Howard Corporation conducts a manufacturing business and has a compelling need to accumulate earnings. Its January 1, E&P balance is $600,000. It reports the following operating results for the current year:
Taxable income ………………………………………….. $700,000
Federal income taxes …………………………………….. 238,000
Dividends paid: July 15 of the current year ……………. 50,000
February 10 of the following year ………………………… 100,000
Other information relating to Howard’s current year operations is as follows:
NOL carryover from last year deducted in the current year ……………… $100,000
Net capital gain ……………………………………………………………. 100,000
Dividends received from 10%-owned domestic corporation …………….. 75,000
Current year E&P before dividend payments is $400,000. Howard can justify the retention of $120,000 of current E&P to meet the reasonable needs of its business.
a. What is Howard’s accumulated taxable income?
b. What is Howard’s accumulated earnings tax liability?