26 U.S.C. § 534 — Burden of proof

Page 1749 TITLE 26—INTERNAL REVENUE CODE § 534 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)(1) of Pub. L. 107–16, set out as an Effective and Termi- nation 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 1988 AMENDMENT Pub. L. 100–647, title I, § 1001(a)(2)(B), Nov. 10, 1988, 102 Stat. 3349, provided that: ‘‘The amendment made by subparagraph (A) [amending this section] shall apply to taxable years beginning after December 31, 1987. Such amendment shall not be treated as a change in a rate of tax for purposes of section 15 of the 1986 Code.’’ § 532. Corporations subject to accumulated earn- ings tax (a) General rule The accumulated earnings tax imposed by sec- tion 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the share- holders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. (b) Exceptions The accumulated earnings tax imposed by sec- tion 531 shall not apply to— (1) a personal holding company (as defined in section 542), (2) a corporation exempt from tax under sub- chapter F (section 501 and following), or (3) a passive foreign investment company (as defined in section 1297). (c) Application determined without regard to number of shareholders The application of this part to a corporation shall be determined without regard to the num- ber of shareholders of such corporation. (Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 98–369, div. A, title I, § 58(a), July 18, 1984, 98 Stat. 574; Pub. L. 99–514, title XII, § 1235(f)(1), Oct. 22, 1986, 100 Stat. 2575; Pub. L. 105–34, title XI, § 1122(d)(1), Aug. 5, 1997, 111 Stat. 977; Pub. L. 109–135, title IV, § 403(n)(1), Dec. 21, 2005, 119 Stat. 2626.) Editorial Notes AMENDMENTS 2005—Subsec. (b)(2) to (4). Pub. L. 109–135 redesignated pars. (3) and (4) as (2) and (3), respectively, and struck out former par. (2) which read as follow: ‘‘a foreign per- sonal holding company (as defined in section 552),’’. 1997—Subsec. (b)(4). Pub. L. 105–34 substituted ‘‘sec- tion 1297’’ for ‘‘section 1296’’. 1986—Subsec. (b)(4). Pub. L. 99–514 added par. (4). 1984—Subsec. (c). Pub. L. 98–369 added subsec. (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title XI, § 1124, Aug. 5, 1997, 111 Stat. 978, provided that: ‘‘The amendments made by this sub- title [subtitle C (§§ 1121–1124) of title XI of Pub. L. 105–34, enacting section 1296 of this title, amending this section and sections 542, 551, 852, 1291, 1293, 1296 to 1298, and 4982 of this title, redesignating subpart C of part VI of subchapter P of this chapter as subpart D of part VI of subchapter P of this chapter, and renumbering sec- tions 1296 and 1297 of this title as sections 1297 and 1298, respectively, of this title] shall apply to— ‘‘(1) taxable years of United States persons begin- ning after December 31, 1997, and ‘‘(2) taxable years of foreign corporations ending with or within such taxable years of United States persons.’’ EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years of foreign corporations beginning after Dec. 31, 1986, see section 1235(h) of Pub. L. 99–514, set out as an Effective Date note under section 1291 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 58(c), July 18, 1984, 98 Stat. 576, provided that: ‘‘The amendments made by this section [amending this section and section 535 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [July 18, 1984].’’ § 533. Evidence of purpose to avoid income tax (a) Unreasonable accumulation determinative of purpose For purposes of section 532, the fact that the earnings and profits of a corporation are per- mitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with re- spect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary. (b) Holding or investment company The fact that any corporation is a mere hold- ing or investment company shall be prima facie evidence of the purpose to avoid the income tax with respect to shareholders. (Aug. 16, 1954, ch. 736, 68A Stat. 179.) § 534. Burden of proof (a) General rule In any proceeding before the Tax Court involv- ing a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to ac- cumulate beyond the reasonable needs of the business, the burden of proof with respect to such allegation shall— Page 1750 TITLE 26—INTERNAL REVENUE CODE § 535 (1) if notification has not been sent in ac- cordance with subsection (b), be on the Sec- retary, or (2) if the taxpayer has submitted the state- ment described in subsection (c), be on the Secretary with respect to the grounds set forth in such statement in accordance with the provisions of such subsection. (b) Notification