1 / 13

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.

fadhila
Download Presentation

Definition of AET

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. Compliance and Procedural Considerations • Accumulated earnings tax • No schedule or return

  7. Problem C:5-58

  8. Problem C:5-58

  9. Problem C:5-58

  10. Problem C:5-62a

  11. Problem C:5-62a

  12. Problem C:5-62b

  13. Problem C:5-60

More Related