Legal Definitions - undistributed-earnings tax

An undistributed-earnings tax is a penalty tax imposed on a corporation that has retained its earnings in an effort to avoid the income-tax liability arising once the earnings are distributed to shareholders as dividends.

For example, if a corporation earns $1 million in profits but decides not to distribute any dividends to its shareholders, it may be subject to an undistributed-earnings tax. This tax is meant to discourage corporations from hoarding profits and not sharing them with their shareholders.

Overall, a tax is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. It can take many forms, including duties, imposts, and excises, and is used to support government and public needs.