Tax on unappropriated earnings

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Subject Author Date Tax on unappropriated earnings removeps-groups@yahoo.com 04-02-2009   Re: Tax on unappropriated earnings Steve Pope 04-02-2009  Re: Tax on unappropriated earnings removeps-groups@yahoo.com 04-03-2009  Re: Tax on unappropriated earnings Harlan Lunsford 04-03-2009   Re: Tax on unappropriated earnings Steve Pope 04-04-2009  Re: Tax on unappropriated earnings Gene E. Utterback, EA, RF... 04-06-2009  Re: Tax on unappropriated earnings Harlan Lunsford 04-06-2009  Re: Tax on unappropriated earnings Gene E. Utterback, EA, RF... 04-07-2009  Re: Tax on unappropriated earnings Drew Edmundson 04-08-2009
Posted by removeps-groups@yahoo.com on April 2, 2009, 12:10 pm Please log in for more thread options Tax on unappropriated earnings Recently I learned that there is a 15% tax on unappropriated earnings in excess of $250,000 for a C Corp. Is the tax cumulitive? Suppose in the year N the company has 260k of unappropriated earnings. So they have to pay tax on 10k. Suppose next year they add 20k of unappropriated earnings. The retained earnings - unappropriated says 280k now, right? Do they pay tax on 30k or just the new 20k? Second, why would any C corp have unaccumulated earnings in the first place? They could always say the money is appropriated for acquisitions, building a new factory, although they can change their mind later. Do any companies actually pay this (in my opinion ridiculous) tax? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Steve Pope on April 2, 2009, 12:50 pm Please log in for more thread options >Tax on unappropriated earnings >Recently I learned that there is a 15% tax on unappropriated earnings >in excess of $250,000 for a C Corp. >Is the tax cumulitive? Suppose in the year N the company has 260k of >unappropriated earnings. So they have to pay tax on 10k. Suppose >next year they add 20k of unappropriated earnings. The retained >earnings - unappropriated says 280k now, right? Do they pay tax on >30k or just the new 20k? >Second, why would any C corp have unaccumulated earnings in the first >place? They could always say the money is appropriated for >acquisitions, building a new factory, although they can change their >mind later. Do any companies actually pay this (in my opinion >ridiculous) tax? There are two corporate taxes, and you may be liable for one or the other. The first is the personal holding company tax, the second the accumulated earnings tax, which is probably what you are talking about. If you're not liable for PHC, you might be liable for AE tax depending upon facts and circumstances. You can use the above arguments but they are strongest if they are backed up with a record of actions (business plans, covenants with lenders limiting dividends, etc.) Like AMT, the PHC and AE taxes can kick in when you haven't otherwise paid enough tax. PHC and AE are both designed to inhibit taxpayers from placing either investments or businesses into a corporation and just letting them accumulate money. Steve -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by removeps-groups@yahoo.com on April 3, 2009, 12:14 pm Please log in for more thread options On Apr 2, 9:50 am, spop...@speedymail.org (Steve Pope) wrote: > PHC and AE are both designed to inhibit taxpayers from placing > either investments or businesses into a corporation and > just letting them accumulate money. This does not make sense to me. Tax will be paid when the money is finally distributed on a 1099-DIV. Besides the 250k of unappropriated earnings might have already been taxed at 35% or more. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Harlan Lunsford on April 3, 2009, 9:46 pm Please log in for more thread options removeps-groups@yahoo.com wrote: > On Apr 2, 9:50 am, spop...@speedymail.org (Steve Pope) wrote: > >> PHC and AE are both designed to inhibit taxpayers from placing >> either investments or businesses into a corporation and >> just letting them accumulate money. > > This does not make sense to me. Tax will be paid when the money is > finally distributed on a 1099-DIV. Besides the 250k of unappropriated > earnings might have already been taxed at 35% or more. > Then take pen and paper in hand and write your congressman. The original intent was to deter owners from unreasonably accumulating capital and the arbitrary cap of 250,000$ was written into the law. I've not heard of IRS going after such cases in recent years, but time was when every well managed corporation had a dusty copy in the president's desk of a well thought out plan for expansion to justify the accumulated capital yet to be utilized. ChEAr$, Harlan Lunsford, EA n LA -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Steve Pope on April 4, 2009, 2:27 pm Please log in for more thread options >On Apr 2, 9:50 am, spop...@speedymail.org (Steve Pope) wrote: >> PHC and AE are both designed to inhibit taxpayers from placing >> either investments or businesses into a corporation and >> just letting them accumulate money. >This does not make sense to me. Tax will be paid when the money is >finally distributed on a 1099-DIV. Besides the 250k of unappropriated >earnings might have already been taxed at 35% or more. They were put into action back when corporate tax rates were lower and individual tax rates were higher, so they sort-of made more sense then. In any case, the government wants the tax it is losing by corporations not making dividends. Steve -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted 529 Earnings February 16, 2010, 9:26 am K-1 and "self employment earnings" February 24, 2008, 8:00 pm For SSI purposes what are "earnings" September 23, 2008, 12:59 pm Retained Earnings Distribution ? March 27, 2008, 4:45 pm Reporting earnings on excess 401(k) deferral January 21, 2007, 4:37 pm Co-mingled Roth - distribution of earnings? April 30, 2007, 11:22 am Canadian Stock Earnings, How Reported? 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