A determination by the Service that a company is a PHC could result in a deficiency notice, which will require the PHC to distribute a deficiency dividend
out of current gross income.
If a PHC tax deficiency is assessed because of a bona fide difference of opinion with the IRS relating to an amount of income or deduction, there is a relief provision that permits the taxpayer to escape the PHC tax by the payment of a deficiency dividend
. There are certain limitations as to the application of this relief provision which should be reviewed carefully.
The deficiency dividend
now allows the REIT to make the additional distribution within 90 days of the determination and retain qualifying status without the additional tax penalty, although interest charges do apply.
The deficiency dividends
mechanism, described in Sec.