PHC Question

[Bird Legs]

Client, a C Corp., sold all assets, which consisted primarily of land & building, on an
installment sale.
The income of the C Corp,. for 2005, was: Interest from bank 400.
interest on note 13,400.
gain recognized on installment 5,300.
total income 19,100.
Total expenses including officers salary 17,800

Net taxable profit for year 1,300.

Does this make the corp. a Personal Holding Company?

[Bees Knees]

Another reason you don't hold real estate inside a corporation.

The corporation, I assume, no longer functions as a business. It is simply a conduit for the sale of its assets when the company as a business stopped functioning. PHC rules were designed to discourage people from holding their investments inside the corporation to take advantage of lower corporate tax rates.

I'm afraid your numbers look as though they fall into the PHC realm. The company could avoid that by liquidating and distributing the installment note to the shareholders.

[OldJack]

I'm afraid your numbers look as though they fall into the PHC realm. The company could avoid that by liquidating and distributing the installment note to the shareholders.

Agree it is PHC status for this year. Bees suggestion to liquidate is good but the client should weight the tax cost. If this year is typical then tax is only $195 regular plus $166 PHC tax for a total of $361. Maybe not something to get excited about or reason to pay a huge liquidating gain tax.