26 U.S.C. § 533 — Evidence of purpose to avoid income tax

(a) Unreasonable accumulation determinative of purpose. Section 532 imposes a special tax on certain corporations. It targets corporations formed or used to help shareholders avoid income tax by piling up earnings instead of paying them out. This subsection explains how that purpose gets proven. Suppose a corporation lets its earnings and profits build up beyond what the business reasonably needs. That fact alone is treated as proof of an intent to help shareholders avoid the income tax. The corporation can overcome this only by proving the opposite. It must do so with the greater weight of the evidence. That means its proof must be more convincing than not. (b) Holding or investment company. Sometimes a corporation is merely a holding company or an investment company. This means it mainly holds or invests in assets, rather than running an active business. That fact by itself counts as "prima facie evidence." This means it is evidence strong enough to prove the point on its own, unless the corporation rebuts it. The point it proves is that the corporation intended to help its shareholders avoid the income tax.

The record shows that 26 U.S.C. § 533 was enacted on August 16, 1954, as part of chapter 736, 68A Statutes at Large 179 — the act commonly known as the Internal Revenue Code of 1954. The source credit lists no subsequent amendments, indicating that the section's text has remained unchanged since its original enactment. The Internal Revenue Code of 1954 was a comprehensive recodification of federal tax law, replacing the 1939 Code and reorganizing the nation's income tax statutes into a new, more systematic framework. It is generally understood that this recodification effort carried forward many substantive tax rules from prior law while renumbering and restructuring them for clarity. Section 533 relates to section 532, which concerns the accumulated earnings tax—a longstanding feature of federal tax law aimed at corporations that retain earnings rather than distributing them as dividends, potentially to help shareholders avoid individual income tax liability. The broader accumulated earnings tax regime is commonly understood to address concerns predating 1954, rooted in efforts to prevent corporations from being used as vehicles for tax avoidance through unreasonable accumulation of profits. Beyond this general background, the record does not establish the specific legislative reasoning behind the particular evidentiary presumptions set out in subsections (a) and (b). Any more detailed account of Congress's specific intent in drafting this provision would be speculative, and the available materials here do not support such claims.