REVENUE REGULATIONS NO. 2-2001 issued March 9, 2001 prescribes the rules and regulations in the implementation of the provision on Improperly Accumulated Earnings Tax (IAET). The 10% IAET is being imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings to avoid the imposition of tax upon its shareholders who are supposed to pay dividends tax on the earnings distributed to them by the corporation. If the failure of a corporation to pay dividends is due, however, to some other causes, such as the use of undistributed earnings and profits for the reasonable needs of the business, as specified in the Regulations, the accumulated or undistributed earnings will not be subject to the 10% IAET. The 10% IAET is imposed on improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations which are classified as closely-held corporations (the determination of which is specified in the Regulations). The IAET, however, will not apply to the following corporations: a) banks and other non-bank financial intermediaries; b) insurance companies; c) publicly-held corporations; d) taxable partnerships; e) general professional partnerships; f) non-taxable joint ventures; and g) enterprises duly registered with the PEZA under RA 7916 and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under RA 7227, including enterprises under special economic zones which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local. The IAET will not apply on improperly accumulated income as of December 31, 1997 of corporations using the calendar year basis. In the case of corporations adopting the fiscal year accounting period, the IAET will not apply on improperly accumulated taxable income as of the end of the month comprising the twelve-month period of fiscal year 1997-1998.