583. How is a “personal service corporation” taxed?Nuco Employeercline202014-07-29T20:45:00Z2014-07-29T20:45:00Z23131786Summit Business Media144209514Site Map/General Income Taxation/Corporations2005-01-25T00:00:00ZTaxFactsDefaultArticle119300840-00-tf1.xml840.00;#1712;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1How is a “personal service corporation” taxed?114100.000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-19T08:25:37Z583. How is a “personal service corporation” taxed?Certain personal service corporations are taxed at a flat rate of 35%.IRC Sec. 11(b)(2). In effect, this means that the benefit of the graduated corporate income tax rates is not available. (See Appendix B). A personal service corporation for this purpose is a corporation in which substantially all corporate activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. In addition, substantially all of the stock must be owned (1) directly by employees, retired employees, or their estates or (2) indirectly through partnerships, S corporations, or qualified personal service corporations.IRC Sec. 448(d)(2).IRC Section 269A permits the IRS to reallocate income, deductions, credits, exclusions, and other allowances (to the extent necessary to prevent avoidance or evasion of federal income tax) between a personal service corporation (PSC) and its employee-owners if the corporation is formed for the principal purpose of securing tax benefits for its employee-owners (i.e., more than 10% shareholder-employees after application of attribution rules) and substantially all of its services are performed for a single other entity. For purposes of IRC Section 269A, a personal service corporation is a corporation the principal activity of which is the performance of personal services and such services are substantially performed by the employee-owners.IRC Sec. 269A(b)(1). A professional basketball player was considered to be an employee of an NBA team, not his personal service corporation, and all compensation from the team was taxable to him individually, even though his PSC had entered into a contract with the team for his personal services.Leavell v. Comm., 104 TC 140 (1995).In addition, special rules apply to the tax year that may be used by a personal service corporation (as defined for purposes of IRC Section 269A, except that all owner-employees are included and broader attribution rules apply).IRC Secs. 441(i), 444.