*259 Decisions will be entered under Rule 50.
Held: That petitioner did not accumulate its surplus or profits beyond the reasonable needs of its business and, accordingly, is not liable for additional surtax under section 102, I. R. C.
*1404 The respondent determined deficiencies in income tax and surtax under section 102 of the Internal Revenue Code, as follows:
| Deficiency | |||
| Income tax | under section | ||
| Docket No. | Year | deficiency | 102, I. R. C. |
| 1945 | $ 5,376.26 | $ 4,999.26 | |
| 22369 | 1946 | 8,765.22 | 8,708.70 |
| 1947 | 8,980.61 | 8,980.61 | |
| 1948 | 18,497.13 | 14,633.56 | |
| 33509 | 1949 | 20,751.82 | 16,558.97 |
| Period 1/1/50-3/31/50 | 21,497.53 | 21,269.53 |
Numerous errors*260 were alleged, all of which have been settled by agreement of the parties except petitioner's liability under section 102, I. R. C. The sole question reserved for adjudication is the applicability as to each year of section 102, I. R. C.
FINDINGS OF FACT.
The petitioner is a corporation which was organized for profit under the laws of the State of Ohio, on May 23, 1923. The Articles of Incorporation authorize it to do "a general printing, publishing, binding, engraving, electro-typing, and lithographing business" and "all things necessary and incident thereto."
Petitioner's Articles of Incorporation were amended on August 24, 1946, such amendment being filed with the Secretary of State of the State of Ohio on August 31, 1946. The amendment materially expanded the powers of petitioner, specifically authorizing it, for example, to acquire radio stations, television stations, etc.
At all times since its organization, to and including the date of its merger with Freedom Newspapers, Inc., on March 31, 1950, petitioner *1405 has been engaged, among other activities, in the publication of a daily newspaper called the Telegraph Forum, in Bucyrus, Ohio. The population of Bucyrus, Ohio, *261 at all times pertinent to these proceedings, has been approximately 10,000.
Petitioner's authorized capital consisted of 2,000 shares, 1,500 of which were issued and were acquired by purchase on or about July 1927 by members of the R. C. Hoiles family. The price paid for the stock was $ 140,000.
The head of the Hoiles family is R. C. Hoiles. The members of this family and their relationship one to another at the time of the hearing was as follows:
R. C. Hoiles
M. M. Hoiles (or M. C. Hoiles) -- Wife of R. C. Hoiles
C. H. Hoiles -- Eldest son of R. C. Hoiles
M. S. Hoiles -- Wife of C. H. Hoiles
James Howard
Judith Anne
Patricia Evelyn
Mary Elizabeth
Children of C. H. Hoiles
Harry H. Hoiles -- Younger son of R. C. Hoiles
Barbara C. Hoiles -- Wife of Harry H. Hoiles
Pamela
Penelope
Children of Harry H. Hoiles
Mary Jane Hoiles Hardie -- Daughter of R. C. Hoiles
Robert C. Hardie -- Husband of Mary Jane Hoiles Hardie
Douglas Raymond
Melissa Jane
David Charles
Children of Mary Jane Hoiles Hardie
R. C. Hoiles has been engaged in the newspaper business since 1898. He began his activities in this field with the Alliance Review, published in Alliance, Ohio, working up through*262 various departments until he acquired a one-third interest in such newspaper about 1909. R. C. Hoiles' brother, F. A. Hoiles, owned the remaining two-thirds interest.
Subsequently, about 1919, R. C. Hoiles acquired a two-thirds interest in another newspaper, the Lorain, Ohio, Times Herald, the remaining one-third being owned by his brother, F. A. Hoiles. During 1922, R. C. Hoiles acquired a one-third interest in a third newspaper, the Mansfield, Ohio, News.
Later in 1922, friction developed between the Hoiles brothers due to R. C. Hoiles' insistence upon the open shop principle in the various newspapers in which he owned an interest. As a result, R. C. Hoiles acquired complete ownership of the Lorain Times Herald and the Mansfield News and relinquished his ownership in the Alliance Review. Alliance, Lorain, Mansfield, and Bucyrus are all located in the State of Ohio and within 120 miles or less of each other. The population of these cities ranges from 10,000 to 30,000. All of the newspapers *1406 published in these cities and heretofore referred to were daily newspapers of the same general type.
