Personal service corporation
Encyclopedia
A corporation
is a personal service corporation if it meets all of the following requirements:
1. Its principal activity during the “testing period” is performing personal services (defined later). Generally, the testing period for any tax year is the prior tax year. If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of:
a. The last day of its tax year, or
b. The last day of the calendar year
in which its tax year begins.
2. Its employee-owners substantially perform the services in (1). This requirement is met if more than 20% of the corporation's compensation
cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners.
3. Its employee-owners own more than 10% of the fair market value
of its outstanding stock on the last day of the testing period.
Personal services include any activity performed in the fields of accounting, actuarial science
, architecture
, consulting
, engineering
, health
(including veterinary services), law
, and the performing arts
.
A person is an employee-owner of a personal service corporation if both of the following apply:
1. They are an employee of the corporation or perform personal services for, or on behalf of, the corporation (even if they are an independent contractor
for other purposes) on any day of the testing period
2. They own stock in the corporation at any time during the testing period
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
is a personal service corporation if it meets all of the following requirements:
1. Its principal activity during the “testing period” is performing personal services (defined later). Generally, the testing period for any tax year is the prior tax year. If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of:
a. The last day of its tax year, or
b. The last day of the calendar year
Calendar year
Generally speaking, a calendar year begins on the New Year's Day of the given calendar system and ends on the day before the following New Year's Day. By convention, a calendar year consists of a natural number of days. To reconcile the calendar year with an astronomical cycle , certain years...
in which its tax year begins.
2. Its employee-owners substantially perform the services in (1). This requirement is met if more than 20% of the corporation's compensation
Compensation
Compensation can refer to:*Financial compensation, various meanings*Compensation , various advantages a player has in exchange for a disadvantage*Compensation *Compensation , by Ralph Waldo Emerson...
cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners.
3. Its employee-owners own more than 10% of the fair market value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
of its outstanding stock on the last day of the testing period.
Personal services include any activity performed in the fields of accounting, actuarial science
Actuarial science
Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through education and experience...
, architecture
Architecture
Architecture is both the process and product of planning, designing and construction. Architectural works, in the material form of buildings, are often perceived as cultural and political symbols and as works of art...
, consulting
Consultant
A consultant is a professional who provides professional or expert advice in a particular area such as management, accountancy, the environment, entertainment, technology, law , human resources, marketing, emergency management, food production, medicine, finance, life management, economics, public...
, engineering
Engineering
Engineering is the discipline, art, skill and profession of acquiring and applying scientific, mathematical, economic, social, and practical knowledge, in order to design and build structures, machines, devices, systems, materials and processes that safely realize improvements to the lives of...
, health
Health
Health is the level of functional or metabolic efficiency of a living being. In humans, it is the general condition of a person's mind, body and spirit, usually meaning to be free from illness, injury or pain...
(including veterinary services), law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, and the performing arts
Performing arts
The performing arts are those forms art which differ from the plastic arts insofar as the former uses the artist's own body, face, and presence as a medium, and the latter uses materials such as clay, metal or paint which can be molded or transformed to create some physical art object...
.
A person is an employee-owner of a personal service corporation if both of the following apply:
1. They are an employee of the corporation or perform personal services for, or on behalf of, the corporation (even if they are an independent contractor
Independent contractor
An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when...
for other purposes) on any day of the testing period
2. They own stock in the corporation at any time during the testing period