PC, PSC, S Corp

[DaveinTexas]

I had a new client, the sole shareholder of a PC, in the field of dentistry. He made an election on a 2553 so that this PC will be taxed as an S Corp. That kind of threw me for a loop; one because we handle maybe one or two PCs for the entire season and two because, well I just didn't think it could be done. He dropped the infamous line and I'm sure you have heard this before, "My CPA told me it could be done."

I'm no CPA and the truth is, I don't know why he chose this CPA to set this up and then chose not to use his services to prepare the return. Anywho, I'm always glad to help a new client.

My concern is that if he is the sole shareholder, 100% ownership, and he is perfoming services in the health/medical industry, does this not automatically qualify his corporation to adhere to the PSC rules----flat tax of 35% on the first dollar of profits?

Hep me buddies. I don't think that his corporation qualifies to be taxed as an S Corp, because the flow through income would never be taxed at the corporate level.

Am I right in assuming this? Oh, and be easy on me, I am still a greenhorn studying for the EA Exam as we speak.

TIA

[sea-tax]

Dave if I hear you correctly then I do not think you have anything to worry about.

It sounds like your client was a partnership who elected to be taxed as a corp then applied for sub -s status . You can do this by filing form 8832 " entity classification " then by filing for 2553. I have seen this done a few times and while I still don't quite understand the rational it is perfectly legitimate from what I have been told.

As for PSC so long as your client is infact a Sub-S these rules do not apply to him. Only if he is a C-corp.

Hopes this helps a little.

[DaveinTexas]

That's the funny thing

He never formed a partnership, but he did establish a PC, and then he made the election for the PC, which is a C Corp, to be taxed as an S Corp.

So is it possible for all taxpayers performing such services to elect to be taxed as an S Corp to avoid all of the rules regulating the PSC?

TIA

[sea-tax]

He never formed a partnership, but he did establish a PC, and then he made the election for the PC, which is a C Corp, to be taxed as an S Corp.

So is it possible for all taxpayers performing such services to elect to be taxed as an S Corp to avoid all of the rules regulating the PSC?

TIA

Unfortunately I am unfamilar with the term PC. I do however think that you can infact go from a C-corp to an S-corp if the proper elections are made.

[jainen]

that is not possible

>>So is it possible for all taxpayers performing such services to elect to be taxed as an S Corp to avoid all of the rules regulating the PSC?<<

No, that is not possible because S-Corps are limited to certain kinds of shareholders and so on. But it WAS possible for your particular taxpayer!

[dsi]

As it was pointed out above, a c-corp can elect to become an s-corp and avoid the PC issues.

[Unregistered]

A PC is a &quot;Professional Corporation&quot;

and I have two clients who are PC's and have elected S-Corp status. I'm not thoroughly familiar with the PSC rules, but I believe this is perfectly OK.

Maybe Bees or Jainen can enlighten us on the intricacies of professional service corps.

JoshInNC

[outwest]

Let's clear this up...

Step 1> A corp is formed, by default all corps are C corps to start.
Step 2> a C corporation is the professions is PSC . The main effect is that they cannot take advantage of graduated tax rates and are taxed at a flat 35%. It does not change anything else in the structure.
Step 3> If that seems harsh, a S election can be made. Because PSC rules only apply to C corps, that takes care of the issue.

Doug

[Unregistered]

I agree with OutWest description. I would add to maybe clear up the term PSC (Personal Service Corp- a C-corp "federal tax status" for professionals providing service-flat 35% tax) and PC (Professional Corp- A type of state corp that the "owners ARE liable" for their professional actions much the same as a partner-Taxed the same as any C-corp). Both are at first a C-corp unless they elect S-corp status.