Ultimately, it’s best if your high-net-worth client doesn’t fall into the AET trap in the first place. “If earnings accumulation is becoming beyond ‘ordinary,’ have a written plan to document purposes that preclude the tax and make the plan part of the annual corporate governance process,” Kollauf said. “Some reasons include specific plans for its use in the business or the planned redemption of stock from a deceased shareholder’s estate. If the IRS tries to impose the tax, seek immediate tax counsel [with someone] who’s dealt with the IRS on this matter with other clients.”
There are enough cases and history of the rare AET to provide a roadmap for clients who want to learn about and avoid this largely unfamiliar tax, Wilhelm said. Given the increased attention to C and S corporate structures in the wake of tax reform, he also thinks the AET will be more in the news in the future.