26 USC 280H - Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years

U.S Code last checked for updates: May 02, 2024

§ 280H.

Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years

(a)

General rule

If—

(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

(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

(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.

(2)

Employee-owner

(3)

Nondeferral and deferral periods

(A)

Deferral period

(B)

Nondeferral 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

(Added Pub. L. 100–203, title X, § 10206(c)(1), Dec. 22, 1987, 101 Stat. 1330–401; amended Pub. L. 100–647, title II, § 2004(e)(2)(B), (3), (14)(A), (C), Nov. 10, 1988, 102 Stat. 3600, 3602.)

cite as: 26 USC 280H