A closely held C corporation or a personal service corporation
is considered to materially participate in an activity if (a) one or more stockholders who owns more than 50% (by value) of the outstanding stock of the corporation materially participates or (b) if the C corporation (other than a personal service corporation
) has an active full time manager throughout the year, at least three full-time nonowner employees whose services are directly related to the business of the corporation, and certain deductions of the business exceed 15% of the income for the year.
In addition, special rules apply to the tax year that may be used by a personal service corporation
(as defined for purposes of IRC Section 269A, except that all owner-employees are included and broader attribution rules apply).
S Corporations and Personal Service Corporations
(PSCs) must generally use a calendar year or a 52-53-week tax year ending with reference to the calendar year or must establish a business purpose for a different tax year.
Note that personal service corporations
are taxed at a flat rate of 35 percent.
11] Related parties include a personal service corporation
as defined under the calendar year, requirement and any employee-owner however small.
Section 469(a) disallows passive activity losses or credits for taxpayers that are individuals, estates, trusts, closely held C corporations, or personal service corporations
469(h)(4)(B), a closely held corporation, not a personal service corporation
, will be treated as materially participating if the requirements of Sec.
The term "covered employee" generally includes any employee of the taxpayer who is an officer of the taxpayer, other than an employee-owner of a personal service corporation
The Tax Court held that a land surveying company was a personal service corporation
subject to a 35% flat income tax rate because it was engaged in engineering, despite the fact that it performed no work requiring an engineering license under state law.
In addition, use of the S corporation status avoids the accumulated earnings tax, the personal holding company tax, and many troublesome personal service corporation
A personal service corporation
(PSC) generally is a corporation whose principal activity is the performance of personal services, and such services are performed by employee-owners [Sec.
Prior to TRA 86, a Personal Service Corporation
("PSC") was defined by Sec.