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TITLE 26-INTERNAL REVENUE CODE PART I-CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS Sec. 531. Imposition of accumulated earnings tax. 532. Corporations subject to accumulated earnings tax. 533. Evidence of purpose to avoid income tax. 534. Burden of proof. 535. Accumulated taxable income. 536. Income not placed on annual basis. 537. Reasonable needs of the business. PART REFERuE TO IN OTHE SECTIONS This part is referred to in section 12 of this title. § 531. Imposition of accumulated earnings tax In addition to other taxes imposed by this chapter, there is hereby imposed for each tax- able year on the accumulated taxable income (as defined in section 535) of every corporation described in section 532, an accumulated earn- ings tax equal to the sum of- (1) 27V2 percent of the accumulated taxable income not in excess of $100,000, plus (2) 38V2 percent of the accumulated taxable income in excess of $100,000. (Aug. 16, 1954, ch. 736, 68A Stat. 179.) CROSS REFERENCES Adjustments for- Accumulated taxable income as excluding deduc- tion for tax imposed by this section, see section 535 of this title. Undistributed foreign personal holding company income as excluding deduction for tax imposed by this section, see section 556 of this title. Undistributed personal holding company income as excluding deduction for tax imposed by this section, see section 545 of this tit~e. Foreign tax credit disallowed for tax imposed by this section, see section 901 of this title. Notification by Secretary informing taxpayer that proposed notice of deficiency includes an amount with respect to tax imposed by this section, see section 534 of this title. Provisions for computation of tax on change of annual accounting period upon making returns for period less than 12 months as inapplicable in computa- tion of tax imposed by this section, see section 536 of this title. Recovery exclusion with respect to recovery of bad debts, prior taxes, and delinquency amounts, see sec- tion 111 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 12, 46, 50A, 56, 111, 532, 534, 535, 536, 545, 556, 563, 901 of this title; title 46 section 1177. § 532. Corporations subject to accumulated earnings tax (a) General rule The accumulated earnings tax imposed by section 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumu- late instead of being divided or distributed. (b) Exceptions The accumulated earnings tax imposed by section 531 shall not apply to- (1) a personal holding company (as defined in section 542), (2) a foreign personal holding company (as defined in section 552), or (3) a corporation exempt from tax under subchapter F (section 501 and following). (Aug. 16, 1954, ch. 736, 68A Stat. 179.) CRoss REFERENCES Construction reserve fund deposits under Merchant Marine Act of 1936 as not constituting accumulation of earnings or profits, see section 1161 of Title 46, Shipping. Evidence of purpose to avoid income tax, see section 533 of this title. SECTION REFERUEM TO IN OTHER SECTIONS This section is referred to in sections 531, 533 of this title. § 533. Evidence of purpose to avoid income tax (a) Unreasonable accumulation determinative of pur- pose For purposes of section 532, the fact that the earnings and profits of a corporation are per- mitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with re- spect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary. (b) Holding or investment company The fact that any corporation is a mere hold- ing or investment company shall be prima facie evidence of the purpose to avoid the income tax with respect to shareholders. (Aug. 16, 1954, ch. 736, 68A Stat. 179.) CROSS REFERENCEs Reasonable needs of the business, see section 537 of this title. § 534. Burden of proof (a) General rule In any proceeding before the Tax Court in- volving a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business, the burden of proof* with respect to such allegation shall- (1) if notification has not been sent in ac- cordance with subsection (b), be on the Secre- tary, or (2) if the taxpayer has submitted the state- ment described in subsection (c), be on the Secretary with respect to the grounds set forth in such statement in accordance with the provisions of such subsection. (b) Notification by Secretary Before mailing the notice of deficiency re- ferred to in subsection (a), the Secretary may send by certified mail or registered mail a noti- fication informing the taxpayer that the pro- posed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by section 531. (c) Statement by taxpayer Within such time (but not less than 30 days) after the mailing of the notification described in subsection (b) as the Secretary may prescribe by regulations, the taxpayer may submit a § 531 Page 404