(1)an election by a personal service corporation under section
444 is in effect for a taxable year, and
(2)such corporation does not meet the minimum distribution requirements of subsection (c) for such taxable year,
then the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employee-owners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for purposes of subchapter G (relating to personal holding companies).
(b) Carryover of nondeductible amounts
If any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year.
(c) Minimum distribution requirement
For purposes of this section—
(1) In general
A personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period of the taxable year (determined without regard to subsection (b)) equal or exceed the lesser of—
(A)the product of—
(i)the applicable amounts paid during the preceding taxable year, divided by the number of months in such taxable year, multiplied by
(ii)the number of months in the deferral period of the preceding taxable year, or
(B)the applicable percentage of the adjusted taxable income for the deferral period of the taxable year.
(2) Applicable percentage
The term “applicable percentage” means the percentage (not in excess of 95 percent) determined by dividing—
(A)the applicable amounts paid or incurred during the 3 taxable years immediately preceding the taxable year, by
(B)the adjusted taxable income of such corporation for such 3 taxable years.
(d) Maximum deductible amount
For purposes of this section, the term “maximum deductible amount” means the sum of—
(1)the applicable amounts paid during the deferral period, plus
(2)an amount equal to the product of—
(A)the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by
(B)the number of months in the nondeferral period.
(e) Disallowance of net operating loss carrybacks
No net operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section
(f) Other definitions and special rules
For purposes of this section—
(1) Applicable amount
The term “applicable amount” means any amount paid to an employee-owner which is includible in the gross income of such employee, other than—
(A)any gain from the sale or exchange of property between the owner-employee and the corporation, or
(B)any dividend paid by the corporation.
The term “employee-owner” has the meaning given such term by section
269A(b)(2) (as modified by section
(3) Nondeferral and deferral periods
(A) Deferral period
The term “deferral period” has the meaning given to such term by section
(B) Nondeferral period
The term “nondeferral period” means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the deferral period.
(4) Adjusted taxable income
The term “adjusted taxable income” means taxable income determined without regard to—
(A)any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and
(B)any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A).
(5) Personal service corporation
The term “personal service corporation” has the meaning given to such term by section
Subsec. (f)(4). Pub. L. 100–647, § 2004(e)(14)(A), amended par. (4) generally. Prior to amendment, par. (4) read as follows: “The term ‘adjusted taxable income’ means taxable income increased by any amount paid or incurred to an employee-owner which was includible in the gross income of such employee-owner.”
Amendment by Pub. L. 100–647effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) ofPub. L. 100–647, set out as a note under section
56 of this title.
Section applicable to taxable years beginning after Dec. 31, 1986, see section 10206(d)(1) ofPub. L. 100–203, set out as a note under section
444 of this title.
The table below lists the classification updates, since Jan. 3, 2012, for this section. Updates to a broader range of sections may be found at the update page for containing chapter, title, etc.
The most recent Classification Table update that we have noticed was Tuesday, August 13, 2013
An empty table indicates that we see no relevant changes listed in the classification tables. If you suspect that our system may be missing something, please double-check with the Office of the Law Revision Counsel.
Description of Change
Statutes at Large
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