About 1930, R. C. Hoiles was forced to dispose of his interest in the Lorain*263 and Mansfield newspapers to Brush-Moore Corporation because of heavy losses incurred in connection with their operation. These losses were the result of a campaign instituted by R. C. Hoiles through these papers to eliminate what he deemed to be corrupt practices relative to paving contracts between a private contractor and certain Ohio public works officials. The private contractor acquired competing newspapers in Lorain and Mansfield and undersold the Hoiles' papers both in advertising and subscription rates.
Clarence H. Hoiles is the elder son of R. C. Hoiles, and has been an officer, director, and general manager of petitioner at all times since the acquisition of petitioner's stock. Clarence H. Hoiles has also been the general manager of newspapers and interests in newspapers subsequently acquired by petitioner. Clarence H. Hoiles moved to Santa Ana, California, in 1935.
Clarence H. Hoiles has been engaged in the newspaper business during his entire adult life, beginning work as petitioner's general manager in 1927. R. C. Hoiles, in general, is responsible for the editorial policies of the various newspapers in which he is interested, whereas Clarence H. Hoiles is charged*264 with the general business operations thereof. There was also a regular editor for each newspaper, in addition to R. C. Hoiles.
R. C. Hoiles' younger son is Harry H. Hoiles, who has likewise been engaged in the newspaper business during his entire adult life. Harry H. Hoiles is an officer, director, and local manager of the Gazette Telegraph Company of Colorado Springs, Colorado, publisher of a newspaper called the Gazette Telegraph, and in which petitioner acquired an interest in 1946.
R. C. Hardie is the son-in-law of R. C. Hoiles and is likewise engaged in the newspaper business, being an officer, director, and local manager of the Marysville, California, Appeal-Democrat Corporation, publisher of a newspaper called the Appeal-Democrat, in which petitioner acquired an interest in 1946.
Petitioner had an operational surplus deficit in all years from 1935 to 1941, inclusive. This deficit continued until the end of 1941, when petitioner's earned surplus, according to its books on January 1, 1942, was $ 2,253.94.
The petitioner had accumulated surpluses for 1942-1950, as follows:
| 1942 | $ 2,253.94 |
| 1943 | 12,993.38 |
| 1944 | 27,209.77 |
| 1945 | 45,085.67 |
| 1946 | 63,641.79 |
| 1947 | 95,366.32 |
| 1948 | 128,023.08 |
| 1949 | 176,157.34 |
| 1950 (Jan. 1-Mar. 31) | 229,530.83 |
*265 *1407 Petitioner has never owned the building or premises which house its operations. In 1928, R. C. Hoiles with his own money erected a building on land owned by him and leased the premises for $ 200 per month to petitioner. The rental was maintained at that amount until 1949 when the rental was increased to $ 400 per month. The fair market value of such real estate and building during the periods here under review was $ 60,000 and the fair rental value thereof was between $ 400 and $ 500 per month.
Petitioner's presses and other equipment were old and obsolete when petitioner's stock was acquired in 1927. On December 31, 1945, the original book value of the equipment was $ 53,697.02 and the reserve for depreciation thereof, $ 51,914.06, leaving a book value of $ 1,782.96.
The presses and equipment were not actually replaced prior to 1949 because of petitioner's policy of expanding its operations through the acquisition of other newspapers.
Late in 1949 petitioner definitely decided to replace its presses. Modern presses were acquired and installed in the summer of 1950 of a value of $ 25,000, plus transportation and installation costs of $ 10,000 to $ 12,000.
From the *266 beginning, R. C. Hoiles has had definite and fixed ideas with respect to the functions of government and the part government should play in the lives of the citizens of the United States and in the conduct of the business of the nation generally. He has always believed the daily newspaper the best possible medium through which the public can be acquainted with these basic conceptions. He has likewise always thought that newspapers should maintain complete independence of operation and never be subservient to large advertisers or other interests. From the beginning, R. C. Hoiles and Clarence H. Hoiles, as president and general manager, respectively, of petitioner, have had a fixed policy of expansion of petitioner's activities in the newspaper field and have deemed acquisition of interests in other newspapers a proper field and area for such expansion.
Petitioner's officers believed that once a newspaper published in a given locality has acquired all the subscribers reasonably available in that locality, the only possibility for expansion in the newspaper field is through the acquisition of other newspapers or interests therein published in other localities. This principle, during*267 all the years here under review and prior thereto, was applicable to this petitioner.
