One of your corporate clients has Section 541 personal holding company income in addition to ordinary...

One of your corporate clients has Section 541 personal holding company income in addition to ordinary income and has not distributed this income to its shareholders. You explain to the company's owner that, because the income is undistributed, the corporation will be subject to:
A. deduction limitations
B. the ordinary corporate income tax.
C. carryover of excess income.
D. a special tax penalty.

Expert Solution

Option D is correct " A special Tax Penalty"

Personal Holding company is one,in which more than 50 percent of outstanding stock is owned by five or less individuals and atleast 60% of its adjusted ordinary gross income is received from passive sources

Section 541 imposes a tax of 20% on undistributed personal holding company income, which is in addition to the regular corporate rate, provided, such income is not distributed and is subject to PHC tax.

This PHC tax purpose is to ensure that, the corporations properly distribute their earnings as taxable dividends and not accumulating the same.

ekkarill92 answered 2 years ago

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