Professional Service Corporation

[Harvey Lucas]

I have a client who is a patent and trademark attorney.

He has always worked for a big firm as a w2 employee.

He has been a client for about 4 years.

In December of 08 he left the big firm and went out on his own.

He formed a corporation and because he is an attorney, the state insisted that it be classified as a "Professional Service Corporation"

Assuming his name is John Smith.

His Corporation is named "Smith Law PS"

I am a little confused regarding the states designation of "Professional Service Corporation"

Does this mean he automatically has to be taxed as a "Personal Service Corporation", ie, a C-Corp for IRS purposes, subject to the higher Corporation income tax rate for Personal Service Corporations?

We want to file an S-Corp election.

Can you be an S-Corp when you are a "Professional Service Corporation"?

Harvey Lucas

[taxxcpa]

S Corp for Personal service company

I had an attorney who had been filing as a C Corp. The IRS wanted to re-classify him as a personal service corp. I got him to change to an S Corp. The IRS finally dropped their effort, but probably would not have done so in most situations. We got around it because the profit was small and the 100%-owner of the law firm did not actually work at his law firm and drew no salary. The IRS did not say we were right, but they just dropped it without comment when I refused to sign anything agreeing that it was a personal service corp.

[Harvey Lucas]

PSC status can be avoided

A C Corporation, can avoid Personal Service Corporation (PSC) taxation status, by electing to be taxed as an S-corp.

That is what I gather from "small business quickfinder", tab f-7, Personal Service Corporations (PSC).

I could not find any reference to this specific point in "the tax book"? Maybe I am not looking in the right spot?

Harvey Lucas

[taxxcpa]

S-Corp

Since the S-Corp is a flow-thru entity, then it would flow to the owner who would be an individual, not a corporation. The S-Corp is not taxed as a personal service corporation or any other kind of corp.