In furtherance of the above growth or expansion policy, R. C. Hoiles and Clarence H. Hoiles, in behalf of petitioner, were constantly on the alert for businesses publishing newspapers which could be purchased in whole or in part. This search for newspapers available for purchase continued up to the date of the hearing of these proceedings. Brokers were consulted constantly and all trade periodicals listing newspapers for sale were examined regularly.
*1408 In furtherance of this consistent policy of expansion in the newspaper field, petitioner, instead of making capital additions and acquiring its own building and real property, accumulated all available funds so as to be in a position to acquire other newspapers or an interest therein when proper opportunity arose. Pending consummation of such purchases, moneys of the corporation were, from time to time, temporarily invested in what are herein termed non-related securities, which securities were liquid in nature and able to be converted into cash on short notice. These securities were carried and reported as "investments." Substantially*268 similar treatment was accorded the amounts invested in other newspapers.
As opportunities arose from time to time to purchase other newspapers, or interests therein, all or such portion of the non-related securities as had been theretofore acquired were disposed of and the proceeds invested in such newspapers.
In line with the policies set forth above, petitioner, between 1928 and the end of 1934, made purchases of non-related securities. During the entire period petitioner had an operating surplus deficit.
The non-related securities owned by the petitioner were diversified, and substantial, and for the various years were in the following total amounts:
| 1928 | $ 7,975.73 |
| 1929 | 15,975.73 |
| 1930 | 24,905.73 |
| 1931 | 25,905.73 |
| 1932 | 17,905.73 |
| 1933 | 34,355.32 |
| 1934 | 24,838.44 |
| 1935 | 600.00 |
| 1936 | 400.00 |
| 1937 | 400.00 |
| 1938 | 400.00 |
| 1939 | 400.00 |
| 1940 | 400.00 |
| 1941 | 17,699.25 |
| 1942 | 33,754.19 |
| 1943 | 34,471.74 |
| 1944 | 44,636.50 |
| 1945 | 56,793.90 |
| 1946 | 53,842.78 |
| 1947 | 74,786.82 |
| 1948 | 7,093.26 |
| 1949 | 7,093.26 |
| 1950 | 7,093.26 |
The investments in non-related securities constituted "Temporary ways of making it earn something, rather than letting it lay idle."
All of the non-related securities acquired prior*269 to January 1, 1935, except two small investments in local Bucyrus, Ohio, concerns made in the early years as a good will gesture and totaling $ 600, were disposed of in 1935. These sales were in accordance with petitioner's policies and in order to raise funds with which to purchase an interest in the Santa Ana, California, Register. The business of the Register was identical with that of petitioner. The population of Santa Ana, California, at that time was 31,000. The interest purchased by petitioner in the Santa Ana Register was a minority interest. The *1409 balance of the ownership in such enterprise was lodged in members of the Hoiles family.
Various advantages accrued to petitioner from the acquisition of its interest in the Santa Ana Register, as set forth above. These included economies in the purchase of features, columns, comic strips, etc., the transfer of personnel from one place to another, exchange of ideas, and common utilization of outstanding editorials.
Beginning in 1941 and extending into 1945, petitioner acquired other non-related securities. All were acquired in conformity with the company's established policy of temporarily investing its moneys in*270 liquid assets, pending advantageous opportunities to expand by acquiring other newspapers or interests therein. During the war years from 1940 to 1945, few newspapers were available for purchase on an advantageous basis, since one of the main problems involved was the securing of adequate manpower for operations.
The only non-related security purchased in the year 1945, the first year here under review, was stock of American Seating Company. This security was purchased for the same reasons that governed the acquisition of all non-related securities.
In accordance with petitioner's long-established policy of expansion and growth, R. C. Hoiles, in behalf of petitioner, on September 6, 1945, began negotiations looking to the acquisition of an interest in the Gazette Telegraph Company which published a daily newspaper in Colorado Springs, Colorado. The business of the Gazette Telegraph Company was similar to that of petitioner. The population of Colorado Springs at that time was approximately 40,000. The acquisition of such interest in the Gazette Telegraph by petitioner was completed on January 10, 1946.
The interest acquired in the Gazette Telegraph by petitioner was a minority*271 interest. The balance of the stock of the Gazette Telegraph was acquired by members of the Hoiles family.
