During a Recent IRS Audit, the Revenue Agent Decided That

question 32

Multiple Choice

During a recent IRS audit, the revenue agent decided that Roger used his closely-held corporation, Dodger Inc., to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Dodger's taxable income for the year was $500,000 and it paid no dividends. Compute Dodger's accumulated earnings tax, assuming that it had accumulated $130,000 after-tax income in prior years.

• A) $75,000
• B) $94,500
• C) $57,000
• D) $37,500

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Definitions:

Investee

A company or entity in which an investor holds an interest, typically through ownership of shares.

Acquisition Cost

The total cost associated with acquiring an asset or investment, including the purchase price and all related expenses.

Due Diligence Fees

Costs associated with the research and analysis conducted before entering into an agreement or transaction.

Fair Value

The financial gain on unloading an asset or the financial duty to convey a liability in a coordinated market activity at the established valuation date.