Which one of the following statements about the taxation of personal service cor

Question

Which one of the following statements about the taxation of personal service corporations is false for tax years beginning after December 31, 1993? A. Personal service corporations are subject to the “flat” 35% tax rate only if more than 75% of their gross income is earned income. B. Taxable income of a qualified personal service corporation is taxed at a 35% rate without benefit of the 15% and 25% reduced rates. C. Substantially all of the stock of the corporation must be owned by current or retired employees (or their estates or heirs) that are employed performing services for the corporation in connection with activities in certain professional fields. D. The fields covered by the personal service corporation rules are health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. Which one of the following statements about the taxation of personal service corporations is false for tax years beginning after December 31, 1993? A. Personal service corporations are subject to the “flat” 35% tax rate only if more than 75% of their gross income is earned income. B. Taxable income of a qualified personal service corporation is taxed at a 35% rate without benefit of the 15% and 25% reduced rates. C. Substantially all of the stock of the corporation must be owned by current or retired employees (or their estates or heirs) that are employed performing services for the corporation in connection with activities in certain professional fields. D. The fields covered by the personal service corporation rules are health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.

Explanation / Answer

A. FALSE

corporations whose employees spend at least 95 percent of their time in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. These corporations are taxed at a flat rate of 35 percent of net profits. There is no such quantum like 75% of earned leave in PSC.

B. TRUE

PSCs are taxed at a flat 35% rate rather than at a graduated rate

C. TRUE

95% or more of the stock, by value, must be held directly or indirectly (through partnerships, S corporations, or other QPSCs) by one of the following:
employees of the QPSC,
retired employees who had performed such services in the past for the corporation,
the estates of such individuals, or
anyone who acquired such stock through inheritance, but only within 2 years of the testator's death.

d) TRUE

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