Title 26, Internal Revenue CodeRelease 119-110

§533 Evidence of Purpose to Avoid Income Tax

Title 26 › 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 Sep 22, 2026|Official source

Summary

If a company lets its earnings build up more than the business reasonably needs, that is taken as proof the company is trying to help its shareholders avoid income tax, unless the company proves otherwise by a preponderance of the evidence. If a company is only a holding or investment company, that is treated as initial evidence that it aims to avoid shareholders’ income tax.

Full Legal Text

Title 26, §533

Internal Revenue Code, Source: USLM XML via OLRC

(a)Unreasonable accumulation determinative of purpose

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)Holding or investment company

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

Sep 22, 2026

Release point: 119-110