Cave Corporation,a calendar year taxpayer,has a beginning balance in accumulated E & P of $3.5 million and current earnings of $1 million.If Cave can justify accumulations for the needs of the business of $3.7 million,its accumulated earnings credit for ATI purposes is:

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The accumulated earnings credit for ATI purposes is the lesser of the current earnings or the amount justified as necessary for the business (not to exceed the beginning balance of accumulated E&P). In this case, the lesser of $1 million and $3.7 million is $1 million. However, since the beginning balance of accumulated E&P is $3.5 million, the accumulated earnings credit cannot exceed $200,000 ($3.5 million + $200,000 = $3.7 million, which is the maximum amount that can be justified). Therefore, the accumulated earnings credit for ATI purposes is $200,000.

Cave Corporation,a Calendar Year Taxpayer,has a Beginning Balance in Accumulated