I know this video is a year old now, but was still curious. To make it simple you have a C corp 100% owned by a single individual with 100% of income coming from stock dividends or interest in the amount of $100K. Naturally that would meet the test for PHC and owe corp tax of $21K leaving $79K of capital. So my question would be, if that corp deployed $50K of that capital back into more stocks leaving $29K in cash, would the additional 20% PHC tax be paid on the full $79K or the remaining $29K? I understand you can dividend out the $79K to eliminate the PHC tax but thought the above could be a real world example and be a completely logical scenario.
The tax is computed on the undistributed personal holding company income under section 545. Because the UPHCI calculation is based on income, it does not matter that excess cash is reinvested into other assets that generate the same portfolio income. The PHC tax is still imposed on the full amount and only reduced to the extent dividends are paid to the shareholders
Could you end up in a catch 22 on the PHC tax? What if you have negative retained earnings due to legacy losses and thus can’t pay dividends but do have some phc income in a year?
Another great explanation Jason!
Glad it was helpful. Thanks for the support!
I know this video is a year old now, but was still curious. To make it simple you have a C corp 100% owned by a single individual with 100% of income coming from stock dividends or interest in the amount of $100K. Naturally that would meet the test for PHC and owe corp tax of $21K leaving $79K of capital.
So my question would be, if that corp deployed $50K of that capital back into more stocks leaving $29K in cash, would the additional 20% PHC tax be paid on the full $79K or the remaining $29K?
I understand you can dividend out the $79K to eliminate the PHC tax but thought the above could be a real world example and be a completely logical scenario.
The tax is computed on the undistributed personal holding company income under section 545. Because the UPHCI calculation is based on income, it does not matter that excess cash is reinvested into other assets that generate the same portfolio income. The PHC tax is still imposed on the full amount and only reduced to the extent dividends are paid to the shareholders
Could you end up in a catch 22 on the PHC tax? What if you have negative retained earnings due to legacy losses and thus can’t pay dividends but do have some phc income in a year?