Personal Holding Companies

1) At least 60% of the corporation’s adjusted ordinary gross income consists of personal holding company income, and
2) At any time during the last half of the tax year, more than 50% of value of the corporation’s outstanding stock is owned, directly or indirectly, by five or fewer individuals.

Exceptions: A personal holding company does not include any of the following even if the two requirements above are met:

• Tax-exempt corporations.
• Banks.
• Domestic building and loan associations.
• Life insurance companies.
• Surety companies.
• Certain lending or finance companies.
• Certain foreign companies.
• Certain small business investment companies operating under the Small Business Investment Act of 1958.
• Corporations under the jurisdiction of the court in a Title 11 or similar case.

• Dividends,
• Interest minus certain amounts excluded under IRC §543(a)(1) and IRC §543(b)(2)(C),
• Royalties minus certain expenses allowed under IRC §543(b)(2)(B),
• Annuities,
• Rents minus certain expenses allowed under IRC §543(b)(2)(A),
• Compensation received for the use of corporation property from shareholders who own at least 25% of the corporation,
• Amounts received under a personal service contract if someone other than the corporation designates the individual who is to perform the services and that individual performing the services owns at least 25% of the corporation, and
• Income from estates and trusts.

• Gains from the sale or disposition of capital assets.
• Gains under IRC §1231(b).
• Certain foreign corporation income.
• Certain expenses allowed against rental income.
• Certain expenses allowed against royalty income.
• Certain interest income.