Char-Lil Corporation - Page 16

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             section 541 for the years in issue.  Section 542(a) defines              
             personal holding company as follows:                                     

                       SEC. 542(a).  General Rule.--For purposes                      
                  of this subtitle, the term "personal holding                        
                  company" means any corporation (other than a                        
                  corporation described in subsection (c)) if--                       
                            (1) Adjusted ordinary gross income                        
                       requirement.--At least 60 percent of                           
                       its adjusted ordinary gross income (as                         
                       defined in section 543(b)(2)) for the                          
                       taxable year is personal holding                               
                       company income (as defined in section                          
                       543(a)), and                                                   
                            (2) Stock ownership requirement.--                        
                       At any time during the last half of the                        
                       taxable year more than 50 percent in value                     
                       of its outstanding stock is owned, directly                    
                       or indirectly, by or for not more than 5                       
                       individuals.  For purposes of this                             
                       paragraph, an organization described in                        
                       section 401(a), 501(c)(17), or 509(a) or a                     
                       portion of a trust permanently set aside or                    
                       to be used exclusively for the purposes                        
                       described in section 642(c) or a                               
                       corresponding provision of a prior income                      
                       tax law shall be considered an individual.                     

             Petitioner concedes that it meets the stock ownership                    
             requirement of section 542(a)(2) during the last half                    
             of each of the subject taxable years.  The issue is                      
             whether petitioner meets the adjusted ordinary gross income              
             requirement of section 542(a)(1) during each of the subject              
                  For purposes of the adjusted ordinary gross income                  
             requirement, section 543(a) defines "personal holding                    

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Last modified: May 25, 2011