Edsel Posted June 30, 2019 Report Share Posted June 30, 2019 Does income from a personal service corporation qualify under Section 199A? The mindset denying 199A treatment for C Corps apparently resulted from a reduction in C Corp rates to a flat 21%, therefore a C Corp did not need any further tax benefit. However a personal service corporation did not have its rates dropped to 21%. It's "flat" rate is 35%. Therefore the mindset described above should not apply. Opinions or cites? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 30, 2019 Report Share Posted June 30, 2019 PSC C corps now pay the same rate of 21%. Some early proposals had the PSC rate at 25% but that didn't make it to the final legislation that was passed. PHC tax and accumulated earnings tax are both still in effect, rate unchanged at 20%. 2 Quote Link to comment Share on other sites More sharing options...
Edsel Posted June 30, 2019 Author Report Share Posted June 30, 2019 (edited) 1 hour ago, jklcpa said: PSC C corps now pay the same rate of 21%. Some early proposals had the PSC rate at 25% but that didn't make it to the final legislation that was passed. PHC tax and accumulated earnings tax are both still in effect, rate unchanged at 20%. In spite of this discussion, one of my C Corp customers (a medical professional) received a letter from the IRS informing her that her SMLLC may qualify as a Personal Service Corporation with a flat rate of 35%. Edited June 30, 2019 by Edsel cumbersome Quote Link to comment Share on other sites More sharing options...
Edsel Posted June 30, 2019 Author Report Share Posted June 30, 2019 In spite of this discussion, one of my C Corp customers (a medical professional) received a letter from the IRS informing her that her SMLLC may qualify as a Personal Service Corporation with a flat rate of 35%. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 30, 2019 Report Share Posted June 30, 2019 43 minutes ago, Edsel said: In spite of this discussion, one of my C Corp customers (a medical professional) received a letter from the IRS informing her that her SMLLC may qualify as a Personal Service Corporation with a flat rate of 35%. The new rate applies to tax years beginning in 2018. What tax year is the notice for? 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 30, 2019 Report Share Posted June 30, 2019 7 hours ago, Edsel said: Does income from a personal service corporation qualify under Section 199A? You've brought up two separate issues in this topic, first this one and then the second about the PSC rate for C corps and mentioned a medical professional. See my post immediately above related to the PSC discussion and notice received. As for the 199A deduction, you didn't give enough information to answer definitively. Is this the same SMLLC medical professional mentioned in discussing the PSC rate? If it is the medical practice, that would fall under the rules for a "specified service business" and would be subject to the phase out rules. Quote Link to comment Share on other sites More sharing options...
Edsel Posted July 1, 2019 Author Report Share Posted July 1, 2019 Judy, the notice is for period ended Dec 31 2018, and is a CP224. The professional is a Physical Therapist, operating out of a rented office. Thank you for your response. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted July 1, 2019 Report Share Posted July 1, 2019 3 hours ago, Edsel said: Judy, the notice is for period ended Dec 31 2018, and is a CP224. The professional is a Physical Therapist, operating out of a rented office. Thank you for your response. I'm not sure why your client got that notice, but if it is a straightforward as you say, here is the text of the TCJA as signed into law that answers it: Quote Subtitle C—Business-related Provisions PART I—CORPORATE PROVISIONS SEC. 13001. 21-PERCENT CORPORATE TAX RATE. (a) IN GENERAL.—Subsection (b) of section 11 is amended to read as follows: ‘‘(b) AMOUNT OFTAX.—The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income.’’. (b) CONFORMING AMENDMENTS.— (1) The following sections are each amended by striking ‘‘section 11(b)(1)’’ and inserting ‘‘section 11(b)’’ Sec 11(b) of the tax code now reads as follows: Quote 26 U.S. Code § 11. Tax imposed (a) Corporations in general A tax is hereby imposed for each taxable year on the taxable income of every corporation. (b) Amount of tax The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income. 1 Quote Link to comment Share on other sites More sharing options...
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