Can you give me plain English definitions for the following: (1) a closely held corporation, (2) a personal holding corporation, and (3) a personal service corporation?
Generally, a closely held corporation is a corporation that, in the last half of the tax year, has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals. The definitions for the terms “directly or indirectly” and “individual” are in Publication 542, Corporations. Generally, closely held corporations are subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to a corporate officers. A personal holding company is defined in Internal Revenue Code section 542. Basically, a corporation is a personal holding company if both of the following requirements are met: • Personal Holding Company Income Test. At least 60% of the corporation’s adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties. • Stock Ownership Requirement. At any time during the last half of the tax year, more than 50% in value of the corporation’s outsta
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