26 USC 543 - Personal holding company income

Editorial Notes

References in Text

Section 3(a)(4) and (5) of the Securities and Exchange Act of 1934, referred to in subsec. (a)(1)(E), is classified to section 78c(a)(4) and (5) of Title 15, Commerce and Trade.

Amendments

2018—Subsec. (a)(2)(B)(ii). Puspan. L. 115–141, § 401(a)(134), substituted “section 563(c)” for “section 563(d)”.

Subsec. (d)(5)(A)(ii). Puspan. L. 115–141, § 401(a)(135), substituted “section 563(c)” for “section 563(d)”.

2014—Subsec. (a)(1)(C) to (E). Puspan. L. 113–295 added subpar. (C) and redesignated former subpars. (C) and (D) as (D) and (E), respectively.

2006—Subsec. (a)(1)(B). Puspan. L. 109–304 substituted “chapter 533 or 535 of title 46, United States Code” for “section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. App. 1161 or 1177)”.

2004—Subsec. (span)(1). Puspan. L. 108–357 inserted “and” at end of subpar. (A), substituted a period for “, and” at end of subpar. (B), and struck out subpar. (C) which read as follows: “in the case of a foreign corporation all of the outstanding stock of which during the last half of the taxable year is owned by nonresident alien individuals (whether directly or indirectly through foreign estates, foreign trusts, foreign partnerships, or other foreign corporations), all items of income which would, but for this subparagraph, constitute personal holding company income under any paragraph of subsection (a) other than paragraph (7) thereof:”.

1999—Subsec. (a)(1)(D)(i). Puspan. L. 106–170 substituted “1221(a)(1)” for “1221(1)”.

1998—Subsec. (d)(5)(A)(ii). Puspan. L. 105–206 substituted “section 563(d)” for “section 563(c)”.

1996—Subsec. (a)(2)(B)(ii). Puspan. L. 104–188 substituted “563(d)” for “563(c)”.

1988—Subsec. (a)(1)(D). Puspan. L. 100–647, § 6279(a), added subpar. (D).

Subsec. (c). Puspan. L. 100–647, § 1010(f)(5), substituted “other than life insurance companies” for “other than life or mutual” in span and “other than a life insurance company” for “other than life or mutual” in text.

1986—Subsec. (a)(1)(B). Puspan. L. 99–514, § 1899A(18), substituted “46 U.S.C. App.” for “46 U.S.C.”.

Subsec. (a)(1)(C). Puspan. L. 99–514, § 645(a)(1), added subpar. (C).

Subsec. (a)(4). Puspan. L. 99–514, § 645(a)(4)(A), inserted “This paragraph shall not apply to active business computer software royalties.”

Subsec. (span)(3)(E). Puspan. L. 99–514, § 645(a)(4)(B), added subpar. (E).

Subsec. (d). Puspan. L. 99–514, § 645(a)(2), added subsec. (d).

1984—Subsec. (a)(1)(C). Puspan. L. 98–369 struck out subpar. (C) providing for nonapplication of par. (1) to dividends to which section 302(span)(4) would apply if the corporation were an individual.

1982—(a)(1)(C). Puspan. L. 97–248 added subpar. (C).

1976—Subsec. (a)(1). Puspan. L. 94–455, § 1901(span)(32)(D), inserted in subpar. (B) “(46 U.S.C. 1161 or 1177)” after “Merchant Marine Act, 1936”, and struck out subpar. (C) relating to a dividend distribution of divested stock.

Subsec. (a)(4). Puspan. L. 94–553 struck out “(other than by reason of section 2 or 6 thereof)” after “title 17 of the United States Code”.

Subsec. (a)(5)(B). Puspan. L. 94–455, § 211(a), inserted “In the case of a producer who actually participates in the production of the film, such term includes an interest in the proceeds or profits from the film, but only to the extent such interest is attributable to such active participation”.

