Accumulated earnings tax
6.1 Allocation of income under section 482.
The accumulated taxable income of a corporation
is increased by an allocation of income under sec-
tion 482 when the transaction causing the alloca-
tion is determined to have been made for the pur-
pose of avoiding tax. §§1.482-1, 1.531-1,
1.532-1, 1.533-1, 1.535-1, 1.535-3. (Secs. 482,
531, 532, 533, 535; ’86 Code.)
Rev. Rul. 78-430, 1978-2 C.B. 181.
6.2 Business purposes. The corporate taxpayer
operated bars in a gambling establishment owned
by others, and expended or committed itself to
spend money for old west memorabilia used for
advertising, a liquor supply in anticipation of a
shortage, and an option on a 1/2 interest in the
establishment which otherwise might have fallen
into unfriendly hands. Held, earnings were accu-
mulated for business purposes, not to prevent
imposition of the accumulated earnings tax, (Sec.
102, ’39 Code; Sec. 531, ’86 Code.)
Raymond I. Smith, Inc., 33 T.C, 141, Acq.,
1960-2 C.B. 7.
6.3 Computation of earnings and profits; dis-
tribution in redemption of stock. Increases in
accumulated earnings and profits of a corporation
for a taxable year ending on or before December
31, 1970, resulting solely from the retroactive
application of Rev. Rul. 70-531, relating to the
computation of earnings and profits available for
distribution upon redemption of stock, will be dis-
regarded for purposes of the accumulated earnings
tax, Increases in the taxable portion of distribu-
tions received by shareholders prior to October 19,
1970, will be disregarded to the extent such
increases result in adverse tax consequences. The
disregarded portion reduces the adjusted basis of
the shareholder’s stock. Rev. Rul. 70–531 modi-
fied. §§l.312–l, 1.531–1, 301.7805–1. (Secs.
312, 531, 7805; ’86 Code.)
Rev. Rul. 73-550, 1973-2 C.B. 108.
6.4 Corporate developer of realty. Taxpayer
was engaged in the business of acquiring undevel-
oped real estate, arranging for the construction and
leasing of improvements thereon, and maintaining