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Does Berkshire pay AMT?

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I was reading this by Ben Graham where he advocates using stock dividends instead of cash dividends (from what I can ascertain this is almost the same as spinoffs, or possibly a "regularly paid spinoff"). http://www.rbcpa.com/Common_Sense_Investing_The_Papers_of_Benjamin_Graham_1974.pdf


He writes that corporate income tax is paid in 3 layers and one is alternative minimum tax


"Earnings improperly accumulated – i.e. retained by the corporation for the purpose of

evading the payment of personal income tax by shareholders – are subject to a penalty tax

under Section 102 of the Internal Revenue Code."


"It is an evasion of the tax law to retain earnings not needed in the business in order that

stockholders may be spared personal income tax thereon. But, conversely, the purpose and

provisions of the tax law are complied with then earnings are retained for expansion. "


So it sounds like a little bit of what Berkshire does with putting lots of retained earnings back to work as capex to grow.


BUT, Berkshire itself pays no dividend and retains everything. So I was wondering how come they don't pay AMT - is it because holding companies can retain as much earnings as they want?



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I think you mean AET - Accumulated Earnings Tax, which is code section 531.  It's an archaic provision from back in the days when individual tax rates were substantially higher than corporate rates and there was no preferential rate for dividends.  I don't think it gets enforced much at all these days, and if you can show a business purpose for maintaining the earnings then it's not considered improper.

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