Lately I've been reading about the "jobless recovery". I've also read about fairly stagnant GDP growth. At the same time, many publicly traded companies are reporting surprisingly high earnings. I won't mention any names, but you don't have to read much stock market blather to find many examples.
The obvious question is; with good corporate earnings, why isn't there more growth? The answer I am reading to this question is that corporations are "sitting" on cash, waiting for clues about future tax rates, possible climate legislation, the implementation of health care reform, etc. I have not bothered to document the above. If I'm wrong then never mind. If you agree, let me tell you about the tax in waiting.
During the great depression, a similar phenomenon occurred. The federal government noticed that certain corporation were paying little or no dividends in spite of adequate cash positions. The corporations (and their shareholders) were accused of avoiding the increased income tax rates on dividends.
The response in the 1930's was the accumulated earnings tax. Here's a brief description:
http://www.legalmatch.com/...
For those of you having trouble sleeping, here is the actual statute (IRC Sections 531-537)
http://www.law.cornell.edu/...
In simple terms, the tax is imposed on "accumulated taxable income". That is defined as taxable income reduced by among other things, "reasonable business needs". As you can imagine, this gets kinda subjective.
Early in my career, this was a topic of some concern. I never actually dealt with a case, but it was "out there". Since the high-rolling days of the 90's and 00's, companies have been busy buying each other, and "lean business practices" have minimized cash and other liquid asset accumulations. The accumulated earnings tax faded, certainly off of my radar. The current situation described in the intro above woke up these echos in my addled brain. I believe that cash-rich corporations are very aware of this, and will be doing some "window dressing" in the area of "reasonable business needs".
The US Tax Court laid out a "formula" for part of "reasonable business needs" in Bardahl Manufacturing Corp v. Commissioner, 24 TCM 1030 (1965) .
My point? Here is a tax that has already been enacted that under current circumstances might be receiving increased scrutiny by a hungry US Treasury. If the Treasury indeed decides to increase it's efforts in collecting this tax, and if you are an accountant, a lawyer, or a finance professional there may be some additional work available soon.