C.F.R. » Title 26 » CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY › SUBCHAPTER A—INCOME TAX › PART 1—INCOME TAXES

26 C.F.R. § 1.534-2

Burden of proof as to unreasonable accumulations in cases before the Tax Court

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(a) Burden of proof on Commissioner. Under the general rule provided in section 534(a), in any proceeding before the Tax Court involving a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business, the burden of proof with respect to such allegation is upon the Commissioner if:

(1) A notification, as provided for in section 534(b) and paragraph (c) of this section, has not been sent to the taxpayer; or

(2) A notification, as provided for in section 534(b) and paragraph (c) of this section, has been sent to the taxpayer and, in response to such notification, the taxpayer has submitted a statement, as provided in section 534(c) and paragraph (d) of this section, setting forth the ground or grounds (together with facts sufficient to show the basis thereof) on which it relies to establish that all or any part of its earnings and profits have not been permitted to accumulate beyond the reasonable needs of the business. However, the burden of proof in the latter case is upon the Commissioner only with respect to the relevant ground or grounds set forth in the statement submitted by the taxpayer, and only if such ground or grounds are supported by facts (contained in the statement) sufficient to show the basis thereof.

(b) Burden of proof on the taxpayer. The burden of proof in a Tax Court proceeding with respect to an allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business is upon the taxpayer if:

(1) A notification, as provided for in section 534(b) and paragraph (c) of this section, has been sent to the taxpayer and the taxpayer has not submitted a statement, in response to such notification, as provided in section 534(c) and paragraph (d) of this section; or

(2) A statement has been submitted by the taxpayer in response to such notification, but the ground or grounds on which the taxpayer relies are not relevant to the allegation or, if relevant, the statement does not contain facts sufficient to show the basis thereof.

(c) Notification to the taxpayer. Under section 534(b) a notification informing the taxpayer that the proposed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by section 531 may be sent by registered mail (or by certified or registered mail, if the notification is mailed after September 2, 1958) to the taxpayer at any time before the mailing of the notice of deficiency in the case of a taxable year beginning after December 31, 1953, and ending after August 16, 1954. See § 1.534-4 for rules relating to taxable years subject to the Internal Revenue Code of 1939. See section 534(d) and § 1.534-3 with respect to a notification in the case of a jeopardy assessment.

(d) Statement by taxpayer. (1) A taxpayer who has received a notification, as provided in section 534(b) and paragraph (c) of this section, that the proposed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by section 531, may, under section 534(c), submit a statement that all or any part of the earnings and profits of the corporation have not been permitted to accumulate beyond the reasonable needs of the business. Such statement shall set forth the ground or grounds (together with facts sufficient to show the basis thereof) on which the taxpayer relies to establish that there has been no accumulation of earnings and profits beyond the reasonable needs of the business. See paragraphs (a) and (b) of this section for rules concerning the effect of the statement with respect to burden of proof. See §§ 1.537-1 to 1.537-3, inclusive, relating to reasonable needs of the business.

(2) The taxpayer's statement, under section 534(c) and this paragraph, must be submitted to the Internal Revenue office which issued the notification (referred to in section 534(b) and paragraph (c) of this section) within 60 days after the mailing of such notification. If the taxpayer is unable, for good cause, to submit the statement within such 60-day period, an additional period not exceeding 30 days may be granted upon receipt in the Internal Revenue office concerned (before the expiration of the 60-day period provided herein) of a request from the taxpayer, setting forth the reasons for such request. See section 534(d) and § 1.534-3 with respect to a statement in the case of a jeopardy assessment.

Notes of Decisions
Cited in 19 cases, 1969–1998 · leading case: Manson W. Corp. v. Comm'r, 76 T.C. 1161 (Tax Ct. 1981).
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Manson W. Corp. v. Comm'r, 76 T.C. 1161 (Tax Ct. 1981). · cites it 4× “Petitioner argues that the response contemplated by section 534(c) is intended to allow a taxpayer to apprise respondent of reasons and supporting facts sufficient to undermine the wisdom of issuing a notice of deficiency.”
Gustafson's Dairy v. Comm'r, 69 T.C.M. 1639 (Tax Ct. 1995). · cites it 6× “The burden of proof remains on the taxpayer if the taxpayer has not submitted a section 534(c) statement or a statement has been submitted but the ground or grounds on which the taxpayer relies are not relevant to the allegation or, if relevant, the statement does not contain…”
Ready Paving & Constr. Co. v. Comm'r, 61 T.C. 826 (Tax Ct. 1974). · cites it 4× “-- For purposes of this part, the term "reasonable needs of the business" includes -- (1) the reasonably anticipated needs of the business, ↩ 6.”
Proctor v. Comm'r, 42 T.C.M. 725 (Tax Ct. 1981). · cites it 2× “Therefore, we give no weight to the statements contained in these documents. ↩ 6. We based our determination on Chattanooga Products' failure to include in its section 534(c) statement facts sufficient to show the basis for the grounds relied on therein as required by section 1.”
Herzog Miniature Lamp Works, Inc. v. Comm'r of Internal Revenue, 481 F.2d 857 (2d Cir. 1973). “534-2(b) (2) ( 26 C.F.R. § 1.534-2 (b)(2)). We find no error in the Tax Court’s ruling that taxpayer’s statement, quoted supra, was too broad and general in scope so as to shift the burden to the Commission.”
Bohac Agency, Inc. v. Comm'r, 30 T.C.M. 979 (Tax Ct. 1971). · cites it 4× “The Commissioner sends said notification to the taxpayer and the taxpayer responds by submitting a statement to the Service (within 60 days or 90 days if an extension was granted) setting forth the ground or grounds (together with sufficient facts to show the basis thereof) on…”
Petrozello Co. v. Comm'r, 46 T.C.M. 63 (Tax Ct. 1983). · cites it 2× “7 The only explicit requirements of section 534(c) are a statement of the grounds for the accumulation and "facts sufficient to show the basis thereof.”
Edward B. Wolf, Inc. v. Comm'r, 54 T.C.M. 1053 (Tax Ct. 1987). · cites it 2× “Commissioner, T.C. Memo. 1986-407 ↩ . 4.”
Myco Indus. v. Comm'r, 98 T.C. 270 (Tax Ct. 1992). · cites it 2× “That is less than the 30 days in excess of the statutory minimum period the Secretary has allowed by regulation for submission of 534(c) statements.”
Zeeman Mfg. Co. v. Comm'r, 1997 T.C. Memo. 322 (Tax Ct. 1997). · cites it 8× “534-2(a) (2), Income Tax Regs. ] The burden of proof remains on the taxpayer, inter alia, if the taxpayer submits a statement "but the ground or grounds on which the taxpayer relies are not relevant to the allegation or, if relevant, the statement does not contain facts…”
California Marine Cleaning v. Comm'r, 1998 T.C. Memo. 311 (Tax Ct. 1998). · cites it 2× “Petitioner had 60 days to file a section 534(c) statement.”
Yates Petroleum Corp. v. Comm'r, 63 T.C.M. 2347 (Tax Ct. 1992). · cites it 2× “If petitioner's statement with respect to a particular ground provides support for petitioner's assertion that some accumulation was reasonable, but fails to provide sufficient facts to support the full amount of the accumulation, then we will impose the burden of proof on…”
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