A retail hardware store was organized on January 1, 2010. Its taxable income in the first year is $300,000. It makes no distribution to its shareholders during that year of during the first 2.5 months of the 2nd year. The only adjustments to taxable income for purposes of the accumulated earnings tax if for federal income taxes paid on its taxable income.
1. Will the corporation be subject to the accumulated earnings tax for the first year?
2. Assuming that the corporation has the same taxable income the 2nd year and that it makes no distributions during the 2nd year or the first 2.5 months of the 3rd year, will it be subject to the accumulated earnings tax for the 2nd year?
3. If the corporation has distributed $115,000 to shareholders in its first year of existence and nothing in the 2nd year, would it be subject to the accumulated earnings tax for the 2nd year?