On December 17, 1945, negotiations were begun in behalf of this petitioner and others to acquire the stock of a company publishing a newspaper in Marysville, California, and known as the Marysville Appeal-Democrat. The business of this company was similar to that of petitioner and the population served by the newspaper was between 16,000 and 18,000. The purchase was completed February 28, 1946. The interest acquired by petitioner in such paper was a minority interest but the remainder of the stock in the company was owned by the Hoiles family.
On January 2, 1946, petitioner sold stock of the Republic Steel Company, owned by it, and on the same day bought stock of the Reading Company. This purchase and sale constituted a "switch" in securities and no more. In March 1946 petitioner sold its stock in *1410 Electric Furnace Company, acquired in 1943. This stock was sold in order to secure funds with which to complete the purchase of its interest in the MarysvilleAppeal-Democrat. There were no other security purchases in 1946.
No non-related securities were acquired by*272 the petitioner during the year 1947. During such year it bought stock in the Meade Corporation, which was engaged in the production of news print. It was acquired with the expectation that its ownership would be materially helpful in the event any news print shortage should develop.
During 1946 and 1947 inquiries were made by petitioner's officers looking to the possible purchase of other newspapers or interests therein in behalf of petitioner. Investigations were made with respect to newspapers in Tiffin, Ohio, and Upper Sandusky, Ohio. The newspapers in question were both of the same general nature as that published by petitioner in Bucyrus, Ohio.
Early in 1948 negotiations were begun in behalf of petitioner for the acquisition of the stock of a company publishing a newspaper in Odessa, Texas, called the Odessa American. The company whose stock was involved was engaged in a business similar to that of petitioner and the population of Odessa was approximately 40,000. On July 24, 1948, a contract was entered into between petitioner and the owner of the stock of the company publishing the Odessa American, which contract of purchase was duly approved by petitioner's board of directors.
*273 Subsequent to the acquisition by petitioner of the stock of the company publishing the Odessa American, petitioner caused that corporation to be dissolved and formed a partnership known as "Odessa American."
Petitioner, as a general partner, acquired a 64 per cent interest in such partnership. The balance of the ownership, except for a small portion held by the members of the Hoiles family, was allocated to key employees of the various newspapers heretofore mentioned: Bucyrus, Ohio, Telegraph Forum, published by this petitioner; the Santa Ana Register, Santa Ana, California; the Gazette Telegraph, Colorado Springs, Colorado; and the Appeal-Democrat, Marysville, California.
Petitioner agreed with such key employees that, in the event any severed his connection with the newspaper enterprise with which he was connected, that his interest in the partnership was to be acquired by petitioner at the then book value thereof. Pursuant to this agreement, petitioner acquired four-tenths of one per cent from one employee, making petitioner's interest in the partnership during most of the period from 1948 to March 31, 1950, 64.4 per cent.
*1411 Operation of the Odessa American through a*274 partnership was selected by petitioner because it was deemed most beneficial to the various participating members, and would save corporation taxes.
In connection with the formation of the Odessa American partnership, petitioner duly qualified itself, as provided by law of the State of Texas, to do business in Texas.
None of the other partners in Odessa American exercised any control over the business or affairs of the partnership, except De Bolt, who, while local manager at Odessa, acted at all times under the instructions of the petitioner. In addition, Clarence H. Hoiles, during the period here under review, was general manager both of petitioner and Odessa American.
Petitioner's initial capital outlay in Odessa American amounted to $ 320,000. In order to raise these funds petitioner, in accordance with its past practice, sold all of its non-related securities except its $ 400 investment in Swan Rubber Company, a local industry located at Bucyrus and purchased as a good will gesture in 1928, and a small portion of its stock in the Meade Corporation, the news print company heretofore referred to. In addition, it was required to borrow almost $ 200,000.
On December 31, 1948, petitioner*275 had on hand cash in the amount of $ 2,451.81 and owed $ 174,000, exclusive of income tax liability for such year, which amounted to an additional $ 22,219.74.
The partnership of Odessa American maintained its records and filed its Federal information return on a fiscal year basis ending March 31. During the calendar year 1948, petitioner, as a partner in Odessa American, received therefrom $ 16,000. In 1949 it received $ 64,000. During the period from January 1, 1950, to March 31, 1950, petitioner received from Odessa American $ 16,000.
