Personal Holding Company

About Personal Holding Company:

Personal Holding Company (PHC) was a corporation (1) that derives more than 60% of its gross income, after certain adjustments, from investment sources such as dividends, interests, rents, and royalties, and from certain personal service contracts, and (2) of which more than 50% of the stock is owned by five or fewer individuals. Such a corporation has at times been described as an “incorporated pocketbook.”.

In addition to the corporate tax, a penalty tax of 39-6% is applied to the corporate taxable income, less distributions to shareholders, income taxes, and certain other adjustments. For the purpose of this penalty tax, a PHC is not allowed any dividends- received deduction, and the carryover of any net operating loss is extremely limited.

Because of its severity, the PHC tax operates as a rather effective barrier against the use of a closely held corporation for the avoidance of personal taxes on investment and personal service income. Former IRC (check if this IRC provision is current here) §542.

See also the entries Income Tax and State Income Tax in the American Encyclopedia of Law.

See Corporate Tax in the U.S. Legal Encyclopedia and Corporate Tax in the International Legal Encyclopedia.