Accumulated Earnings Tax: What It Is and How to Avoid It

The accumulated earnings tax is a tax imposed by the U.S. government on corporations with retained earnings that are deemed to be excessive. As the Internal Revenue Service explains, "The purpose of the accumulated earnings tax is to prevent a corporation from accumulating its earnings and profits beyond the reasonable needs of the business for the purpose of avoiding income taxes on its stockholders."1
 

The accumulated earnings tax rate is 20% of the company's accumulated taxable income for that year (or years). The IRS defines accumulated taxable income as "the corporation's taxable income with various adjustments, minus the dividends paid deduction and the accumulated earnings credit."1

The minimum accumulated earnings credit is generally "the amount by which $250,000 exceeds the accumulated earnings and profits at the close of the preceding year," according to the IRS.

Apple: .54%

Meta. Zero

Amazon. 1.04%

Microsoft. .85%

Google: Zero

The top five cash holders in Moody’s 2022 survey were Apple, Meta, Amazon, Microsoft and Alphabet.

“You add up the top 10 to 12 tech players, and it’s a trillion dollars in cash,” said Wedbush analyst Dan Ives. “But it’s so well managed that you have 2% to 3%, max, in unrealized [losses in value].”

It doesn't take many people to levy the excess earnings tax. It doesn't even require an audit.

Just look at their annual reports and send them a letter asking them to justify their retained earnings. Tell them to either start using their money to pay substantial dividends, pay the 20% accumulated earnings tax of 20%, or justify why they have all that cash on hand.

My guess is the companies would start paying substantial dividends because they sure wouldn't want to explain why they used the money to pay the twenty percent tax because they were so stingy with shareholders (owners who took the risk)

So why don't the bosses at the IRS tell the agents to do this simple task that would collect hundreds of billions of dollars?

I have no idea, other than they are told not to.

Why don't Democrats go after this low hanging fruit? After all, they claim they want the rich to pay their fair share and complain that a lot of big companies don't pay any taxes.

This accumulated earnings tax of twenty percent could be collected even if they used the tax code to get their taxable income to zero.

They also complain about wealth and income inequality and not collecting this tax allows the rich to get richer.

My guess for the reason Democrats don't talk about or try to collect this tax is that they know who butters their bread.

These companies routinely support Democrat (so-called progressive)  policies, especially the radical green policies.

Meta and Google are also willing to suppress conservative views while promoting Democrat views. They were quite willing to spread the lie about Russian collusion, repeat all the government talking points on COVID, and to bury the truth of the Hunter Biden laptop.

Jeff Bezos' toy, the Washington Post, has essentially become a propagandist arm of the Democrat party and loses a lot of money.

Conclusion: the IRS should not get one thin dime more of taxpayer money until they do their job to properly administer the tax code against large companies and go after families like the Bidens who launder money through shell companies.

And people should stop referring to radical Democrat policies that move the country rapidly towards collapse as "progressive" to intentionally mislead the public.

Just like the Obama IRS targeted tea party members, the Biden IRS targets his political opponents also.