounts for the payment of reasonably anticipated prod- uct liability losses (as defined in section 172(f) (as in effect before the date of enactment of the Tax Cuts and Jobs Act)), as determined under regulations prescribed by the Secretary, shall be treated as accumulated for the rea- sonably anticipated needs of the business. (5) No inference as to prior taxable years The application of this part to any taxable year before the first taxable year specified in paragraph (1) shall be made without regard to the fact that distributions in redemption com- ing within the terms of such paragraphs were subsequently made. (Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91–172, title IX, § 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94–455, title XIX, § 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95–600, title III, § 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L. 104–188, title I, § 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889; Pub. L. 115–97, title I, § 13302(c)(2)(B), Dec. 22, 2017, 131 Stat. 2123.) Editorial Notes REFERENCES IN TEXT Section 172(f), referred to in subsec. (b)(4), was re- pealed by Pub. L. 115–97, title I, § 13302(c)(2)(A), Dec. 22, 2017, 131 Stat. 2122. The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (b)(4), probably means the date of enactment of title I of Pub. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Pub. L. 115–97 included such Short Title, but it was not enacted as part of title I of Pub. L. 115–97. AMENDMENTS 2017—Subsec. (b)(4). Pub. L. 115–97 inserted ‘‘(as in ef- fect before the date of enactment of the Tax Cuts and Jobs Act)’’ after ‘‘as defined in section 172(f)’’. 1996—Subsec. (b)(4). Pub. L. 104–188 substituted ‘‘sec- tion 172(f)’’ for ‘‘section 172(i)’’. 1978—Subsec. (b)(4), (5). Pub. L. 95–600 added par. (4) and redesignated former par. (4) as (5). 1976—Subsec. (b)(2). Pub. L. 94–455, § 1901(a)(75)(A), struck out ‘‘with respect to taxable years of the cor- poration ending after May 26, 1969’’ after ‘‘ ‘redemption needs’ means’’. Subsec. (b)(4). Pub. L. 94–455, § 1901(a)(75)(B), struck out ‘‘or (2)’’ after ‘‘paragraph (1)’’. 1969—Pub. L. 91–172 designated existing provisions as subsec. (a)(1) and added subsecs. (a)(2), (3) and (b). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to net oper- ating losses arising in taxable years beginning after Dec. 31, 2017, see section 13302(e) of Pub. L. 115–97, set out as a note under section 172 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Amendment by Pub. L. 95–600 applicable with respect to taxable years beginning after Sept. 30, 1979, see sec- tion 371(d) of Pub. L. 95–600, set out as a note under sec- tion 172 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see sec- tion 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1969 AMENDMENT Pub. L. 91–172, title IX, § 906(b), Dec. 30, 1969, 83 Stat. 715, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to the tax imposed under section 531 of the Internal Rev- enue Code of 1986 [formerly I.R.C. 1954] with respect to taxable years ending after May 26, 1969.’’ Page 1755 TITLE 26—INTERNAL REVENUE CODE § 542 PART II—PERSONAL HOLDING COMPANIES Sec. 541. Imposition of personal holding company tax. 542. Definition of personal holding company. 543. Personal holding company income. 544. Rules for determining stock ownership. 545. Undistributed personal holding company in- come. 546. Income not placed on annual basis. 547. Deduction for deficiency dividends. § 541. Imposition of personal holding company tax In addition to other taxes imposed by this chapter, there is hereby imposed for each tax- able year on the undistributed personal holding company income (as defined in section 545) of every personal holding company (as defined in section 542) a personal holding company tax equal to 20 percent of the undistributed personal holding company income. (Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 88–272, title II, § 225(a), Feb. 26, 1964, 78 Stat. 79; Pub. L. 97–34, title I, § 101(d)(2), Aug. 13, 1981, 95 Stat. 184; Pub. L. 99–514, title I, § 104(b)(8), Oct. 22, 1986, 100 Stat. 2105; Pub. L. 101–508, title XI, § 11802(f)(1), Nov. 5, 1990, 104 Stat. 1388–530; Pub. L. 103–66, title XIII, §§ 13201(b)(2), 13202(b), Aug. 10, 1993, 107 Stat. 459, 461; Pub. L. 107–16, title I, § 101(c)(5), June 7, 2001, 115 Stat. 43; Pub. L. 108–27, title III, § 302(e)(6), May 28, 2003, 117 Stat. 764; Pub. L. 112–240, title I, § 102(c)(1)(B), Jan. 2, 2013, 126 Stat. 2319.) Editorial Notes AMENDMENTS 2013—Pub. L. 112–240 substituted ‘‘20 percent’’ for ‘‘15 percent’’. 