Accumulated Earnings Tax and Personal Holding Company Tax
539 (2011), the IRS assessed substantial underpayment penalties on two commonly controlled corporations that failed to self-assess the personal holding company tax
. The Tax Court allowed a reasonable-cause exception to overcome the penalties for tax returns for one tax year, based on the corporations' reliance on a CPA tax professional who prepared them as an independent consultant.
If there were personal holding company income, a distribution could avoid the personal holding company tax
of 15 percent in 2010.
However, under JGTRRA, the personal holding company tax
was reduced and, for tax years beginning after 2002, the personal holding company tax
is imposed at the rate of 15% of the undistributed personal holding company income, in addition to the regular corporate income tax and the minimum tax on certain tax preference items.
Making an S election removes only three of the ten unfavorable tax problems facing personal service corporations; i.e., the flat tax, the accumulated earnings tax and the personal holding company tax
. Of the remaining seven, six are unaffected by the election and one is compounded by it!
And several C-corporation downsides, such as excess compensation, personal holding company tax
and unreasonable accumulation of earnings are generally not problems for S-corporations.
It should also be noted that if a dividend is paid from a TR, S to avoid personal holding company tax
, when received by the REIT the dividend will not represent qualifying income for purposes of the 75% gross income test set forth under Sec.
Other corporate problems may also emerge, such as the accumulated excess earnings or personal holding company tax
Chapter 7 covers the determination of consolidated tax liability, delving into areas such as the alternative minimum tax, the personal holding company tax
, and the accumulated earnings tax.
Since these tax liabilities could become substantial, the taxpayer and its advisors should review each CHC before year end so that steps may be taken to assure that the corporation does not owe the personal holding company tax
A similar issue could arise with the personal holding company tax
New forms include: 1120X Amended Corporate Return, 1122 Consent of Subsidiary, 1128 Application for Change in Accounting Period, 1139 Application for Tentative Refund, 2848 Power of Attorney, 3115 Application for Change in Accounting Method, 8808 Credit for Prior AMT, TD F90-22.1 Report of Foreign Bank Account and Schedule PH Personal Holding Company Tax
. Also available are fileable forms for various elections, such as Election to Carryback Casualty Loss, Election to Forego NOL Carryback, and Election to Accrue Real Property Taxes.