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Title 26 — Internal Revenue CodeRelease 119-73

§532 Corporations subject to accumulated earnings tax

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter G— - Corporations Used to Avoid Income Tax on Shareholders › Part PART I— - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS › § 532

Last updated Apr 6, 2026|Official source

Summary

A special tax applies to any corporation set up or used to dodge income tax on its shareholders by keeping earnings instead of paying them out. The tax does not apply to personal holding companies, corporations that are tax-exempt under the federal rules for exempt organizations, or passive foreign investment companies. The number of shareholders does not matter.

Full Legal Text

Title 26, §532

Internal Revenue Code — Source: USLM XML via OLRC

(a)The accumulated earnings tax imposed by section 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed.
(b)The accumulated earnings tax imposed by section 531 shall not apply to—
(1)a personal holding company (as defined in section 542),
(2)a corporation exempt from tax under subchapter F (section 501 and following), or
(3)a passive foreign investment company (as defined in section 1297).
(c)The application of this part to a corporation shall be determined without regard to the number of shareholders of such corporation.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2005—Subsec. (b)(2) to (4). Pub. L. 109–135 redesignated pars. (3) and (4) as (2) and (3), respectively, and struck out former par. (2) which read as follow: “a foreign personal holding company (as defined in section 552),”. 1997—Subsec. (b)(4). Pub. L. 105–34 substituted “section 1297” for “section 1296”. 1986—Subsec. (b)(4). Pub. L. 99–514 added par. (4). 1984—Subsec. (c). Pub. L. 98–369 added subsec. (c).

Statutory Notes and Related Subsidiaries

Effective Date

of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

Effective Date

of 1997 Amendment Pub. L. 105–34, title XI, § 1124, Aug. 5, 1997, 111 Stat. 978, provided that: “The

Amendments

made by this subtitle [subtitle C (§§ 1121–1124) of title XI of Pub. L. 105–34, enacting section 1296 of this title, amending this section and section 542, 551, 852, 1291, 1293, 1296 to 1298, and 4982 of this title, redesignating subpart C of part VI of subchapter P of this chapter as subpart D of part VI of subchapter P of this chapter, and renumbering section 1296 and 1297 of this title as section 1297 and 1298, respectively, of this title] shall apply to— “(1) taxable years of United States persons beginning after December 31, 1997, and “(2) taxable years of foreign corporations ending with or within such taxable years of United States persons.”

Effective Date

of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to taxable years of foreign corporations beginning after Dec. 31, 1986, see section 1235(h) of Pub. L. 99–514, set out as an

Effective Date

note under section 1291 of this title.

Effective Date

of 1984 Amendment Pub. L. 98–369, div. A, title I, § 58(c), July 18, 1984, 98 Stat. 576, provided that: “The

Amendments

made by this section [amending this section and section 535 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [July 18, 1984].”

Reference

Citations & Metadata

Citation

26 U.S.C. § 532

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73