And if you don’t pay out dividends, IRS audits you and you will pay a 25% tax for not paying out dividends
Sorry, it’s 39.6 Not 25.
However, a corporation may not safely accumulate (retain) its earnings indefinitely. If the accumulations are not related to the reasonable needs of the business, an accumulated earnings tax of 39.6 percent will apply in addition to the regular corporate tax. Virtually any corporation can accumulate up to $250,000 ($150,000 for service-type corporations) in retained earnings without becoming subject to this tax.
Encourages spending and maybe inefficiency.