Which of the following is descriptive of the accumulated earnings tax?
A) The tax rate may not be the same as the tax rate on qualified dividends.
B) For a closely held corporation that generates substantial earnings and never pays dividends, the tax cannot be avoided.
C) The tax applies to both C corporations and S corporations.
D) Only a. and b. are correct.
E) a., b., and c. are correct.

Question

Quizplus · Accepted Answer

The accumulated earnings tax is a penalty tax imposed on C corporations that retain earnings beyond reasonable business needs to avoid paying dividends. The tax rate may differ from the rate on qualified dividends. It does not apply to S corporations.

Which of the Following Is Descriptive of the Accumulated Earnings