IRC Section 269A permits the IRS to reallocate income, deductions, credits, exclusions, and other allowances (to the extent necessary to prevent avoidance or evasion of federal income tax) between a personal service corporation
(PSC) and its employee-owners if the corporation is formed for the principal purpose of securing tax benefits for its employee-owners (i.e., more than 10% shareholder-employees after application of attribution rules) and substantially all of its services are performed for a single other entity.
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.
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.
Sometimes, all of the services of a personal service corporation
are performed for another corporation partnership or entity.
Section 469(a) disallows passive activity losses or credits for taxpayers that are individuals, estates, trusts, closely held C corporations, or personal service corporations
. Taxpayers may not deduct aggregate passive losses in excess of aggregate passive income.
469(a) States that any individual, estate, trust, closely held corporation and personal service corporation
will have all passive activity loss and passive activity tax credits disallowed for any taxable year.
1504 are met, permitting a consolidated federal income tax return fifing with an affiliated group, the PC no longer meets the definition of a "qualified personal service corporation
" under Sec.
It filed its tax return as a general corporation and not as a personal service corporation
. The IRS determined that it was a personal service corporation
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.