Form 1120 - Section 280h Limitations For A Personal Service Corporation (Psc) Page 2
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Schedule H (Form 1120) (Rev. 12-2011)
Page
General Instructions
exchange of property between the
requirement of section 280H(c). The
owner-employee and the corporation
PSC meets the requirement if, during the
Section references are to the Internal
are not applicable amounts.
deferral period of the tax year, the
Revenue Code unless otherwise noted.
applicable amounts paid or incurred for
An amount is indirectly includible in
all employee-owners are equal to or
Purpose of Schedule
the gross income of an employee-owner
greater than the smaller of:
if the amount is includible in the gross
A personal service corporation (PSC) (as
income of certain related parties. For
• The amount determined under the
defined in section 441(i)(2)) may elect
details and examples, see Temporary
preceding year test or
under section 444 to have a tax year
Regulations sections 1.280H-1T(b)(4)(ii)
• The amount determined under the
other than a calendar year. A PSC that
and 1.280H-1T(b)(4)(iii).
3-year average test.
makes the election is subject to the
Employee-owner. An employee-owner
Complete lines 1 through 4 to
minimum distribution requirement of
is a person who, on any day of the
determine if the preceding year test
section 280H for the year the election is
PSC’s tax years:
applies to the PSC. If it does not,
made and for each tax year the election
• Is an employee of the PSC or who
complete the rest of Part I to see if the
remains in effect. If the PSC does not
performs services for or on behalf of the
3-year average test applies.
meet the requirement, its deduction for
PSC (including an independent
Line 1. Enter the applicable amount that
amounts paid or incurred to employee-
contractor) and
owners (see Applicable amount below) is
was paid or incurred in the preceding tax
• Owns any outstanding stock of the
year to any employee-owner of the PSC
limited.
PSC.
and that was otherwise deductible by
Use Part I of Schedule H to determine
the PSC on its preceding income tax
Deferral period. The deferral period is
if the PSC meets the minimum
return.
the number of months between the last
distribution requirement of section
Example. PEK, an accrual basis
280H(c) for the tax year. Use Part II to
day of the elected tax year and the last
day of the required tax year.
personal service corporation with a tax
figure the limits on deductions under
section 280H(d) if the requirement is not
year ending September 30, made a
Example. The PSC elects a tax year
section 444 election for its tax year
met.
that ends on September 30. Since the
beginning October 1, 2010. On October
required tax year for a PSC is the
Who Must File
1, 2010, S, an employee of PEK, owned
calendar year, the deferral period is 3
no stock of PEK; however, on March 31,
A PSC that has elected under section
months (the number of months between
2011, S acquired 10 of the 200
444 to have a tax year other than a
September 30 and December 31).
outstanding shares of PEK stock. During
calendar year must complete Schedule
Nondeferral period. The nondeferral
the period October 1, 2010 to March 31,
H. If the PSC does not meet the
period is the part of the tax year that
2011, S earned $40,000 of
minimum distribution requirement of
occurs after the part of the year that
compensation as an employee of PEK.
section 280H for the tax year, it must file
constitutes the deferral period.
During the period April 1, 2011, to
Schedule H with its Form 1120. If it does
Adjusted taxable income. Adjusted
September 30, 2011, S earned $60,000
meet the requirement, it does not need
taxable income is taxable income
of compensation as an employee-owner
to attach the completed Schedule H to
determined without regard to:
of PEK. The entire $100,000
its tax return, but it should keep it with
• Applicable amounts and
compensation paid to S during PEK’s
its tax records.
tax year ending September 30, 2011,
• Any NOL carryover to the extent the
Definitions
was otherwise deductible by PEK and
carryover is attributable to applicable
includible in S’s gross income. For its
amounts.
Applicable election year. An applicable
2011 tax year, it is an applicable amount
election year is any tax year in which a
Adjusted taxable income for the
for PEK from the preceding tax year.
section 444 election is in effect.
deferral period of an applicable election
See Temporary Regulations section
year is the adjusted taxable income that
Applicable amount. An applicable
1.280H-1T(c) for more information,
would result if the PSC filed an income
amount is any amount otherwise
including examples of the computation
tax return for the deferral period under
deductible by a PSC in a tax year that is
of the preceding-year test and the 3-year
its normal method of accounting.
includible (directly or indirectly) in the
average test.
Reasonable estimates are acceptable.
gross income of a taxpayer who is an
employee-owner at any time during that
For more information, see Temporary
Part II
year. See the instructions for line 1 for an
Regulations section 1.280H-1T(c)(3)(iii).
Complete Part II to figure the maximum
example of how to figure a PSC’s
Specific Instructions
deduction under section 280H(d) for
applicable amounts.
applicable amounts if the PSC did not
Exception. Dividends paid by the
Part I
meet the minimum distribution
corporation and gain on the sale or
requirement figured in Part I.
Complete Part I to see if the PSC meets
the minimum distribution
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