Personal service corporations: down but not out. (Special Issue: Small Business)

Recent tax legislation has eroded the benefits available to personal service corporations (PSC), bringing a number of new questions and decisions for practitioners to the forefront. PSCs with a differing definition under each law, are a part of important provisions in both the Tax Reform Act of 1986...

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Bibliographic Details
Published in:Journal of accountancy 1988-06, Vol.165 (6), p.30
Main Authors: Bukofsky, Ward M, Dunn, William J
Format: Magazinearticle
Language:English
Subjects:
Built-in gains & losses
Federal government
Impacts
Laws, regulations and rules
Legislation
Liquidation
Personal service corporations
Professional corporations
Revenue Acts
S corporations
Small business
Tax legislation
Tax Reform Act 1986-US
Taxation
TEFRA 1982-US
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Summary:Recent tax legislation has eroded the benefits available to personal service corporations (PSC), bringing a number of new questions and decisions for practitioners to the forefront. PSCs with a differing definition under each law, are a part of important provisions in both the Tax Reform Act of 1986 and the Revenue Act of 1987. Congress apparently has viewed PSCs as having no true business purpose other than tax avoidance, and they have been singled out as a source of tax revenue by denial of graduated rates. An alternative for PSC clients is the move to S status. However, those that make the switch now are subject to the built-in gains tax under Internal Revenue Code (IRC) Section 1374. In addition, new and complex fiscal year retention rules in the Revenue Act seem to favor PSCs over S corporations. A 2nd option is to liquidate the PSC and continue operation as another form of entity. PSC structures should be changed only after all possible repercussions have been evaluated carefully.
ISSN:0021-8448
1945-0729