ExpertHard1 markMultiple Choice
CPA · Question 61 · Area V: Entity Taxation
Which of the following is a requirement for a corporation to be classified as a Personal Holding Company (PHC)?
Which of the following is a requirement for a corporation to be classified as a Personal Holding Company (PHC)?
Answer options:
A.
More than 50% of the stock is owned by 5 or fewer individuals at any time during the last half of the year, AND 100% of income is passive.
B.
More than 50% of the stock is owned by 5 or fewer individuals at any time during the last half of the year, AND at least 60% of adjusted ordinary gross income is PHC income (passive).
C.
It must be an S Corporation.
D.
It must have accumulated earnings in excess of $250,000.
How to approach this question
PHC Tests: 1. Ownership (5 people own >50%). 2. Income (60% of income is passive/investment).
Full Answer
B.More than 50% of the stock is owned by 5 or fewer individuals at any time during the last half of the year, AND at least 60% of adjusted ordinary gross income is PHC income (passive).✓ Correct
B
A corporation is a PHC if: (1) >50% of stock is owned by 5 or fewer individuals during the last half of the year, and (2) at least 60% of adjusted ordinary gross income is PHC income (dividends, interest, rents, royalties).
Common mistakes
Confusing PHC tax with Accumulated Earnings Tax.
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