Personal holding companies (See also: Foreign personal holding companies) Affiliated groups; dividend exclusion provision. In deciding whether

Transcription

1 (See also: Foreign personal holding companies) Affiliated groups; dividend exclusion provision. In deciding whether an affiliated group of corporations may determine its status as a personal holding company on a consolidated basis under section 542(b)(1) of the Code, the dividend exclusion provisions of section 542(b)(4) apply only to dividends received by the common parent corporation from another corporation of which the common parent owns more than 50 percent of the outstanding stock, but which is not a member of the affiliated group and is not a personal holding company , (Secs. 542, 1504; 86 Rev. Rul , C.B Assessment of deficiencies; suspension. Procedures are set forth for suspension of assessment of proposed personal holding company tax

2 deficiencies to provide taxpayers with sufficient time for making payments of deficiency dividends prior to assessment of the deficiency where an agreement has been signed under section 547(c)(3). Conditions for acceptance of Form 2198 are set forth. Modified to provide that where an appropriate agreement on Form 870-AD is filed concurrently with Form 2198, the statement of conditions may be omitted from the agreement (Sec , S.P.R.; Sec. 547, 86 Rev. Proc. 59 1, C.B. 799; Rev. Proc. 63-1, C.B Bank liability for tax. Taxpayer, a State chartered bank, received deposits from and made a small number of loans to State and local governments, its employees, and other parties related to the taxpayer s management but deposits from related sources never exceeded 35 percent of the total deposits. Held, the taxpayer qualifies as a bank and is exempt from personal holding company tax. (Secs. 542, 581; 86 Austin State Bank, 57 T.C. 180, Acq., C.B Capital gains; sale of securities. A domestic personal holding company may retain in the corporation the net long-term capital gain derived from the sale of securities less the amount of tax applicable to such capital gain. (Secs. 541, 545, 1201; 86 Rev. Rul , C.B Consent dividends; extension of time; due date. A Federal income tax return and attached signed consent dividend Forms 972 filed by a personal holding company during an extension of time for filing will be considered to have been filed by the due date within the meaning of section (b)(3) of the regulations (Sec. 565, 86 Rev. Rul , C.B Constructive stock ownership; collateral relatives. For the purpose of determining whether or not a domestic or foreign corporation is a personal holding company, an individual is not considered to constructively own stock held by his aunt or other collateral relatives (b) 1, , , (Sec. 24(b), 39 Code; Secs. 267, 542, 544, 552, 86 Rev. Rul , C.B Constructive stock ownership; stock held by individual stockholder s limited partners. A corporation will lose its status as a regulated investment company if, because of constructive ownership by reason of partnership attribution rules, it becomes a personal holding company , (Secs. 544, 851; 86 Rev. Rul , C.B Contested tax previously paid. In determining undistributed personal holding company income, Federal income tax deficiencies contested but paid are deductible in the year paid if the conditions of section 461(f) are satisfied, and recovered amounts are includable in the year of recovery, unless an exclusion is available under section 111(c)(2) , , (Secs. 111, 461, 545; 86 Rev. Rul , C.B Copyright royalties; sale of copyright with right of reversion. An author s personal holding company, organized to engage in book publishing and to which the author transferred a copyright to one of his works and with which he entered into a 15-year exclusive employment contract for his future works, does not receive personal holding company income from copyright royalties under section 543(a) with respect to the sale of the copyright to an unrelated corporation under a contract providing payment of a substantial lump sum, reversion of the copyright for failure to publish or exploit it within a specified time, and upon reversion the retention of the lump sum as liquidated damages (Sec. 543, 86 Rev. Rul , C.B Deficiency dividend; credits and refunds. A decision of the Tax Court becomes final 90 days after entry pursuant to a stipulation of the parties, provided no notice of appeal has been duly filed within that time, for purposes of the deficiency dividends deduction by a personal holding company. Rev. Rul revoked , , (Secs. 547, 7481, 7483; 86 Rev. Rul , C.B Deficiency dividend; judgment by Court of Claims. The entry of a judgment by the U.S. Court of Claims dismissing a taxpayer s petition pursuant to a stipulation becomes final, for purposes of section 547(c), 90 