Sunny Daze, Inc., a publicly held company, has $9,000,000 of retained earnings and no financial justification for retaining the earnings. Therefore, it must calculate and pay an accumulated earnings tax on its annual corporate tax return.

Question

Quizplus · Accepted Answer

The statement is incorrect. An accumulated earnings tax is only imposed on corporations that retain earnings without a reasonable business purpose, such as to avoid taxation. If Sunny Daze, Inc. has no financial justification for retaining the earnings, it can distribute them as dividends without incurring any additional tax liabilities.