Surtax /IAET

Penalty tax 10% of the improperly
Improperly accumulated accumulated profits
profits tax every TY (CY/FY)
Additional tax to the R/NCIT

Effectivity: Starting January 1, 1998 accumulated profits

Corp. Covered: Every domestic corporation formed or availed for the purpose of avoiding the imposition of income tax to its stockholders or stockholders of other corporation by permitting its profits to accumulate instead of being distributed.

Presumption or evidence of avoiding the payment of income tax to stockholders:

  • is a mere holding Co.
  • is an investment Co.
  • Profits of the corp. are permitted to accumulate beyond the reasonable needs of the business.
  • Closely-held corp. (family corp.)

Circumstances indicative of improper accumulation of profits:

  1. Withdrawals by stockholders disguised as loans.
  2. Expenditures by the corp. for the personal benefit of the stockholders.
  3. Yearly substantial advances made to stockholders-officers.
  4. Investments in unrelated business.
  5. Radical change of business when large profits have been accumulated.

Circumstances considered proper accumulation of profits:

  • Additional working capital purposes.
  • Purchase of long-life assets reasonably required by the business.
  • Obligation in a contract to set aside funds in a sinking fund to settle debt.

Improperly accumulated taxable profits:

  1. After tax net income
  2. Net operating loss carry-over deducted
  3. Income subject to final tax (net)
  4. Income exempt from income tax
  5. Income excluded from gross income
  6. Reduced by dividends actually or constructively paid

Exempt corporations: (I-PNB)

  • Insurance companies
  • Publicly-held corporations
  • Non-bank financial intermediaries
  • Banks

I would like to invite you to join my Facebook exclusive groups of aspiring CPA for my upcoming project “CPA DREAM ACADEMY ” or sign up for flashcards free

CPA Mentor,



About Jonathan Ruiz CPA

Entrepreneur, CPA Mentor, Stock market Newbie Mentor, Influential Author and Master's Degree in International Business graduate in Hult International Business School, UK. A father of two lovely daughters.
This entry was posted in Taxation and tagged , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s