- 6 -
B. Qualified Personal Service Corporation
Respondent contends that petitioner is not eligible for the
graduated income tax rates under section 11(b)(1) because it is a
qualified personal corporation pursuant to section 448(a)(2) and
is instead subject to a flat 35-percent tax rate under section
11(b)(2). In support of this contention, respondent argues that
Ms. Felton, petitioner’s sole shareholder, is an employee of the
corporation. Petitioner, however, contends that Ms. Felton does
not “consider herself” to be petitioner’s employee, and therefore
petitioner is not a qualified personal service corporation under
section 448(d)(2). We agree with respondent.
Section 11(b)(1) generally imposes a tax on the income of a
corporation at a graduated rate. However, qualified personal
service corporations are taxed at a flat 35-percent tax rate.
Sec. 11(b)(2).
Section 448(d)(2) defines a “qualified personal service
corporation” as any corporation:
(A) substantially all of the activities of which
involve the performance of services in the fields of
health, law, engineering, architecture, accounting,
actuarial science, performing arts, or consulting, and
(B) substantially all of the stock of which (by
value) is held directly * * * by--
(i) employees performing services for such
corporation in connection with the activities
involving a field referred to in subparagraph (A),
(ii) retired employees who had performed such
services for such corporation,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011