Title 26 — Internal Revenue CodeRelease 119-73

§533 Evidence of Purpose to Avoid Income Tax

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter G— Corporations Used to Avoid Income Tax on Shareholders › Part I— CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS › § 533

Last updated Apr 6, 2026|Official source

Summary

If a corporation piles up earnings and profits beyond what its business reasonably needs, the law treats that as proof the company is trying to help its shareholders avoid income tax. The company can escape this conclusion only by proving otherwise with stronger evidence. A company that is just a holding or investment company is automatically presumed to have this tax-avoidance purpose.

Full Legal Text

Title 26, §533

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of section 532, the fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary.

(b)The fact that any corporation is a mere holding or investment company shall be prima facie evidence of the purpose to avoid the income tax with respect to shareholders.

Reference

Citations & Metadata

Citation

26 U.S.C. § 533

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73