days after such judgment is entered to determine when a distribution must be made in order to qualify as a deficiency dividend (Sec. 574, 86 Rev. Rul , C.B Deficiency dividend; stock transferred prior to distribution. Individuals, the sole owners of the capital stock of a personal holding company, are considered to have constructively received a dividend where, subsequent to receiving information relating to personal holding company tax liability, but before the distribution of a deficiency dividend, the individuals transfer their stock to another wholly owned corporation and there is no showing that the transfer was made for reasons other than minimizing Federal income taxes. Such dividends are includible in the individuals gross income , (Secs. 61, 547; 86 Rev. Rul , C.B Deficiency dividend deduction; interest. Where a deficiency dividend deduction is equal to undistributed income, interest is charged on the full amount of the deficiency from the due date of the income tax return to the date of filing Form 976, Claim for Deficiency Dividend Deduction. Where the undistributed personal holding company income exceeds the deficiency dividend deduction, interest on the portion of the deficiency in tax attributable to such excess and interest on the income tax deficiencies are both computed to the date of assessment. (Secs. 547, 6601; 86 Rev. Rul , C.B Distributions after close of year; accumulated earnings tax. Dividends paid by a personal holding company on or before the 15th day of the third month after the beginning of the taxable year are includable in the dividends paid deduction and must be taken into account in determining accumulated taxable income for the prior taxable year under section 535. Such distribution is also taken into account in determining undistributed personal holding company income for the current taxable year under section 545 of the Code , , , , , , (Secs. 316, 535, 545, 561, 562, 563, 1373; 86 Rev. Rul , C.B Dividends; affiliated group. A personal holding company, a member of an affiliated group treated as an ineligible group by reason of section 542(b)(2), paid dividends to its parent, which was not a personal holding company, during a taxable year for which the group filed a consolidated return, and took dividends paid deduction for the dividends in order to avoid the personal holding company tax. The dividends are included in computing the recipient corporation s separate personal holding company income and separate undistributed personal holding company income. Dividends the recipient corporation subsequently paid to its personal holding company parent in the same year are excluded from the common parent s computation of separate personal holding company income and separate undistributed personal holding company income , , , , (Secs. 542, 543, 545, 1502; 86 Rev. Rul , C.B Dividends; affiliated group bank holding company member. To determine its separate personal holding company income and its separate undistributed personal holding company income for a consolidated return year, a common parent would eliminate dividends it receives from a 90-percent owned holding company which wholly owns a bank and has only bank dividend income , (Secs. 543, 1502; 86 Rev. Rul , C.B Dividends; affiliated group bank member. Dividends received by a common parent company of an affiliated group from a bank member of the group during a consolidated return year are eliminated in computing the parent s separate personal holding company income , (Secs. 543, 1562; 86 Rev. Rul , C.B Dividends; affiliated group including bank member. The corporation parent of an affiliated group that includes a bank subsidiary and files a consolidated return, whose income consists of dividends from the bank subsidiary and dividends and interest from other investments, determines whether and to what extent it is liable for the personal holding company tax based on its separate personal holding company income excluding the subsidiary s dividends (Sec. 542, 86 Rev. Rul , C.B Dividends,; affiliated group life insurance subsidiary. Dividends received during taxable years beginning before 1974 by a member of an affiliated group from its wholly owned life insurance subsidiary, excluded from the affiliated group by section 1504(b)(2), are includable in the parent s income as personal holding company income for purposes of meeting the definition of a personal holding company under section 542(a)(1). Dividends received during taxable years beginning after 1973, however, are excludable from the parent s income for purposes of this section. Rev. Rul distinguished , , , (Secs. 61, 542, 543, 1502; 86 Rev. Rul , C.B Dividends paid credit. No dividends were formally declared but all of a personal holding company s income was distributed as received to