Subsec. (a)(6). Puspan. L. 94–455, § 2106(a), redesignated existing provisions as subpars. (A), (B), and (C) and, as redesignated, inserted in subpar. (A) “tangible” after “right to use” and in subpar. (C) inserted exclusions from income embodied in cl. (ii).

Subsec. (span)(2)(A), (B), (D). Puspan. L. 94–455, § 1906(span)(13)(A), struck out “or his delegate” after “Secretary”.

1966—Subsec. (a)(2). Puspan. L. 89–809, § 206(span)(1), struck out provision that royalties received for the use of, or for the privilege of using, a patent, invention, model, or design, secret formula, process, or other similar property right be treated as rent if such property right is also used by the corporation receiving such royalties in the manufacture or production of tangible personal property held for lease to customers and if the amount constituting rent from such leases to customers meets the requirement of subparagraph (A).

Subsec. (span)(1)(C). Puspan. L. 89–809, § 104(h)(2), added subpar. (C).

Subsec. (span)(2)(D). Puspan. L. 89–809, § 206(span)(2), added subpar. (D).

Subsec. (span)(3). Puspan. L. 89–809, § 206(a), struck out “amounts constituting personal holding company income under subsection (a)(6), nor copyright royalties (as defined in subsection (a)(4)), nor produced film rents (as defined in subsection (a)(5)(B)).” after “but does not include”, and added subpars. (A) to (D).

1964—Subsec. (a). Puspan. L. 88–272, § 225(d), amended subsec. (a) generally, and among other changes, substituted “adjusted ordinary gross income” for “gross income”, provided, relative to rental income, that in addition to the 50-percent test of par. (2)(A), now applied on the basis of adjusted income from rents and adjusted ordinary gross income, a second test for exclusion shall be whether the sum on the dividends paid during the taxable year, the dividends paid on the last day of the year, and the consent dividends for the taxable year, equals or exceeds the amount by which the personal holding company income for the year exceeds 10 percent of the ordinary gross income, relative to mineral, oil, and gas royalties, that in addition to the 50-percent test of par. (3)(A), now applied on the basis of adjusted ordinary gross income, and the 15-percent test of par. (3)(C), from which test have been excluded deductions “specifically allowable under sections other than section 162” and is also now applied on the basis of adjusted gross income, the royalties shall be excluded if the personal holding company income for the taxable year is not more than 10 percent of the ordinary gross income, relative to copyright royalties, retained the 50-percent test as in par. (4)(A), making it applicable to ordinary gross income, included in the computation of the income for the taxable year the adjusted income from rents and the adjusted income from mineral, oil, and gas royalties, excluded from the sum of deductions allocable to royalties, deductions specifically allowable under sections other than 162, and changed the requirement that deductions constitute 50 percent or more of gross income to provide that they must equal 25 percent of ordinary gross income reduced by royalties paid and by depreciation deductions with respect to copyrights, relative to produced film rents, that they be treated on their own basis and not as rentals, and defined “produced film rents”, relative to use of corporation property by shareholders, that personal holding company income includes copyright royalties and the adjusted income from mineral, oil, and gas royalties, eliminated gains from the sale or other disposition of any interest in an estate or trust, from the sale or exchange of stock or securities, and from futures transactions in any commodity, and also definition of “rents”. See subsec. (span)(3).

Subsec. (a)(2). Puspan. L. 88–484 inserted sentence requiring royalties received for the use of, or for the privilege of using, a patent, invention, model, or design (whether or not patented), secret formula or process, or any other similar property right to be treated as rent, if such property right is also used by the corporation receiving such royalties in the manufacture or production of tangible personal property held for lease to customers, and if the amount (computed without regard to this sentence) constituting rent from such leases to customers meets the requirements of subparagraph (A).

Subsec. (span). Puspan. L. 88–272, § 225(d), added subsec. (span). Former subsec. (span), which provided that gross income and personal holding company income determined with respect to transactions relating to gains from stock and security transactions, and with respect to transactions relating to gains from commodity transactions, should include only the excess of gains over losses from such transactions, was struck out.

