Instructions For Form 1120-Fsc - 2002 (Page 14 of 16) in pdf

service organizations, professional

equally among themselves. For example,

Tax Rate Schedule

organizations (such as bar and medical

Controlled Group AB consists of

If taxable income (Schedule B, line 20) is:

associations), business leagues, trade

Corporation A and Corporation B. They

associations, chambers of commerce,

do not elect an apportionment plan.

Of the

boards of trade, and real estate boards.

Therefore, each corporation is entitled to:

But not

amount

However, no deduction is allowed if a

Over —

over —

Tax is:

over —

•

principal purpose of the organization is to

$25,000 (one-half of $50,000) on line

entertain, or provide entertainment

2a(1),

$50,000

15%

facilities for, members or their guests. In

•

50,000

75,000

$ 7,500 + 25%

50,000

$12,500 (one-half of $25,000) on line

addition, FSCs may not deduct

2a(2), and

75,000

100,000

13,750 + 34%

75,000

membership dues in any club organized

•

$4,962,500 (one-half of $9,925,000) on

100,000

335,000

22,250 + 39%

100,000

for business, pleasure, recreation, or

line 2a(3).

other social purpose. This includes

335,000 10,000,000

113,900 + 34%

335,000

country clubs, golf and athletic clubs,

10,000,000 15,000,000 3,400,000 + 35% 10,000,000

airline and hotel clubs, and clubs

Line 2b. Members of a controlled group

15,000,000 18,333,333 5,150,000 + 38% 15,000,000

operated to provide meals under

are treated as one group to figure the

18,333,333

- - - - -

35%

conditions favorable to business

applicability of the additional 5% tax and

discussion.

the additional 3% tax. If an additional tax

applies, each member will pay that tax

Entertainment facilities. The FSC

Qualified personal service

based on the part of the amount used in

cannot deduct an expense paid or

corporations. A qualified personal

each taxable income bracket to reduce

incurred for a facility (such as a yacht or

service corporation is taxed at a flat rate

that member’s tax. See section 1561(a). If

hunting lodge) used for an activity usually

of 35% on its taxable income. A FSC is a

an additional tax applies, attach a

considered entertainment, amusement, or

qualified personal service corporation if it

schedule showing the taxable income of

recreation.

meets both of the following tests:

the entire group and how the FSC figured

•

Note. The FSC may be able to deduct

Substantially all of the FSC’s activities

its share of the additional tax.

otherwise nondeductible meals, travel,

involve the performance of services in the

and entertainment expenses if the

fields of engineering, architecture, or

Line 2b(1). Enter the FSC’s share of

amounts are treated as compensation

management consulting and

•

the additional 5% tax on line 2b(1).

and reported on Form W-2 for an

At least 95% of the corporation’s stock,

employee or on Form 1099-MISC or Form

by value, is owned, directly or indirectly,

1042-S for an independent contractor.

Line 2b(2). Enter the FSC’s share of

by (1) employees performing the services,

the additional 3% tax on line 2b(2).

(2) retired employees who had performed

Schedule J

the services listed above, (3) any estate

of the employee or retiree described

Line 3

Tax Computation

above, or (4) any person who acquired

Most FSCs should figure their tax using

the stock of the FSC as a result of the

Lines 1 and 2

the Tax Rate Schedule below. Exceptions

death of an employee or retiree (but only

apply to members of a controlled group

Members of a controlled group. A

for the 2-year period beginning on the

(see worksheet below) and qualified

member of a controlled group, as defined

date of the employee’s or retiree’s death).

personal service corporations (see

in section 927(d)(4), must check the box

See Temporary Regulations section

instructions below).

on line 1 and complete lines 2a and 2b of

1.448-1T(e) for details.

Schedule J, Form 1120-FSC.

Note: If the FSC meets these tests,

Members of a controlled group must

Line 2a. Members of a controlled group

check the box on line 3, Schedule J, Form

attach to Form 1120-FSC a statement

are entitled to one $50,000, one $25,000,

1120-FSC.

showing the computation of the tax

and one $9,925,000 taxable income

entered on line 3.

bracket amount (in that order) on line 2a.

When a controlled group adopts or

Tax Computation Worksheet for Members of a Controlled Group

later amends an apportionment plan,

(keep for your records)

each member must attach to its tax return

a copy of its consent to this plan. The

Note: Each member of a controlled group (except a qualified personal service

copy (or an attached statement) must

corporation) must compute the tax using this worksheet.

show the part of the amount in each

Enter taxable income (Schedule B, line 20)

taxable income bracket apportioned to

Enter line 1 or the FSC’s share of the $50,000 taxable income bracket,

that member. See Regulations section

whichever is less

1.1561-3(b) for other requirements and

Subtract line 2 from line 1

for the time and manner of making the

Enter line 3 or the FSC’s share of the $25,000 taxable income bracket,

consent.

whichever is less

Subtract line 4 from line 3

Unequal apportionment plan.

Members of a controlled group may elect

Enter line 5 or the FSC’s share of the $9,925,000 taxable income bracket,

whichever is less

an unequal apportionment plan and divide

Subtract line 6 from line 5

the taxable income brackets as they want.

Multiply line 2 by 15%

There is no need for consistency among

Multiply line 4 by 25%

taxable income brackets. Any member

10.

Multiply line 6 by 34%

10.

may be entitled to all, some, or none of

11.

Multiply line 7 by 35%

11.

the taxable income bracket. However, the

12.

If the taxable income of the controlled group exceeds $100,000, enter this

total amount for all members cannot be

member’s share of the smaller of: 5% of the taxable income in excess of

more than the total amount in each

$100,000, or $11,750 (See the instructions for Schedule J, line 2b.)

12.

taxable income bracket.

13.

If the taxable income of the controlled group exceeds $15 million, enter this

Equal apportionment plan. If no

member’s share of the smaller of: 3% of the taxable income in excess of $15

million, or $100,000 (See the instructions for Schedule J, line 2b.)

13.

apportionment plan is adopted, members

14.

Total. Add lines 8 through 13. Enter here and on Schedule J, line 3

14.

of a controlled group must divide the

amount in each taxable income bracket

-14-

Instructions for Form 1120-FSC

Instructions For Form 1120-Fsc - 2002 Page 14

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