Court decisions have found the reasonable possibility of business reversals to be justification for not imposing the accumulation of earnings penalty tax.

Question

Quizplus · Accepted Answer

This is a true statement. Courts have recognized that there are legitimate reasons for businesses to accumulate earnings to prepare for potential business reversals. Therefore, if a business can demonstrate that there was a reasonable possibility of a business reversal and that its accumulation of earnings was related to that possibility, it may avoid the accumulation of earnings penalty tax.

Court Decisions Have Found the Reasonable Possibility of Business Reversals