{"identifier":"/us/usc/t26/s280H","title":26,"num":"\u00a7\u202f280H.","heading":"Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years","text":"\u00a7\u202f280H.\nLimitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years\n(a)\nGeneral rule\nIf\u2014\n(1) an election by a personal service corporation under section 444 is in effect for a taxable year, and\n(2) such corporation does not meet the minimum distribution requirements of subsection (c) for such taxable year,\nthen the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employee-owners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for purposes of subchapter G (relating to personal holding companies).\n(b)\nCarryover of nondeductible amounts\nIf any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year.\n(c)\nMinimum distribution requirement\nFor purposes of this section\u2014\n(1)\nIn general\nA personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period of the taxable year (determined without regard to subsection (b)) equal or exceed the lesser of\u2014\n(A) the product of\u2014\n(i) the applicable amounts paid during the preceding taxable year, divided by the number of months in such taxable year, multiplied by\n(ii) the number of months in the deferral period of the preceding taxable year, or\n(B) the applicable percentage of the adjusted taxable income for the deferral period of the taxable year.\n(2)\nApplicable percentage\nThe term \u201capplicable percentage\u201d means the percentage (not in excess of 95 percent) determined by dividing\u2014\n(A) the applicable amounts paid or incurred during the 3 taxable years immediately preceding the taxable year, by\n(B) the adjusted taxable income of such corporation for such 3 taxable years.\n(d)\nMaximum deductible amount\nFor purposes of this section, the term \u201cmaximum deductible amount\u201d means the sum of\u2014\n(1) the applicable amounts paid during the deferral period, plus\n(2) an amount equal to the product of\u2014\n(A) the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by\n(B) the number of months in the nondeferral period.\n(e)\nDisallowance of net operating loss carrybacks\nNo net operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies.\n(f)\nOther definitions and special rules\nFor purposes of this section\u2014\n(1)\nApplicable amount\nThe term \u201capplicable amount\u201d means any amount paid to an employee-owner which is includible in the gross income of such employee, other than\u2014\n(A) any gain from the sale or exchange of property between the owner-employee and the corporation, or\n(B) any dividend paid by the corporation.\n(2)\nEmployee-owner\nThe term \u201cemployee-owner\u201d has the meaning given such term by section 269A(b)(2) (as modified by section 441(i)(2)).\n(3)\nNondeferral and deferral periods\n(A)\nDeferral period\nThe term \u201cdeferral period\u201d has the meaning given to such term by section 444(b)(4).\n(B)\nNondeferral period\nThe term \u201cnondeferral period\u201d means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the deferral period.\n(4)\nAdjusted taxable income\nThe term \u201cadjusted taxable income\u201d means taxable income determined without regard to\u2014\n(A) any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and\n(B) any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A).\n(5)\nPersonal service corporation\nThe term \u201cpersonal service corporation\u201d has the meaning given to such term by section 441(i)(2).","url":"https://projectusc.org/usc/t26/s280H.html","content":[{"t":"sec","id":"/us/usc/t26/s280H","children":[{"t":"num","text":"\u00a7\u202f280H."},{"t":"heading","text":"Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years"},{"t":"subsec","id":"/us/usc/t26/s280H/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"General rule"},{"t":"chapeau","text":"If\u2014"},{"t":"para","id":"/us/usc/t26/s280H/a/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" an election by a personal service corporation under section 444 is in effect for a taxable year, and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/a/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" such corporation does not meet the minimum distribution requirements of subsection (c) for such taxable year,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"then the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employee-owners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for purposes of subchapter G (relating to personal holding companies).","tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s280H/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Carryover of nondeductible amounts"},{"t":"content","children":[{"t":"p","text":"If any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s280H/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Minimum distribution requirement"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s280H/c/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"A personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period of the taxable year (determined without regard to subsection (b)) equal or exceed the lesser of\u2014"},{"t":"subpara","id":"/us/usc/t26/s280H/c/1/A","children":[{"t":"num","text":"(A)"},{"t":"chapeau","text":" the product of\u2014"},{"t":"clause","id":"/us/usc/t26/s280H/c/1/A/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" the applicable amounts paid during the preceding taxable year, divided by the number of months in such taxable year, multiplied by","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s280H/c/1/A/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" the number of months in the deferral period of the preceding taxable year, or","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/c/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the applicable percentage of the adjusted taxable income for the deferral period of the taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/c/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Applicable percentage"},{"t":"chapeau","text":"The term \u201capplicable percentage\u201d means the percentage (not in excess of 95 percent) determined by dividing\u2014"},{"t":"subpara","id":"/us/usc/t26/s280H/c/2/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" the applicable amounts paid or incurred during the 3 taxable years immediately preceding the taxable year, by","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/c/2/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the adjusted taxable income of such corporation for such 3 taxable years.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s280H/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Maximum deductible amount"},{"t":"chapeau","text":"For purposes of this section, the term \u201cmaximum deductible amount\u201d means the sum of\u2014"},{"t":"para","id":"/us/usc/t26/s280H/d/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" the applicable amounts paid during the deferral period, plus","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/d/2","children":[{"t":"num","text":"(2)"},{"t":"chapeau","text":" an amount equal to the product of\u2014"},{"t":"subpara","id":"/us/usc/t26/s280H/d/2/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/d/2/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the number of months in the nondeferral period.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s280H/e","children":[{"t":"num","text":"(e)"},{"t":"heading","text":"Disallowance of net operating loss carrybacks"},{"t":"content","children":[{"t":"p","text":"No net operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s280H/f","children":[{"t":"num","text":"(f)"},{"t":"heading","text":"Other definitions and special rules"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s280H/f/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"Applicable amount"},{"t":"chapeau","text":"The term \u201capplicable amount\u201d means any amount paid to an employee-owner which is includible in the gross income of such employee, other than\u2014"},{"t":"subpara","id":"/us/usc/t26/s280H/f/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" any gain from the sale or exchange of property between the owner-employee and the corporation, or","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/f/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" any dividend paid by the corporation.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/f/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Employee-owner"},{"t":"content","children":[{"t":"p","text":"The term \u201cemployee-owner\u201d has the meaning given such term by section 269A(b)(2) (as modified by section 441(i)(2)).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/f/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Nondeferral and deferral periods"},{"t":"subpara","id":"/us/usc/t26/s280H/f/3/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"Deferral period"},{"t":"content","children":[{"t":"p","text":"The term \u201cdeferral period\u201d has the meaning given to such term by section 444(b)(4).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/f/3/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Nondeferral period"},{"t":"content","children":[{"t":"p","text":"The term \u201cnondeferral period\u201d means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the deferral period.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/f/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Adjusted taxable income"},{"t":"chapeau","text":"The term \u201cadjusted taxable income\u201d means taxable income determined without regard to\u2014"},{"t":"subpara","id":"/us/usc/t26/s280H/f/4/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s280H/f/4/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s280H/f/5","children":[{"t":"num","text":"(5)"},{"t":"heading","text":"Personal service corporation"},{"t":"content","children":[{"t":"p","text":"The term \u201cpersonal service corporation\u201d has the meaning given to such term by section 441(i)(2).","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}