1 / 17

Personal Holding Company (PHC)

Personal Holding Company (PHC). Prevents closely held C corps from sheltering passive income from higher individual tax rates PHC: Stock ownership requirement 50% of value owned by 5 or fewer individuals Passive income requirement PHCI is at least 60% of AOGI.

jagger
Download Presentation

Personal Holding Company (PHC)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Personal Holding Company (PHC) • Prevents closely held C corps from sheltering passive income from higher individual tax rates PHC: • Stock ownership requirement • 50% of value owned by 5 or fewer individuals • Passive income requirement • PHCI is at least 60% of AOGI

  2. Stock Ownership Requirement (1 of 2) • Five or fewer shareholders who own  50% of outstanding stock at any time during last 6 months of corporation’s tax year

  3. Stock Ownership Requirement(2 of 2) • §544 attribution rules apply • Similar to §318 attribution rules except: • Family attribution includes ALL ancestors and lineal descendents • Corp attribution for ALL shareholders • Attribution rules cannot be used to PREVENT a corp from being a PHC

  4. Problem C:5-53 a. PHC--Art is deemed to own all of Small's stock. b. PHC--Art plus Phil, Robert, and Sue (the three individuals are deemed to own the PRS Partnership stockholdings) are considered to own two-thirds of the Small stock. c. PHC--Becky Whitaker is deemed to own all the Small stock (20% directly, 20% from her husband Art, 15% indirectly from the Trust, and 45% constructively from her sisters).

  5. Passive Income Requirement(1 of 2) •  60% of corp’s AOGI for year is PHCI • See Fig. C5-1 for AOGI calculation • PHCI includes • Dividends, interest, annuity proceeds, royalties, distributions from estate, or trust, certain personal service contracts

  6. Passive Income Requirement(2 of 2) • PHCI includes (continued) • Rents, unless corp earnings are predominantly from rental income • See Table C5-2 for tests to determine exclusions from PHCI

  7. Exclusion For Rent Adjusted income from rents (AIR) is excluded from PHCI if: AIR is at least 50% of AOGI and The dividends-paid deduction equals or exceeds the amount by which nonrental PHCI exceeds 10% of OGI.

  8. Problem C:5-54

  9. Problem C:5-54

  10. Problem C:5-54 footnote d

  11. Calculating the PHC Tax (1 of 3) • Calculate undistributed personal holding company income (UPHCI) • See next slide for calculation of UPHCI • Apply 15% rate to determine tax • Highest tax rate on dividend income

  12. Calculating the PHC TaxSee Figure C:5-2 (2 of 3) Taxable income + Positive adjustments DRD, NOL, charitable contrib. c/o, leased prop. net loss, excess rent exp. - Negative adjustments Accrued US/foreign inc. taxes, excess NOL w/o DRD, charitable contrib., after-tax cap. gain - Dividends-paid deduction = UPHCI

  13. Calculating the PHC Tax (3 of 3) • Avoiding PHC status with • Throwback dividends • Consent dividends • Dividend carryovers • Liquidating dividends • Deficiency dividends • See Topic Review C5-3

  14. Problem C:5-57a

  15. Problem C:5-57b

  16. Problem C:5-57c

  17. Compliance and Procedural Considerations • Personal holding company tax • Schedule PH for Form 1120

More Related