its stockholder, the president-treasurer. Held, the distributions were dividends entitling the taxpayer to a dividends paid credit for computing undistributed subchapter A net income. (Secs. 500, 504(a), 39 Code; Secs. 541, 545, 86 Sebago Lumber Co., 26 T.C. 1070, Acq., C.B Dividends paid deduction. A personal holding company subsidiary liquidated into its parent corporation may claim a deduction for dividends paid under section 561, to the extent of the amount distributed to the parent that represents the subsidiary s undistributed personal holding company income , , , (Secs. 541, 545, 561, 562; 86 Rev. Rul , I.R.B Dividends paid deduction; distribution of appreciated property. The dividends paid deduction allowable to a personal holding company for appreciated property distributed to its shareholders is limited to the company s adjusted

3 basis in the property at the time of the distribution (Secs. 561, 562; 86 Fulman, 434 U.S. 528, Ct. D. 1988, C.B Dividends paid deduction; distribution of appreciated property. The deficiency dividends paid deduction allowable to a personal holding company for appreciated property distributed to its shareholders may be computed using the fair market value of the property at the time of the distribution rather than the adjusted basis of the property (Secs. 547, 561, 562; 86 C. Blake McDowell, Inc., 67 T.C. 1043, Nonacq., C.B Domestic corporation wholly owned by nonresident alien; investment and interest income. A domestic corporation, wholly owned by a nonresident alien, that makes investments in U.S. real estate and receives interest income from U.S. sources is subject to the personal holding company tax (Sec. 542, 86 Rev. Rul , C.B Extension of time to distribute dividends. A personal holding company cannot receive an extension of time as described under reg , for a failure to timely distribute a deficiency dividend as described under section (Sec. 547, 86 Rev. Rul , C.B Failure to file return; penalty. A delinquency penalty should not be assessed against a personal holding company where failure to file a timely Form 1120 H is attributable to reliance in good faith on the advice of a reputable accountant or attorney, experienced in Federal tax matters, who has been furnished all relevant information , (Secs. 291, 500, 39 Code; Secs. 541, 6651, 86 Rev. Rul. 172, C.B. 226; Reliance Factoring Corp., 15 T.C. 604, Nonacq. withdrawn and Acq. substituted, C.B. 6; West Coast Ice Co., 49 T.C. 345, Acq., C.B Farm operation; expenses exceeding rent. A personal holding company operated a farm which sustained continued losses before active operation was discontinued. Numerous attempts to sell or rent the farm and residence were unsuccessful and the company leased the residence to the farm s former manager who paid some rent and served as a watchman for his occupancy. Held, expenses and depreciation in excess of the rent received were deductible in computing undistributed personal holding company income. (Sec. 505, 39 Code; Sec. 545, 86 Dwinnell & Co., 33 T.C. 827, Acq., C.B Finance company; absence of State regulation. A finance company, operating in a State which does not have any specific statute relating to or pertaining to finance companies, may nevertheless be exempt from personal holding company surtaxes (Sec. 501, 39 Code; Sec. 542, 86 Rev. Rul , C.B Finance company; average funds. The phrase average funds employed by the company during such taxable year, as used in section 542(c)(9)(B), refers to an average of those funds of a finance company which are actually invested in accounts and notes receivable, installment obligations, and loans secured by any of the foregoing or by tangible personal property. (Sec. 542, 86 Rev. Rul , C.B Finance company; interest paid; business expenses. The interest payments made by a finance company are deductible as ordinary and necessary business expenses under section 162 for purposes of the 15-percent test of section 542(c)(9), notwithstanding the fact that interest is specifically allowable under section 163; the finance company is not a personal holding companv. (Secs. 162, 163, 542; 86 McNutt-Boyce Co., 38 T.C. 462, Acq. in result, C.B Finance company; loans to principal stockholders. Funds were transferred by a bank directly to a personal finance company which loaned them to its parent corporation under an agreement with the bank whereby the parent was liable on the loans. Held, the Commissioner s contention that the finance company was making loans in excess of $5,000 to an over 10-percent shareholder and was therefore a personal holding company was erroneous, The loans were intercompany transfers of funds borrowed by the parent from the bank with the finance company acting as conduit. (Sec. 501(b), 39 Code; Sec. 542, 86 Oak Hill Finance Co., 40 