Included in the income of petitioner for the period from January 1, 1950, to March 31, 1950, was petitioner's distributive share in the income of Odessa American for the 12-month period ended March 31, 1950, which share amounted to $ 110,939.04. Of this amount petitioner received during such period from Odessa American only $ 16,000, but the entire $ 110,939.04 was included by respondent for the purpose of determining petitioner's liability under section 102 of the Internal Revenue Code. No more than the $ 16,000 actually received by petitioner during the period from January 1, 1950, to March 31, 1950, was available for distribution to petitioner*276 during such period. This was due to the fact that the physical plant at Odessa was obsolete.
At the time of the acquisition of the properties of Odessa American, the building in which the newspaper was published contained 5,700 square feet, whereas 14,000 square feet were required, all of which was known to petitioner during 1948, 1949, and the period from January *1412 1, 1950, to March 31, 1950. It was also known that modern presses and other equipment would be required.
Prior to January 1, 1950, negotiations were begun in behalf of Odessa American for the acquisition of a new site, and in 1950, but prior to March 31, 1950, land was acquired in behalf of Odessa American for the erection of a building at a cost of $ 25,000. Plans for a new building were immediately drawn and the contract therefor was let early in 1951, the building to cost between $ 125,000 and $ 135,000. The building was in process of construction at the time of the hearing of these proceedings and it was contemplated that the structure would be completed in the early fall of 1951.
In addition, in 1950, modern presses were acquired for $ 27,000, which, when installed, would have a total cost of approximately*277 $ 40,000. The construction and acquisition program heretofore referred to was planned and the approximate costs thereof known before March 31, 1950.
Except for the sales heretofore noted in 1948, petitioner had no nonrelated security transactions in 1948, 1949, or the period in 1950 ending on March 31.
During 1949, petitioner determined to acquire and install in its Bucyrus, Ohio, plant much needed modern presses. This was completed in 1950 at a cost of between $ 35,000 and $ 40,000.
On March 31, 1950, petitioner was merged with the Santa Ana Register, the name of which was subsequently changed to Freedom Newspapers, Inc. This merger was effected in order to enable the various corporations involved to borrow to better advantage and to strengthen their position in their various localities.
No stockholder of petitioner ever borrowed any money from petitioner, but petitioner loaned various sums to other newspapers in the group in which the Hoiles family was interested.
No dividends were paid during the years under review. Petitioner desired to keep itself in a liquid position, primarily to expand its operations in the newspaper field in accordance with its long-established and consistent*278 policy of complete editorial independence on local and national issues. In addition, during the year in which the Odessa American was acquired, and subsequent thereto, it was always heavily in debt.
At no time during the period under review was the fact that dividends, if declared and paid by petitioner, would be subject to a tax in the hands of petitioner's stockholders a factor in the determination by petitioner's officers and directors as to whether or not any such dividends would be paid.
During the period under review there was never any intent on the part of any officer or director of petitioner to avoid the payment of *1413 a surtax by the stockholders of this petitioner by permitting petitioner's earnings or profits to accumulate beyond the reasonable needs of the business instead of distributing the profits to petitioner's stockholders as dividends.
At no time during the period under review were petitioner's earnings or profits permitted to accumulate beyond the reasonable needs of petitioner's business.
The petitioner was not formed, and at no time during the period under review was it availed of, for the purpose of preventing the imposition of the surtax upon its *279 stockholders or the stockholders of any other corporation through the medium of permitting its earnings or profits to accumulate beyond the reasonable needs of its business, instead of being divided or distributed.
OPINION.
The ultimate findings of fact appearing above toll the death knell of respondent's determination that petitioner was liable for additional surtax under section 102, I. R. C.2
*280 Almost, if not quite, from the beginning of his newspaper career, R. C. Hoiles was devoted to a policy of building a chain of newspapers to serve as an outlet for his economic and governmental beliefs. He held very pronounced views and concepts of the respective rights of the individual and the state as reflected in their day-to-day life. In his advocacy of his theories and principles he was a tireless zealot. All of his publications reflected his purpose and devotion to certain fixed concepts. Each step in the acquisition of his chain of newspapers was integrated with and dictated by his addiction to such principles.
There is no contention, and none could fairly be made, that petitioner was organized for the purpose proscribed by section 102, I. R. C. Nor was petitioner a mere holding company. It was an operating company actually engaged in the newspaper business.
The question is -- was petitioner in any of the taxable years availed of for the purpose of avoiding the impingement of taxes on its shareholders *1414 by accumulating a greater surplus than was necessary for the reasonable needs of its business?