2003—Pub. L. 108–27 substituted ‘‘equal to 15 percent of the undistributed personal holding company in- come.’’ for ‘‘equal to the product of the highest rate of tax under section 1(c) and the undistributed personal holding company income.’’ 2001—Pub. L. 107–16 substituted ‘‘equal to the product of the highest rate of tax under section 1(c) and the un- distributed personal holding company income.’’ for ‘‘equal to 39.6 percent of the undistributed personal holding company income.’’ 1993—Pub. L. 103–66, § 13202(b), substituted ‘‘39.6 per- cent’’ for ‘‘36 percent’’. Pub. L. 103–66, § 13201(b)(2), substituted ‘‘36 percent’’ for ‘‘28 percent’’. 1990—Pub. L. 101–508 struck out ‘‘(38.5 percent in the case of taxable years beginning in 1987)’’ after ‘‘28 per- cent’’. 1986—Pub. L. 99–514 substituted ‘‘28 percent (38.5 per- cent in the case of taxable years beginning in 1987)’’ for ‘‘50 percent’’. 1981—Pub. L. 97–34 substituted ‘‘50 percent’’ for ‘‘70 percent’’. 1964—Pub. L. 88–272 reduced the tax from 75 percent of undistributed income not in excess of $2,000, and 85 per- cent when in excess of $2,000, to 70 percent. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2013 AMENDMENT Amendment by Pub. L. 112–240 applicable to taxable years beginning after Dec. 31, 2012, see section 102(d)(1) of Pub. L. 112–240, set out as a note under section 1 of this title. EFFECTIVE DATE OF 2003 AMENDMENT Amendment by Pub. L. 108–27 applicable, except as otherwise provided, to taxable years beginning after Dec. 31, 2002, see section 302(f) of Pub. L. 108–27, set out as an Effective and Termination Dates of 2003 Amend- ment note under section 1 of this title. EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to taxable years beginning after Dec. 31, 2000, see section 101(d) of Pub. L. 107–16, set out as an Effective and Termination Dates of 2001 Amendment note under section 1 of this title. EFFECTIVE DATE OF 1993 AMENDMENT Amendment by Pub. L. 103–66 applicable to taxable years beginning after Dec. 31, 1992, see sections 13201(c) and 13202(c) of Pub. L. 103–66, set out as notes under sec- tion 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Amendment by Pub. L. 97–34 applicable to taxable years beginning after Dec. 31, 1981, see section 101(f)(1) of Pub. L. 97–34, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1964 AMENDMENT Amendment by Pub. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 225(l) of Pub. L. 88–272 set out as a note under section 316 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. § 542. Definition of personal holding company (a) General rule For purposes of this subtitle, the term ‘‘per- sonal holding company’’ means any corporation (other than a corporation described in sub- section (c)) if— (1) Adjusted ordinary gross income require- ment At least 60 percent of its adjusted ordinary gross income (as defined in section 543(b)(2)) for the taxable year is personal holding com- pany income (as defined in section 543(a)), and (2) Stock ownership requirement At any time during the last half of the tax- able year more than 50 percent in value of its outstanding stock is owned, directly or indi- rectly, by or for not more than 5 individuals. For purposes of this paragraph, an organiza- tion described in section 401(a), 501(c)(17), or 509(a) or a portion of a trust permanently set aside or to be used exclusively for the purposes described in section 642(c) or a corresponding provision of a prior income tax law shall be considered an individual. (b) Corporations filing consolidated returns (1) General rule In the case of an affiliated group of corpora- tions filing or required to file a consolidated