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Identifying personal service corporations.

Personal service corporations (PSCs) face requirements to both report on the calendar year and use the flat 34% corporate income tax rate. However, the definition of a PSC under the tax code's section 441(i) calendar-year requirement differs from the regulations under section 448, which are used to identify the entities subject to the 34% rate rule.

The IRS ruled an engineering corporation was not a PSC subject to the higher corporate rates because the employees of the corporation spent less than 30% of their time in services related to land surveying. The balance of their work time was devoted to claim staking, which was held to be outside of the professional service definition (technical advice memorandum 9232009).

Observation: As an illustration of the differences in these requirements, the 34% rate rule applies to PSCs in which 95% or more of employee time is spent in personal service categories, whereas under the calendar*year requirement 50% of employee compensation (and at least 20% of owner-employee compensation) must be attributable to the specified professions.

Practitioners are advised to carefully review these definitions to determine if client corporations continue to meet all relevant PSC criteria.
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Author:Abrams, William
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Jan 1, 1993
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