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What are the requirements for a Corporation to be classified as a Personal Service Corporation (PSC)?

A Corporation is a Personal Service Corporation if it meets all of the following requirements (per Publication 542, Corporations).

1. Its principal activity during the "testing period" is performing personal services (defined below). Generally, the testing period for any tax year is the prior tax year. If the Corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of:

   a. The last day of its tax year, or

   b. The last day of the calendar year in which its tax year begins.

2. Its employee-owners substantially perform the services in (1 above). This requirement is met if more than 20% of the Corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners.
3. Its employee-owners own more than 10% of the FMV of its outstanding stock on the last day of the testing period.

Personal Services: Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.

Note: Two tests exist in UltraTax CS. The broader category requires taxpayers to mark a checkbox on Page 1 of the return. The narrower definition requires a flat tax calculation. Both PSC fields are in Screen 1120.

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