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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
To qualify, the corporation must special dividends-received a. Any securities or money market
establish that: deductions for corporations. instruments held as property
described in section 1221(a)(1),
The rent or other compensation it Line 10. Total. Include in the total for
received was the highest obtainable line 10 any deduction for amounts b. Margin accounts, or
(if none was received, it must show used or irrevocably set aside to pay or c. Any financing for a customer
that none was obtainable), retire qualified indebtedness under secured by securities or money
The property was held in the course section 545(c) (as in effect before market instruments.
of a business carried on for profit, and November 5, 1990). See Regulations 4. Interest from line 4d of the
There was a reasonable section 1.545-3. Enter the amount and Worksheet.
expectation that the property's “Section 545(c)” on the dotted line
operation would result in a profit, or next to line 10. See sections 543(a)(1) and 543(b)
that the property was necessary to (2)(C) for more information.
conduct the business. Line 12. Dividends paid after the
end of the tax year. The corporation Line 18. Rents. Rents can be
Deductions can elect to treat dividends (other than excluded from PHC income if both of
Line 5. Federal and foreign in- deficiency dividends) paid after the the following tests are met.
come, war profits, and excess end of the year and before the 16th Test 1. The adjusted income from
profits taxes not deducted in figur- day of the 3rd month following the end rents (line 18c) is at least 50% of
ing line 1. The corporation can of the tax year as paid during the tax adjusted ordinary gross income.
deduct: year. Enter these dividends on line 12
Federal income taxes accrued but not in Part VI. Test 2. The sum of taxable
during the tax year, and distributions (Part VI, line 3) and the
Income, war profits, and excess Part II. Personal Holding deduction for dividends paid after the
profits taxes accrued (or deemed Company Income end of the tax year (Part I, line 12) is at
least equal to:
paid) during the tax year to foreign
countries and U.S. possessions.* Note. The term “ordinary gross 1. The excess, if any, of PHC
income” (used below) means line 3 of income, over
The corporation cannot deduct: the Worksheet. The term “adjusted 2. 10% of ordinary gross income.
The accumulated earnings tax ordinary gross income” means line 5
under section 531, or of the Worksheet. For this purpose, PHC income
The PHC tax under section 541. includes copyright royalties and
*The foreign tax credit is not A corporation may be subject to the adjusted income from mineral, oil, and
allowed against PHC tax. But, as PHC tax if at least 60% of its adjusted gas royalties, but does not include the
described above, the corporation can ordinary gross income for the tax year amounts from lines 18c and 22.
take a deduction for taxes paid to is PHC income. Use Part II to figure
foreign countries and U.S. the amount of the corporation's PHC If both of the above tests are met,
possessions even if a credit was income. Then, complete line 6 of the rents can be excluded from PHC
claimed when figuring the Worksheet to determine if the income. Do not complete lines 18a
corporation's income tax. corporation is a PHC. through 18c.
If the rents cannot be excluded,
Attach a schedule showing the type Line 14b. Dividends excluded.
enter rents (as defined in section
of tax, the tax year, and the amount. Dividends received by a U.S.
543(b)(3)) on line 18a. Enter the
For more information, see section shareholder (as defined in section
amount from line 4a of the Worksheet
545(b)(1). 951(b)) from a controlled foreign
on line 18b and complete line 18c.
corporation (as defined in section
Line 6. Contributions. Figure the 957(a)) are excluded from personal See section 543(a)(2) for more
deduction using the limitations under holding company income under information.
sections 170(b)(1)(A), (B), (D), and section 543(a)(1)(C). Enter the total Line 19. Mineral, oil, and gas royal-
(E), but without sections 170(b)(2) amount of dividends excluded on ties. Mineral, oil, and gas royalties
and (d)(1). When figuring the line 14b. can be excluded from PHC income if
limitations under section 170(b)(1),
use taxable income figured with the Line 15b. Amounts excluded. Enter all three of the tests below are met.
adjustments (other than the 10% the total of interest excluded on Test 1. The adjusted income from
limitation) provided in sections 170(b) line 15b. The following interest can be mineral, oil, and gas royalties
(2) and (d)(1) and without any excluded from PHC income. (line 19c) is at least 50% of adjusted
expenses and depreciation 1. Interest constituting rent. ordinary gross income.
disallowed under section 545(b)(6). 2. Interest on amounts set aside in Test 2. PHC income is not more
Line 7. Net operating loss. Instead a reserve fund under chapter 533 or than 10% of ordinary gross income.
of the net operating loss deduction 535 of Title 46, United States Code.
For this purpose, PHC income
provided in section 172, a deduction 3. Interest received by a broker or includes copyright royalties and the
is allowed for the net operating loss dealer (within the meaning of section adjusted income from rents, but does
(as defined in section 172(c)) for the 3(a)(4) or (5) of the Securities not include line 19c.
preceding tax year figured without the Exchange Act of 1934) in connection
with:
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