T.C. 419, Acq., C.B Finance company; loans to shareholder. A finance company, whose income consists entirely of interest from loans and a majority of whose stock is held by one shareholder, loaned $12,000 to a partnership in which that shareholder was a 50-percent partner. The shareholder s pro rata partnership share of the loan is considered a loan to the shareholder, and the finance company does not qualify for the exception from personal holding company status under section 542(c)(6)(D) (Sec. 542, 86 Rev. Rul , C.B Finance company; usurious interest. In determining whether a finance company is excepted from classification as a personal holding company, usurious interest charged, although includable in gross income, may not be included in determing whether 80 percent of its gross income is derived from the finance business in accordance with state law. (Secs. 542, 543; 86 Rev. Rul , C.B Foreign corporations; resident; dividends paid deduction. A resident foreign corporation is not required to make an allocation between income from foreign and domestic sources in computing its dividends paid deduction for purposes of determining undistributed personal holding company income , , (Secs. 545, 561, 562; 86 Rev. Rul , C.B Foreign corporations; wholly owned by domestic; character of income to domestic. The amount includable in the gross income of a domestic corporation, whose controlled foreign corporations had an increase in earnings invested in U.S. property, retains the character it had when realized by the controlled foreign corporations for purposes of determining whether the domestic corporation is a personal holding company , , , (Secs. 542, 951, 956, 964; 86 Rev. Rul , C.B Form of operation changed to bank. Where a corporation qualifies for the taxable year as a personal holding company and later in that year changes its form of operation to a bank, it is subject to the personal holding company tax on its undistributed personal holding company income for the period during which it operated as a personal holding company but not for the period during which it operated as a bank (Sec. 542, 86 Rev. Rul , C.B Industrial loan company; exemption. An industrial loan company that fails to qualify for the exemption from personal holding company status provided by section 542(c)(6) may not qualify for the exemption provided by section 542(c)(2) for banks , (Secs. 542, 581; 86 Rev. Rul , C.B Insurance commission income. Where a corporation is the assignee of certain insurance agency agreements to which a 25 percent stockholder and his son are parties, commissions received by the corporation as assignee of the contract between the insurance company and the stockholder and his son constitute personal holding company income. Distinguished by Rev. Rul (Sec. 502, 39 Code; Sec. 543, 86 Rev. Rul , C.B Insurance commission income. Commission income earned by an individual from the sale of life insurance policies, for which the individual alone may apply, and assigned to the individual s wholly owned corporation that designs and administers pension and profit sharing plans which are funded by the life insurance does not constitute personal holding company income. The individual must include the commissions in gross income but may deduct the portion paid the corporation for services performed. Rev. Rul distinguished , , (Secs. 61, 118, 543; 86 Rev. Rul , C.B Insurance commissions income. Insurance commissions received by an authorized corporate agent of various insurance companies from the writing of insurance policies by two officershareholders of the corporation do not qualify as personal holding company income since on the facts presented such individuals were not named or designated in the agency contracts and the insurance companies did not reserve the right to name or designate the individuals who were to perform such services (Sec. 543, 86 Rev. Rul , C.B Interest income; finance or service charges. Finance or service charges imposed on borrowers by a finance company, which do not warrant a charge separate from that for the use of borrowed money, constitute interest and are includable in personal holding company income (Sec. 502, 39 Code; Sec. 543, 86 Rev. Rul , C.B Interest income; financing and application fees. Fees charged by a finance company for application and service charges are not personal holding company interest income where the taxpayer does not retain the loans arranged and where the services rendered by the company for the fees are substantial (Sec. 502, 39 Code; Sec. 543, 86 Rev. Rul , C.B Liability for tax; closing agreements. A determination of a taxpayer s liability for personal holding company tax made in an informal agreement entered into between the taxpayer and the Commissioner, under section 547(c)(3), does not have the effect of a formal closing agreement under section , , (a) 3, (Sec. 506; 39 Code; Secs. 547, 1313, 7121, 86 Rev. Rul , C.B Liquidation; dividends paid; designation. A personal holding company that wishes to designate all or a part of a distribution in complete liquidation as a dividend to a shareholder will meet the requirements of section 316(b)(2)(B)(ii) if it designates such amount as a dividend on its

