
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC537]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
   Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
 
          PART I--CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
 
Sec. 537. Reasonable needs of the business


(a) General rule

    For purposes of this part, the term ``reasonable needs of the 
business'' includes--
        (1) the reasonably anticipated needs of the business,
        (2) the section 303 redemption needs of the business, and
        (3) the excess business holdings redemption needs of the 
    business.

(b) Special rules

    For purposes of subsection (a)--

                  (1) Section 303 redemption needs

        The term ``section 303 redemption needs'' means, with respect to 
    the taxable year of the corporation in which a shareholder of the 
    corporation died or any taxable year thereafter, the amount needed 
    (or reasonably anticipated to be needed) to make a redemption of 
    stock included in the gross estate of the decedent (but not in 
    excess of the maximum amount of stock to which section 303(a) may 
    apply).

            (2) Excess business holdings redemption needs

        The term ``excess business holdings redemption needs'' means the 
    amount needed (or reasonably anticipated to be needed) to redeem 
    from a private foundation stock which--
            (A) such foundation held on May 26, 1969 (or which was 
        received by such foundation pursuant to a will or irrevocable 
        trust to which section 4943(c)(5) applies), and
            (B) constituted excess business holdings on May 26, 1969, or 
        would have constituted excess business holdings as of such date 
        if there were taken into account (i) stock received pursuant to 
        a will or trust described in subparagraph (A), and (ii) the 
        reduction in the total outstanding stock of the corporation 
        which would have resulted solely from the redemption of stock 
        held by the private foundation.

            (3) Obligations incurred to make redemptions

        In applying paragraphs (1) and (2), the discharge of any 
    obligation incurred to make a redemption described in such 
    paragraphs shall be treated as the making of such redemption.

                 (4) Product liability loss reserves

        The accumulation of reasonable amounts for the payment of 
    reasonably anticipated product liability losses (as defined in 
    section 172(f)), as determined under regulations prescribed by the 
    Secretary, shall be treated as accumulated for the reasonably 
    anticipated needs of the business.

             (5) No inference as to prior taxable years

        The application of this part to any taxable year before the 
    first taxable year specified in paragraph (1) shall be made without 
    regard to the fact that distributions in redemption coming within 
    the terms of such paragraphs were subsequently made.

(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91-172, title IX, 
Sec. 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94-455, title XIX, 
Sec. 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95-600, title 
III, Sec. 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L. 104-188, title I, 
Sec. 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889.)


                               Amendments

    1996--Subsec. (b)(4). Pub. L. 104-188 substituted ``section 172(f)'' 
for ``section 172(i)''.
    1978--Subsec. (b)(4), (5). Pub. L. 95-600 added par. (4) and 
redesignated former par. (4) as (5).
    1976--Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(75)(A), struck 
out ``with respect to taxable years of the corporation ending after May 
26, 1969'' after `` `redemption needs' means''.
    Subsec. (b)(4). Pub. L. 94-455, Sec. 1901(a)(75)(B), struck out ``or 
(2)'' after ``paragraph (1)''.
    1969--Pub. L. 91-172 designated existing provisions as subsec. 
(a)(1) and added subsecs. (a)(2), (3) and (b).


                    Effective Date of 1978 Amendment

    Amendment by Pub. L. 95-600 applicable with respect to taxable years 
beginning after Sept. 30, 1979, see section 371(d) of Pub. L. 95-600, 
set out as a note under section 172 of this title.


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 applicable with respect to taxable years 
beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, 
set out as a note under section 2 of this title.


                    Effective Date of 1969 Amendment

    Section 906(b) of Pub. L. 91-172, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to the tax 
imposed under section 531 of the Internal Revenue Code of 1986 [formerly 
I.R.C. 1954] with respect to taxable years ending after May 26, 1969.''
