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(iii) the estate of any individual described
in clause (i) or (ii), or
(iv) any other person who acquired such stock
by reason of the death of an individual described
in clause (i) or (ii) * * * .
To be a qualified personal service corporation, a
corporation must satisfy two tests under the regulations: the
function test and the ownership test. Sec. 1.448-1T(e)(3), (4),
and (5), Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June 16,
1987), as amended by T.D. 8329, 56 Fed. Reg. 485 (Jan. 7, 1997),
and T.D. 8514, 58 Fed. Reg. 68299 (Dec. 27, 1993). There is no
dispute here that the function test was satisfied because
petitioner’s sole activity was the performance of services in the
field of law.6 See sec. 1.448-1T(e)(4), Temporary Income Tax
Regs., 52 Fed. Reg. 22768 (June 16, 1987), as amended by T.D.
8329, 56 Fed. Reg. 485 (Jan. 7, 1997), and T.D. 8514, 58 Fed.
Reg. 68299 (Dec. 27, 1993). Instead, at the center of this
dispute is whether petitioner satisfied the ownership test.
The ownership test requires that substantially all of the
corporation’s stock is held directly by employees performing the
corporation’s services, here, in the field of law. Sec.
448(d)(2)(B)(i); sec. 1.448-1T(e)(5)(i)(A), Temporary Income Tax
6 The function test requires that 95 percent or more of
corporate employees’ time be spent on providing services in one
of the enumerated fields, which include law. See sec. 1.448-
1T(e)(4), Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June
16, 1987), as amended by T.D. 8329, 56 Fed. Reg. 485 (Jan. 7,
1997), and T.D. 8514, 58 Fed. Reg. 68299 (Dec. 27, 1993).
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