26 U.S.C. § 537 — Reasonable needs of the business

(a) General rule
For this part of the tax code, "reasonable needs of the business" includes three things:

1. The needs the business can reasonably expect to have in the future.
2. The money needed to redeem stock^* under the special rules in section 303 (called "section 303 redemption needs").
3. The money needed to redeem stock to satisfy the "excess business holdings" rules for private foundations (called "excess business holdings redemption needs").

(b) Special rules
These rules explain the terms used in subsection (a):

(1) Section 303 redemption needs. For the tax year a shareholder^* died, or any later tax year, this means the amount the corporation^* needs — or reasonably expects to need — to redeem stock that was included in the deceased shareholder's estate. This can't exceed the maximum amount of stock that section 303(a) allows to be redeemed this way.

(2) Excess business holdings redemption needs. This means the amount needed — or reasonably expected to be needed — to redeem stock from a private foundation^*, if that stock: (A) was held by the foundation on May 26, 1969 (or was later received by the foundation under a will or an irrevocable trust covered by section 4943(c)(5)), and (B) counted as "excess business holdings" on May 26, 1969 — or would have counted as excess business holdings on that date if you also counted (i) stock received under a will or trust as described above, and (ii) the drop in the corporation's total outstanding stock that would have happened if the foundation's stock had been redeemed.

(3) Obligations incurred to make redemptions. If the corporation pays off a debt it took on in order to make one of the redemptions described in paragraphs (1) or (2), that payoff counts the same as actually making the redemption.

(4) Product liability loss reserves. Money the corporation reasonably sets aside to pay for product liability losses it expects (as product liability loss was defined in section 172(f) before the Tax Cuts and Jobs Act changed it), following rules the Treasury Secretary^* writes, counts as being accumulated for the reasonable needs of the business.

(5) No inference as to prior taxable years. This part of the law doesn't apply, one way or the other, to any tax year before the first year covered by paragraph (1). So even if a corporation made stock redemptions later that would fit paragraphs (1)-(3), that fact doesn't change how earlier tax years are treated.