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Schedule H (Form 1120) (Rev. 12-2011) Page 2
General Instructions exchange of property between the requirement of section 280H(c). The
owner-employee and the corporation PSC meets the requirement if, during the
Section references are to the Internal are not applicable amounts. deferral period of the tax year, the
Revenue Code unless otherwise noted. applicable amounts paid or incurred for
An amount is indirectly includible in
Purpose of Schedule the gross income of an employee-owner all employee-owners are equal to or
if the amount is includible in the gross greater than the smaller of:
A personal service corporation (PSC) (as income of certain related parties. For • The amount determined under the
defined in section 441(i)(2)) may elect details and examples, see Temporary preceding year test or
under section 444 to have a tax year Regulations sections 1.280H-1T(b)(4)(ii) • The amount determined under the
other than a calendar year. A PSC that and 1.280H-1T(b)(4)(iii). 3-year average test.
makes the election is subject to the Employee-owner. An employee-owner Complete lines 1 through 4 to
minimum distribution requirement of is a person who, on any day of the determine if the preceding year test
section 280H for the year the election is PSC’s tax years: applies to the PSC. If it does not,
made and for each tax year the election
remains in effect. If the PSC does not • Is an employee of the PSC or who complete the rest of Part I to see if the
meet the requirement, its deduction for performs services for or on behalf of the 3-year average test applies.
amounts paid or incurred to employee- PSC (including an independent Line 1. Enter the applicable amount that
owners (see Applicable amount below) is contractor) and was paid or incurred in the preceding tax
limited. • Owns any outstanding stock of the year to any employee-owner of the PSC
Use Part I of Schedule H to determine PSC. and that was otherwise deductible by
if the PSC meets the minimum Deferral period. The deferral period is the PSC on its preceding income tax
distribution requirement of section the number of months between the last return.
280H(c) for the tax year. Use Part II to day of the elected tax year and the last Example. PEK, an accrual basis
figure the limits on deductions under day of the required tax year. personal service corporation with a tax
section 280H(d) if the requirement is not Example. The PSC elects a tax year year ending September 30, made a
met. that ends on September 30. Since the section 444 election for its tax year
required tax year for a PSC is the beginning October 1, 2010. On October
Who Must File calendar year, the deferral period is 3 1, 2010, S, an employee of PEK, owned
A PSC that has elected under section months (the number of months between no stock of PEK; however, on March 31,
444 to have a tax year other than a September 30 and December 31). 2011, S acquired 10 of the 200
calendar year must complete Schedule Nondeferral period. The nondeferral outstanding shares of PEK stock. During
H. If the PSC does not meet the period is the part of the tax year that the period October 1, 2010 to March 31,
minimum distribution requirement of occurs after the part of the year that 2011, S earned $40,000 of
section 280H for the tax year, it must file constitutes the deferral period. compensation as an employee of PEK.
During the period April 1, 2011, to
Schedule H with its Form 1120. If it does Adjusted taxable income. Adjusted September 30, 2011, S earned $60,000
meet the requirement, it does not need taxable income is taxable income of compensation as an employee-owner
to attach the completed Schedule H to determined without regard to: of PEK. The entire $100,000
its tax return, but it should keep it with
its tax records. • Applicable amounts and compensation paid to S during PEK’s
• Any NOL carryover to the extent the tax year ending September 30, 2011,
Definitions carryover is attributable to applicable was otherwise deductible by PEK and
Applicable election year.An applicable amounts. includible in S’s gross income. For its
election year is any tax year in which a Adjusted taxable income for the 2011 tax year, it is an applicable amount
section 444 election is in effect. deferral period of an applicable election for PEK from the preceding tax year.
Applicable amount. An applicable year is the adjusted taxable income that See Temporary Regulations section
amount is any amount otherwise would result if the PSC filed an income 1.280H-1T(c) for more information,
deductible by a PSC in a tax year that is tax return for the deferral period under including examples of the computation
includible (directly or indirectly) in the its normal method of accounting. of the preceding-year test and the 3-year
gross income of a taxpayer who is an Reasonable estimates are acceptable. average test.
employee-owner at any time during that For more information, see Temporary
year. See the instructions for line 1 for an Regulations section 1.280H-1T(c)(3)(iii). Part II
example of how to figure a PSC’s Complete Part II to figure the maximum
deduction under section 280H(d) for
applicable amounts. Specific Instructions applicable amounts if the PSC did not
Exception. Dividends paid by the meet the minimum distribution
corporation and gain on the sale or Part I
requirement figured in Part I.
Complete Part I to see if the PSC meets
the minimum distribution
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