Subsec. (d). Puspan. L. 88–272, § 225(k)(2), struck out subsec. (d) which related to special adjustment on disposition of antitrust stock received as a dividend.

1962—Subsec. (a)(1). Puspan. L. 87–403 prescribed conditions making inapplicable the provisions of the paragraph to dividend distribution of divested stock.

Subsec. (d). Puspan. L. 87–403 added subsec. (d).

1960—Subsec. (a)(1). Puspan. L. 86–435, § 1(span)(1), excluded copyright royalties.

Subsec. (a)(6). Puspan. L. 86–435, § 1(span)(2), inserted sentence providing that copyright royalties constitute personal holding company income.

Subsec. (a)(9). Puspan. L. 86–435, § 1(a), added par. (9).

Statutory Notes and Related Subsidiaries

Effective Date of 2014 Amendment

Puspan. L. 113–295, div. B, title II, § 207(span), Dec. 19, 2014, 128 Stat. 4072, provided that: “The amendments made by this Act [probably means this section, section 207 of title II of div. B of Puspan. L. 113–295, which amended this section] shall apply to taxable years ending on or after the date of the enactment of this Act [Dec. 19, 2014].”

Effective Date of 2004 Amendment

Amendment by Puspan. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Puspan. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title.

Effective Date of 1999 Amendment

Amendment by Puspan. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Puspan. L. 106–170, set out as a note under section 170 of this title.

Effective Date of 1988 Amendment

Amendment by section 1010(f)(5) of Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.

Puspan. L. 100–647, title VI, § 6279(span), Nov. 10, 1988, 102 Stat. 3754, provided that: “The amendments made by this section [amending this section] shall apply to interest received after the date of the enactment of this Act [Nov. 10, 1988], in taxable years ending after such date.”

Effective Date of 1986 Amendment

Puspan. L. 99–514, title VI, § 645(e), Oct. 22, 1986, 100 Stat. 2292, provided that: “The amendments made by subsection (a) [amending this section and section 553 of this title] shall apply to royalties received before, on, and after December 31, 1986.”

Effective Date of 1984 Amendment

Amendment by Puspan. L. 98–369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Puspan. L. 97–248, to which such amendment relates, see section 715 of Puspan. L. 98–369, set out as a note under section 31 of this title.

Effective Date of 1982 Amendment

Amendment by Puspan. L. 97–248 applicable to distributions after Aug. 31, 1982, with exceptions for certain partial liquidations, see section 222(f) of Puspan. L. 97–248, set out as a note under section 302 of this title.

Effective Date of 1976 Amendment

Amendment by Puspan. L. 94–553 effective Jan. 1, 1978, see section 102 of Puspan. L. 94–553, set out as an Effective Date note preceding section 101 of Title 17, Copyrights.

Puspan. L. 94–455, title II, § 211(span), Oct. 4, 1976, 90 Stat. 1545, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years ending on or after December 31, 1975.”

Amendment by section 1901(span)(32)(D) of Puspan. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Puspan. L. 94–455, set out as a note under section 2 of this title.

Puspan. L. 94–455, title XXI, § 2106(span), Oct. 4, 1976, 90 Stat. 1903, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1976.”

Effective Date of 1966 Amendment

Amendment by section 104(h)(2) of Puspan. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Puspan. L. 89–809, set out as a note under section 11 of this title.

Puspan. L. 89–809, title II, § 206(c), Nov. 13, 1966, 80 Stat. 1579, provided that: “The amendments made by subsections (a) and (span) [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Nov. 13, 1966]. Such amendments shall also apply, at the election of the taxpayer (made at such time and in such manner as the Secretary or his delegate may prescribe), to taxable years beginning on or before such date and ending after December 31, 1965.”

Effective Date of 1964 Amendment

Puspan. L. 88–484, § 3(span), Aug. 22, 1964, 78 Stat. 598, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1963.”

Amendment by Puspan. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 225(l) of Puspan. L. 88–272, set out as a note under section 316 of this title.

