[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.534-2]

[Page 244-245]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.534-2  Burden of proof as to unreasonable accumulations in cases 
before the Tax Court.

    (a) Burden of proof on Commissioner. Under the general rule provided 
in section 534(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 is upon the Commissioner if:
    (1) A notification, as provided for in section 534(b) and paragraph 
(c) of this section, has not been sent to the taxpayer; or
    (2) A notification, as provided for in section 534(b) and paragraph 
(c) of this section, has been sent to the taxpayer and, in response to 
such notification, the taxpayer has submitted a statement, as provided 
in section 534(c) and paragraph (d) of this section, setting forth the 
ground or grounds (together with facts sufficient to show the basis 
thereof) on which it relies to establish that all or any part of its 
earnings and profits have not been permitted to accumulate beyond the 
reasonable needs of the business. However, the burden of proof in the 
latter case is upon the Commissioner only with respect to the relevant 
ground or grounds set forth in the statement submitted by the taxpayer, 
and only if such ground or grounds are supported by facts (contained in 
the statement) sufficient to show the basis thereof.
    (b) Burden of proof on the taxpayer. The burden of proof in a Tax 
Court proceeding with respect to an allegation that all or any part of 
the earnings and profits have been permitted to accumulate beyond the 
reasonable needs of the business is upon the taxpayer if:
    (1) A notification, as provided for in section 534(b) and paragraph 
(c) of this section, has been sent to the taxpayer and the taxpayer has 
not submitted a statement, in response to such notification, as provided 
in section 534(c) and paragraph (d) of this section; or
    (2) A statement has been submitted by the taxpayer in response to 
such notification, but the ground or grounds on which the taxpayer 
relies are not relevant to the allegation or, if relevant, the statement 
does not contain facts sufficient to show the basis thereof.
    (c) Notification to the taxpayer. Under section 534(b) a 
notification informing the taxpayer that the proposed notice of 
deficiency includes an amount with

[[Page 245]]

respect to the accumulated earnings tax imposed by section 531 may be 
sent by registered mail (or by certified or registered mail, if the 
notification is mailed after September 2, 1958) to the taxpayer at any 
time before the mailing of the notice of deficiency in the case of a 
taxable year beginning after December 31, 1953, and ending after August 
16, 1954. See Sec. 1.534-4 for rules relating to taxable years subject 
to the Internal Revenue Code of 1939. See section 534(d) and Sec. 
1.534-3 with respect to a notification in the case of a jeopardy 
assessment.
    (d) Statement by taxpayer. (1) A taxpayer who has received a 
notification, as provided in section 534(b) and paragraph (c) of this 
section, that the proposed notice of deficiency includes an amount with 
respect to the accumulated earnings tax imposed by section 531, may, 
under section 534(c), submit a statement that all or any part of the 
earnings and profits of the corporation have not been permitted to 
accumulate beyond the reasonable needs of the business. Such statement 
shall set forth the ground or grounds (together with facts sufficient to 
show the basis thereof) on which the taxpayer relies to establish that 
there has been no accumulation of earnings and profits beyond the 
reasonable needs of the business. See paragraphs (a) and (b) of this 
section for rules concerning the effect of the statement with respect to 
burden of proof. See Sec. Sec. 1.537-1 to 1.537-3, inclusive, relating 
to reasonable needs of the business.
    (2) The taxpayer's statement, under section 534(c) and this 
paragraph, must be submitted to the Internal Revenue office which issued 
the notification (referred to in section 534(b) and paragraph (c) of 
this section) within 60 days after the mailing of such notification. If 
the taxpayer is unable, for good cause, to submit the statement within 
such 60-day period, an additional period not exceeding 30 days may be 
granted upon receipt in the Internal Revenue office concerned (before 
the expiration of the 60-day period provided herein) of a request from 
the taxpayer, setting forth the reasons for such request. See section 
534(d) and Sec. 1.534-3 with respect to a statement in the case of a 
jeopardy assessment.