Raymond I. Smith, Inc. v. Commissioner of Internal Revenue

The Commissioner of Internal Revenue gave Raymond I. Smith, Inc., notice of his determination that there were deficiencies in the taxpayer’s income and excess profits taxes for the years 1950, 1952, 1953 and 1954. The company petioned the Tax Court for a redetermination of the deficiencies. Prior to trial the parties settled by stipulation all claimed deficiencies except those for accumulated earnings taxes asserted under section 102(a) of the Internal Revenue Code of 1939, ch. 289, § 102, 52 Stat. 483 , 26 U.S.C.A. § 102 (a), and section 531 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 531 .

The Tax Court held that no deficiencies were due from the company under section 102 for the years 1950 and 1952. That court held, however, that in 1953 there was a deficiency in the amount of 825,865.33 under former section 102, and that in 1954 there was a deficiency in the amount of $31,461.36 under section 531. Raymond I. Smith, Inc., has petitioned to review this adverse decision as to the 1953 and 1954 taxes.

An accumulated earnings tax may not be imposed unless a corporation has been formed or availed of for the purpose of avoiding the income tax with respect to shareholders by…