4 Form 1099 filed with the Service and also notifies the shareholder of the dividend payment in a written statement , (Secs. 316, 6042; 86 Rev. Rul , C.B Liquidation in one month. The method for liquidating a personal holding company under section 333 is outlined where the actual distribution of the company s many securities to its shareholders within one month is impossible (Sec. 333, 86 Rev. Rul , C.B Loan company; interest and management fees from subsidiaries. A parent of an affiliated group engaged in the lending and finance business must include in gross income intercorporate interest and managerial fees for purposes of determining whether it is a personal holding company. (Sec. 542, 86 Rev. Rul , C.B Loan company; interest and management fees from subsidiaries. A parent corporation of a number of wholly owned loan subsidiaries that is engaged in a lending or finance business as a business which renders services or makes facilities available to an affiliated corporation that is engaged in such business, but does not lend money or conduct finance business with, or derive income from, individual borrowers, cannot be excluded from the term personal holding company. (Sec. 542, 86 Rev. Rul , C.B Mineral interests; bonus depletion restored to income. The amount of the depletion deduction taken on a bonus received for granting an economic interest in mineral deposits and subsequently required to be returned to income upon the expiration, termination or abandonment of the interest is not royalty or rental income for purposes of the personal holding company provisions (Sec. 543, 86 Rev. Rul , C.B. 170; Bayou Verret Land Co., 52 T.C. 971, Acq. in result, C.B. xviii Mortgage pool ; servicing fees. Fees derived by a mortgage lending institution from servicing mortgages guaranteed by the Government National Mortgage Association and sold to various investors are not personal holding company income; principal and interest payments collected on such mortgages are not includible in the institution s gross income (Sec. 543, 86 Rev. Rul , C.B Net operating loss carryback. A personal holding company may carry back a net operating loss, which is deductible under section 172, in computing the amount of its tax imposed by section 11. Modified by Rev. Rul , , (Secs. 11, 172, 541; 86 Rev. Rul , C.B Net operating loss carryback. A personal holding company that incurred a net operating loss in its preceding taxable year may use the loss in computing the tax imposed by section 541, even though it carried back the loss to an earlier year for purposes of computing its normal corporate income tax. Rev. Rul amplified , , , (Secs. 11, 172, 541, 545; 86 Rev. Rul , C.B Nonprofit foundation. A corporate nonprofit foundation, not exempt from tax, which has no capital stock but which issued membership certificates to its three directors who hold no beneficial interest in the property of the corporation, does not meet the stock ownership requirement of personal holding companies (a)-1. (Sec. 503, 39 Code; Secs. 542, 544, 7701, 86 Rev. Rul , C.B Nonprofit foundation; stockholding requirements. A foundation that invested in construction projects had a charter forbidding the issuance of stock but issued memberships without the right to share in profits either currently or upon dissolution. Held, the foundation is not a personal holding company as the memberships do not correspond to stockboldings and the investments were in the nature of a joint venture, not loans. (Secs. 501, 502, 39 Code; Secs. 542, 543, 86 Stevens Bros. Foundation, Inc., 39 T.C. 93, Acq., C.B Oil and gas producing properties; lifting costs. In the case of oil and gas producing properties, lifting costs constitute a portion of the cost of producing oil and gas and must be subtracted from gross sales in computing gross income for the purpose of determining whether personal holding company income is at least 80 percent of the corporation s total gross income for a taxable year , (Secs. 61, 542; 86 Rev. Rul , C.B Oil and gas property income. Gross income received by a corporation from the sale of oil and gas production attributable to its working interests in oil and gas properties is not personal holding company income , , (Secs. 543, 612, 614; 86 Rev. Rul , C.B Percentage depletion deduction; coal disposal. A corporation which computes its taxable income by taking