Determination of the reasonable needs of its business is, in the*281 first place, a task for the officers and directors of the corporation. What is reasonable in one situation may be unreasonable in a different context of facts. We should be hesitant to attribute a sinister or ulterior motive to the corporation unless such a factual situation clearly appears. The law contemplates that any legitimate business may grow if legitimate means be employed. There are various and sundry ways, all natively legitimate, by which a business may acquire the means of growth and finance its proper expansion. It can issue capital stock or other securities. It may resort to bank loans. Yet again, it may plow its earnings back into the business for immediate uses. Still another method, equally legitimate, absent an ulterior purpose, is to accumulate its earnings until the expansion can be timely undertaken. The abuse of this last method was the genesis of section 102, I. R. C., and its forbears. This method was employed by petitioner. The question is -- was it legitimately so employed?
Petitioner's purpose in the accumulation of earnings was well understood and persistently followed. At all times it was alert to an opportunity to acquire an interest in a *282 small-city newspaper. With this end in view it invested its surplus funds in liquid or ready salable securities, ad interim investments, so to speak. The record shows the successful pursuit of petitioner's policy and its expansion. The actual acquisition of newspapers, or substantial interests therein, some in the taxable years, effectively refute and fully and sufficiently answer the contention of respondent that there was an unreasonable accumulation of funds dictated by a purpose to lessen the tax burden of its stockholders. In pursuit of this policy, not only did petitioner invest all of its surplus funds periodically in carefully planned expansion, in some instances it borrowed further funds to accomplish such expansion. It is clearly proved that the earnings and profits which petitioner accumulated were not beyond the reasonable needs of its business.
Respondent calls attention, inter alia, to the fact that petitioner owned only a minority interest in certain of the other companies and contends that this fact requires a ruling in respondent's favor under Regulations 111, section 29.102-3, which provides:
* * * The business of one corporation may not be regarded as including*283 the business of another unless the other corporation is a mere instrumentality of the first; to establish this it is ordinarily essential that the first corporation own all or substantially all of the stock of the second.
Respondent cites Stanton Corporation, 44 B. T. A. 56, in support of his contention. The Stanton case was but little like the present *1415 case. It was there held that the corporation, from the outset, was a mere holding or investment corporation; was formed for the purpose of avoiding surtax on the shareholders; permitted its profits to be accumulated beyond the reasonable needs of its business; and was availed of for the proscribed purpose. The record clearly supported all of such findings.
No such findings are possible on the record in the instant case and clearly the Stanton case is not controlling. Respondent cites no other authority for the above proposal, and we know of none. We are unwilling to give such a sweeping and conclusive effect to the regulation cited. The petitioner was planning to use its surplus solely for its own expansion and growth, not for the growth of any of its partially owned companies. *284 There is no claim of an intention to devote such surplus to any other use than the development of the petitioner and the furthering of its own purposes. Section 29.102-3 of Regulations 111 was plainly not aimed at companies such as petitioner, nor at surplus accumulated, held, and purposed for use as here. Had petitioner accumulated its surplus to further the business of the companies in which it owned stock, rather than its own business, or had it made such a claim, we would have a different situation and a different problem.
No useful purpose would be served by further discussion. On this, the only issue submitted for determination, we find in favor of the petitioner.
Decisions will be entered under Rule 50.
Footnotes
1. This petitioner was dissolved consequent on merger on or about March 31, 1950. In this report the term "petitioner" is used to indicate either the original corporation or the dissolved corporation, dependent on the year involved.↩
2. SEC. 102. SURTAX ON CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS.
(a) Imposition of Tax. -- There shall be levied, collected, and paid for each taxable year * * * upon the net income of every corporation * * * if such corporation, however created or organized, is formed or availed of for the purpose of preventing the imposition of the surtax upon its shareholders or the shareholders of any other corporation, through the medium of permitting earnings or profits to accumulate instead of being divided or distributed, a surtax equal to the sum of the following:
27 1/2 per centum of the amount of the undistributed section 102 net income not in excess of $ 100,000, plus 38 1/2 per centum of the undistributed section 102 net income in excess of $ 100,000.
* * * *
(c) Evidence Determinative of Purpose. -- The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid surtax upon shareholders unless the corporation by the clear preponderance of the evidence shall prove to the contrary.↩