Effective Date of 1962 Amendment

Amendment by Puspan. L. 87–403 applicable only with respect to distributions made after Fespan. 2, 1962, see section 3(g) of Puspan. L. 87–403, set out as a note under section 312 of this title.

Effective Date of 1960 Amendment

Puspan. L. 86–435, § 2, Apr. 22, 1960, 74 Stat. 78, provided that: “The amendments made by the first section of this Act [amending this section and sections 544 and 553 of this title] shall apply only with respect to taxable years beginning after December 31, 1959.”

Treatment of Certain Bank Holding Companies

Puspan. L. 100–647, title VI, § 6280, Nov. 10, 1988, 102 Stat. 3754, provided that:

“(a)General Rule.—For purposes of subtitle A of the 1986 Code, the term ‘personal holding company income’ shall not include any dividend received by a qualified bank holding company from a 25-percent owned bank during any taxable year ending in 1989 or 1990.

“(span) $3,000,000 Limitation.—The aggregate amount excluded from the personal holding company income of any qualified bank holding company under subsection (a) for the taxable year shall not exceed $3,000,000.

“(c)Qualified Bank Holding Company.—For purposes of this section, the term ‘qualified bank holding company’ means any bank holding company (as defined in section 2(a) of the Bank Holding Company Act of 1956 [12 U.S.C. 1841(a)]) if 80 percent or more (by value) of the assets of such company at all times during the taxable year consist of stock in 1 or more 25-percent owned banks.

“(d) 25-Percent Owned Bank.—For purposes of this section, the term ‘25-percent owned bank’ means any bank (as defined in section 581 of the 1986 Code) if at least 25 percent of the stock of such bank (by vote and value) is owned by the bank holding company.”

Special Rules for Broker-Dealers, Royalties Received by Qualified Taxpayer, and Treatment of Active Business Computer Royalties for S Corporation Purposes

Puspan. L. 99–514, title VI, § 645(span)–(d), Oct. 22, 1986, 100 Stat. 2292, provided that:

“(span)Special Rules for Broker-Dealers.—In the case of a broker-dealer which is part of an affiliated group which files a consolidated Federal income tax return, the common parent of which was incorporated in Nevada on January 27, 1972, the personal holding company income (within the meaning of section 543 of the Internal Revenue Code of 1986) of such broker-dealer, shall not include any interest received after the date of the enactment of this Act [Oct. 22, 1986] with respect to—

“(1) any securities or money market instruments held as inventory,

“(2) margin accounts, or

“(3) any financing for a customer secured by securities or money market instruments.

“(c)Special Rule for Royalties Received by Qualified Taxpayer.—

“(1)In general.—Any qualified royalty received or accrued in taxable years beginning after December 31, 1981, by a qualified taxpayer shall be treated in the same manner as a royalty with respect to software is treated under the amendments made by this section [amending this section and section 553 of this title].

“(2)Qualified taxpayer.—For purposes of this subsection, a qualified taxpayer is any taxpayer incorporated on September 7, 1978, which is engaged in the trade or business of manufacturing dolls and accessories.

“(3)Qualified royalty.—For purposes of this subsection, the term ‘qualified royalty’ means any royalty arising from an agreement entered into in 1982 which permits the licensee to manufacture and sell dolls and accessories.

“(d)Special Rule for Treatment of Active Business Computer Royalties for S Corporation Purposes.—In the case of a taxpayer which was incorporated on May 3, 1977, in California and which elected to be taxed as an S corporation for its taxable year ending on December 31, 1985, any active business computer royalties (within the meaning of section 543(d) of the Internal Revenue Code of 1986 as added by this Act) which are received by the taxpayer in taxable years beginning after December 31, 1984, shall not be treated as passive investment income (within the meaning of section 1362(d)(3)(D) [now section 1362(d)(3)(C)]) for purposes of subchapter S of chapter 1 of such Code.”

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Puspan. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Puspan. L. 99–514, as amended, set out as a note under section 401 of this title.