Definition of aet
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Definition of AET. Penalty tax to compel corps to distribute profits not needed for conduct of its business Tax at highest individual tax rate on dividends (15%) S/h must have tax-avoidance motive to avoid receipt of dividends Usually applies to closely held corps. Evidence of Tax Avoidance.

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Definition of aet
Definition of AET

  • Penalty tax to compel corps to distribute profits not needed for conduct of its business

    • Tax at highest individual tax rate on dividends (15%)

  • S/h must have tax-avoidance motive to avoid receipt of dividends

  • Usually applies to closely held corps


Evidence of tax avoidance
Evidence of Tax Avoidance

Large liquid asset build up (+ high E&P)

Loans to shareholders

Corporate funds spent for personal benefit of shareholders

Loans to a brother/sister corp

Investments unrelated to corp’s business

Protection against unrealistic hazards


Evidence of reasonable needs
Evidence of Reasonable Needs

Expansion or replacement of facilities

Acquisition of a business enterprise

Debt retirement

Working capital - Bardahl formula

Loans to suppliers or customers

Product liability losses

Stock redemptions

Business contingencies


Aet liability 1 of 2
AET Liability(1 of 2)

15% of AE taxable income

Issue usually raised one or more years after tax year in question

Once determined, liability cannot be reduced by deficiency dividend

Dividends actually paid during tax year reduce AETI

AEC available but subject to phaseout


Aet liability 2 of 2
AET Liability(2 of 2)

Taxable income

+ Positive adjustments

DRD, NOL, charitable contrib. c/o, capital loss carryover

- Negative adjustments

Accrued US/foreign inc. taxes, excess net cap. loss, charitable contrib., after-tax cap. gain

- Dividends-paid deduction

- Accumulated earnings credit (See Ex C:5-21)

= Accumulated taxable income


Compliance and procedural considerations
Compliance and Procedural Considerations

  • Accumulated earnings tax

    • No schedule or return









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