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Title 26 — Internal Revenue CodeRelease 119-73

§534 Burden of proof

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 › § 534

Last updated Apr 6, 2026|Official source

Summary

When the IRS says a company kept earnings longer than the business needed and sends a Tax Court notice about the accumulated earnings tax, the IRS normally must prove that claim in court. Before it mails the formal notice, the IRS may send a special certified or registered letter telling the taxpayer the notice will include the accumulated earnings tax. The taxpayer then has at least 30 days to send a written statement listing the reasons and facts showing the earnings were needed. If the taxpayer files that statement, the IRS must prove the specific points the taxpayer raised. If the IRS already made a jeopardy assessment before mailing the formal notice, the later notice that mentions the accumulated earnings tax counts as the special letter, and the taxpayer’s statement can be put in the Tax Court petition.

Full Legal Text

Title 26, §534

Internal Revenue Code — Source: USLM XML via OLRC

(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 shall—
(1)if notification has not been sent in accordance with subsection (b), be on the Secretary, or
(2)if the taxpayer has submitted the statement described in subsection (c), be on the Secretary with respect to the grounds set forth in such statement in accordance with the provisions of such subsection.
(b)Before mailing the notice of deficiency referred to in subsection (a), the Secretary may send by certified mail or registered mail 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.
(c)Within such time (but not less than 30 days) after the mailing of the notification described in subsection (b) as the Secretary may prescribe by regulations, the taxpayer may submit a statement of the grounds (together with facts sufficient to show the basis thereof) on which the taxpayer relies to establish that all or any part of the earnings and profits have not been permitted to accumulate beyond the reasonable needs of the business.
(d)If pursuant to section 6861(a) a jeopardy assessment is made before the mailing of the notice of deficiency referred to in subsection (a), for purposes of this section such notice of deficiency shall, to the extent that it informs the taxpayer that such deficiency includes the accumulated earnings tax imposed by section 531, constitute the notification described in subsection (b), and in that event the statement described in subsection (c) may be included in the taxpayer’s petition to the Tax Court.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (a)(1), (2). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (b). Pub. L. 94–455, §§ 1901(a)(73)(A), 1906(b)(13)(A), struck out “In the case of a notice of deficiency to which subsection (e)(2) applies and which is mailed on or before the 30th day after the date of enactment of this sentence, the notification referred to in the preceding sentence may be mailed at any time on or before such 30th day” after “section 531”, and “or his delegate” after “Secretary”. Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (e). Pub. L. 94–455, § 1901(a)(73)(B), struck out subsec. (e) relating to application of provisions of section. 1958—Subsec. (b). Pub. L. 85–866 inserted “certified mail or” before “registered mail”. 1955—Subsec. (b). Act Aug. 11, 1955, § 5, inserted second sentence relating to notice of deficiency to which subsec. (e)(2) applies. Subsec. (e). Act Aug. 11, 1955, § 4, permitted, in certain instances, application of this section to cases involving taxable years to which prior revenue laws apply.

Statutory Notes and Related Subsidiaries

Effective Date

of 1976 AmendmentAmendment by section 1901(a)(73) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date

of 1958 AmendmentAmendment by Pub. L. 85–866 applicable only if mailing occurred after Sept. 2, 1958, see section 89(d) of Pub. L. 85–866, set out as a note under section 7502 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 534

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73