into consideration the provisions of section 631(c), in computing gain or loss from the disposal of coal is not entitled to a deduction for percentage depletion in determining its undistributed personal holding company income , (Secs. 545, 631; 86 Rev. Rul , C.B Personal service income. A construction supervisor, who had been performing services for a construction company under a partnership agreement between himself and the company, formed a corporation with himself as its only employee. The partnership agreement was assigned to the new corporation, and the constriction supervisor continued to perform the services called for in the agreement, although he was not designated by name as the person to perform such services. Held, the corporation was not a personal holding company. (Secs. 542, 543; 86 S. O. Claggett, 44 T.C. 503, Acq., C.B Personal service income; musical composition and arrangement. Income earned from musical composition and arrangement services furnished to clients by a domestic corporation, wholly owned by a musician-employee, will not be considered income from personal service contracts in the absence of contracts between the corporation or the owner and the clients that the owner will personally perform the services (Sec. 543, 86 Rev. Rul , C.B Personal service income; oral contract. The term contract as used in section 543(a)(7) relating to personal holding company income includes oral as well as written contracts (Sec. 543, 86 Rev. Rul , C.B Personal service income; professional service corporation. Income earned by a domestic professional service corporation, 80-percent owned by its sole physician-employee who specializes in a certain area of medicine, will not be considered from personal service contracts in the absence of contracts between the corporation or the physician and the patients that the physician will personally perform the services or evidence that the services are so unique as to preclude substitution (Sec. 543, 86 Rev. Rul , C.B Personal service income; professional service corporation. Income earned from accounting services furnished to clients by a domestic professional service corporation, wholly owned by an accountant-employee, will not be considered income from personal service contracts in the absence of contracts between the corporation or the owner and the clients that the owner will personally perform the services, (Sec. 543, 86 Rev. Rul , C.B Proposed deficiency; notice to exercise appeal right at district conference. A taxpayer s notification that he wishes to appeal a proposed deficiency at a district conference is a contest that precludes accrual of the deficiency for the year under examination in computing either accumulated taxable income or undistributed personal holding company income. Any additional income tax liability is deductible in making such computations only for the year in which the contest is resolved , , (Secs. 461, 535, 545; 86 Rev. Rul , C.B Public utility; stock sold by order of S.E.C. New stock of a corporation acquired by a public utility holding company in exchange for old stock of the same corporation, in accordance with an order of the Securities and Exchange Commission to dispose of its interest therein, is treated as the sale of a capital asset. I.T superseded (Sec. 1221, 86 Rev. Rul , C.B Qualified indebtedness; test of reasonableness. The test of reasonableness applies to amounts irrevocably set aside by a personal holding company to retire qualified indebtedness, but not to amounts actually paid to retire such indebtedness (Sec. 545, 86 Rev. Rul , C.B Rental income; interest on notes and mortgages acquired. Interest on notes and mortgages acquired in a section 351 transfer does not qualify as rental income under section 543(a)(2) where the corporation receiving interest on debts representing the price of real property is not engaged in selling such property in its trade or business. Thus, alt the receiving corporation s rental income must be treated as personal holding company income (Sec. 543, 86 Rev. Rul , C.B Rental income; leased farmland; Soil Bank payments. Payments received by a personal holding company under the Soil Bank Act with respect to farmlands which it leased to another corporation under a crop-sharing arrangement, under which it materially participated in the management of the farm production, are not rents for personal holding company income purposes , (Secs. 542, 543; 86 Rev. Rul , C.B Rental income; leased oil and gas property. Sums received by a personal holding company under a lease agreement that are designated as rent, fixed in amount and payable in advance semiannually for the use of, or the right to use, oil and gas property constitute rents under section 543(a)(2). I.T superseded (Sec. 543, 86 Rev. Rul , C.B. 139.

