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Old 12-09-2007, 04:09 PM
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What are Personal Service Corporations?

WHAT IS A PERSONAL SERVICE CORPORATION?
The Personal Service Corporation,(PSC) is really a regular C-Corporation that is really owned and operated by individuals who are really engaged in performing personal services in such diverse fields as follows:

-accounting,
-architecture,
-actuarial science,
-consulting,
-engineering,
-health,
-law &
-performing arts.

WHAT ARE THE IRS QUAILIFICATIONS TO BE TREATED AS A PSC?
There are however, some requirements that the IRS has established that would qualifiy a C-Corporation to be recognized and treated as a Personal Service Corporations for tax purposes. These are

1. The Corporation is a C-Corporation.
2. The Corporation's primary activity during the year is performance of personal services.
3. The personal services are primarily performed by the employee-owners of the corporation.
4. Employee-owners own at least 10% of the corporation's stock.

WHAT ARE CONSEQUENCES OF BEING TREATED A PSC?
1. PSC's are generally restricted by the IRS to use the calendar year as their fiscal year. This clearly will negatively impact certain taxpayers from defering taxable income.

2. The PSC are taxed at a flat rate of 35% on all of their taxable income.
Clearly, the impact of this is that the PSCs cannot take advantage of the C-Corporation's graduated tax rates, thus resulting in substantially higher tax rates than a regular C-Corporation.

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Last edited by TaxGuru : 12-10-2007 at 10:12 AM.


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