by Secretary Before mailing the notice of deficiency re- ferred to in subsection (a), the Secretary may send by certified mail or registered mail a noti- fication informing the taxpayer that the pro- posed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by section 531. (c) Statement by taxpayer Within such time (but not less than 30 days) after the mailing of the notification described in subsection (b) as the Secretary may prescribe by regulations, the taxpayer may submit a state- ment of the grounds (together with facts suffi- cient to show the basis thereof) on which the taxpayer relies to establish that all or any part of the earnings and profits have not been per- mitted to accumulate beyond the reasonable needs of the business. (d) Jeopardy assessment If pursuant to section 6861(a) a jeopardy as- sessment is made before the mailing of the no- tice of deficiency referred to in subsection (a), for purposes of this section such notice of defi- ciency shall, to the extent that it informs the taxpayer that such deficiency includes the accu- mulated earnings tax imposed by section 531, constitute the notification described in sub- section (b), and in that event the statement de- scribed in subsection (c) may be included in the taxpayer’s petition to the Tax Court. (Aug. 16, 1954, ch. 736, 68A Stat. 180; Aug. 11, 1955, ch. 805, §§ 4, 5, 69 Stat. 690, 691; Pub. L. 85–866, title I, § 89(b), Sept. 2, 1958, 72 Stat. 1665; Pub. L. 94–455, title XIX, §§ 1901(a)(73), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834.) Editorial Notes AMENDMENTS 1976—Subsec. (a)(1), (2). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (b). Pub. L. 94–455, §§ 1901(a)(73)(A), 1906(b)(13)(A), struck out ‘‘In the case of a notice of de- ficiency to which subsection (e)(2) applies and which is mailed on or before the 30th day after the date of enact- ment of this sentence, the notification referred to in the preceding sentence may be mailed at any time on or before such 30th day’’ after ‘‘section 531’’, and ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (e). Pub. L. 94–455, § 1901(a)(73)(B), struck out subsec. (e) relating to application of provisions of sec- tion. 1958—Subsec. (b). Pub. L. 85–866 inserted ‘‘certified mail or’’ before ‘‘registered mail’’. 1955—Subsec. (b). Act Aug. 11, 1955, § 5, inserted sec- ond sentence relating to notice of deficiency to which subsec. (e)(2) applies. Subsec. (e). Act Aug. 11, 1955, § 4, permitted, in certain instances, application of this section to cases involving taxable years to which prior revenue laws apply. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(73) of Pub. L. 94–455 ap- plicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable only if mail- ing occurred after Sept. 2, 1958, see section 89(d) of Pub. L. 85–866, set out as a note under section 7502 of this title. § 535. Accumulated taxable income (a) Definition For purposes of this subtitle, the term ‘‘accu- mulated taxable income’’ means the taxable in- come, adjusted in the manner provided in sub- section (b), minus the sum of the dividends paid deduction (as defined in section 561) and the ac- cumulated earnings credit (as defined in sub- section (c)). (b) Adjustments to taxable income For purposes of subsection (a), taxable income shall be adjusted as follows: (1) Taxes There shall be allowed as a deduction Fed- eral income and excess profits taxes and in- come, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section 275(a)(4)), accrued during the taxable year or deemed to be paid by a domestic corporation under section 960 for the taxable year, but not including the ac- cumulated earnings tax imposed by section 531 or the personal holding company tax imposed by section 541. (2) Charitable contributions The deduction for charitable contributions provided under section 170 shall be allowed without regard to section 170(b)(2). (3) Special deductions disallowed The special deductions for corporations pro- vided in part VIII (except section 248) of sub- chapter B (section 241 and following, relating to the deduction for dividends received by cor- porations, etc.) shall not be allowed. (4) Net operating loss The net operating loss deduction provided in section 172 shall not be allowed. (5) Capital losses (A) In general Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)). (B) Recapture of previous deductions for capital gains The aggregate amount allowable as a de- duction under subparagraph (A) for any tax- able year shall be reduced by the lesser of— (i) the nonrecaptured capital gains de- ductions, or