| From Columbus, OH ... |
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Dear TaxMama,
I have been working on an 1120 and have been referred to “Temporary Regulations section 1.444-4T” (pg. 6 of 1999 1120
instructions). This is in regards to determining if a corporation is
a personal service corporation. After a lengthy search of my
reference materials and the Internet I cannot seem to find this
specific temporary regulation. Can you help? Thank you very much.
Mark
Dear Mark,
Fundamentally, a personal service corporation is one whose income comes from the professional services (doctors, accountants, engineers, architects, etc.) performed primarily by the shareholders'.
If you go to the library and pick up a copy of the Internal Revenue Code ... it will all be laid out there --- in terms clear enough for hardly anyone to understand.
However, the regulations are in another set of books - Internal Revenue Service Regulations - which have some more clarification. But also offer more confusion.
Whenever you are forming a corporation ... meet with your tax professional and discuss ALL the options. They may come up with some good advice that will both keep you out of trouble and save you a fortune in taxes.
For instance, I would rarely form a Personal Service Corporation because all income is taxed at a flat 35%. (Regular C-Corporations' tax rates start at 15% and it takes at least two hops before it reaches 35%).
Eva Rosenberg
Your TaxMama