1120-US: Personal service corporations FAQ

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Question

What is the difference between the PSC under Regulation 1.441-3(c) and the Qualified PSC subject to flat 35% tax rate fields in Screen 1120?

Answer

If the PSC under Reg 1.441-3(c) field is marked, UltraTax CS marks the checkbox on Form 1120, Page 1. If the Qualified PSC subject to flat 35% tax rate field is marked, the PSC tax calculates using a flat rate of 35 percent. The Qualified PSC subject to flat 35% tax rate field should be marked only if the personal service corporation is a qualified PSC. Per the Form 1120 instructions, a personal service corporation must meet two tests to be a qualified PSC and subsequently taxed at a flat rate of 35 percent. First, the corporation's activities must involve the performance of personal services, and second, at least 95 percent of the corporation's stock, by value, must be owned, directly or indirectly, by employees. If the second condition is not met, the PSC is not taxed at a flat rate of 35 percent.

Related topic: 1120 frequently asked questions

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