B is corrent. The requirement is to determine which step(s) Denison Corp. can take to eliminate or reduce any 2013 accumulated earnings tax (AET). The AET is a penalty tax that can be imposed (in addition to regular income tax) on a corporation if it accumulates earnings in excess of reasonable business needs. To avoid the AET, Denison can demonstrate that the reasonable needs of its business require the retention of all or part of the 2013 accumulated taxable income. Additionally, Denison can reduce its accumulated taxable income by paying a dividend to its shareholders. For this purpose, any dividends paid within the first 2 1/2 months of the tax year are treated as if paid on the last day of the preceding tax year. Thus, Denison’s payment of dividends by March 15, 2014, would reduce its exposure to the AET for 2013.
A is incorrect. It can also pay dividends to avoid the tax.
C is incorrect. The tax can be avoided by having reasonable business needs, or paying dividends to shareholders.
D is incorrect. Earnings can be retained for reasonable business needs.
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