Which of the following is not a permissible reason for a regular corporation to accumulate earnings at the entity level and avoid the imposition of the accumulated earnings tax?
A) To construct a new plant facility in connection with expanding the corporation's business into a new geographic region
B) To accumulate a fund of cash with which to pay off long-term debt due in twenty years
C) To fund the development of a new product line
D) To invest in the stock of an unrelated company to take advantage of the dividends received deduction

Question

Quizplus · Accepted Answer

Accumulating earnings to invest in the stock of an unrelated company to take advantage of the dividends received deduction is not a permissible reason for a corporation to avoid the accumulated earnings tax. The IRS deems such investments to be passive activities and not related to the corporation's trade or business.

Which of the Following Is Not a Permissible Reason for a Regular