5 Rental income; lessor and lessee corporations owned by same shareholder. Rental income received by a corporate lessor from a related corporate lessee is not compensation for the use of or right to use corporate property by a shareholder, for purposes of section 543(a)(6), when the leased property is used solely in the lessee s trade or business. Rev. Rul revoked (Sec. 543, 86 Rev. Rul , C.B. 116; Minnesota Mortuaries, Inc., 4 T.C. 280, Acq., C.B Rental income; motion pictures. Income received by a personal holding company from the distribution and exhibition of its own motion pictures, in which it retains all rights other than distribution and exhibition, constitutes rent so long as none of its shareholders has any right to use the film. The income does not qualify as personal holding company income or foreign personal holding company income as long as such rents represent 50 percent or more of the total gross income of the corporation , (Secs. 332, 502, 39 Code; Secs. 543, 6511, 86 Rev. Rul , C.B Rents; farm income. Income received from farms owned by the taxpayers and managed, according to the taxpayers comprehensive instruction, by an agent who engages farmers to operate the properties under sharecropping agreements, does not constitute rent. (Sec. 502(g), 39 Code; Sec. 543, 86 Webster Corp., 25 T.C. 55, Acq., C.B Royalties; leased oil and gas property. Amounts received by a personal holding company under a lease agreement with a drilling company providing for the delivery to the lessor of a oneeighth part of the oil and gas produced and for the sale of such oil and gas to the lessee for a stipulated price are royalties for purposes of computing personal holding company income (Sec. 543, 86 Rev. Rul , C.B Royalty income; sub-processing contract; secret formula. Payments received by a corporation from a partnership whose three partners are equal owners of the corporation s stock pursuant to a sub-processing contract containing a secret formula are royalty payments includable as personal holding company income (Sec. 543, 86 Rev. Rul , C.B Rules for determining ownership. For purposes of classifying a corporation as a personal holding company under the stock ownership requirement in section 542(a)(2) of the Code, stock that is attributed from one person to another under the family and partnership rules of section 544(a)(2) is not taken into account a second time either as stock of the person who owns it directly or as stock of a third person to whom it is also attributable. If that stock is owned directly by one person and is attributed to another, the first person may be counted among the five largest individual shareholders by virtue of attribution to that person of ownership of stock that is directly owned by others and that has not otherwise been taken into account for purposes of section 542(a)(2) , , (Secs. 542, 544; 86 Rev. Rul , C.B Salaries to employees holding stock options. Salaries paid by a finance company to employees who hold options to purchase common stock but who are not currently shareholders do not constitute compensation for personal services rendered by shareholders so as to prevent application of the exception from the personal holding company provisions. (Sec. 542, 86 Rev. Rul , C.B Small business investment companies; wholly owned subsidiary. The exemption from personal holding company tax applicable to a licensed small business investment company described in section 542(c)(8) does not extend to its wholly-owned subsidiary (Sec. 542, 86 Rev. Rul , C.B Small business investment company. A small business investment company is subject to personal holding company tax, if at least 80 percent of its gross income for the taxable year is personal holding company income, and if at any time during the last half of the taxable year more than 50 percent in value of its outstanding stock is owned, directly or indirectly, by or for not more than five individuals. Inapplicable to taxable years beginning after December 31, , , (Secs. 243, 541, 542, 543, 1242, 1243; 86 Rev. Rul , C.B. 142; Rev. Rul , C.B Small business investment company; stock attribution. Stock in a small business concern held by a small business investment company shall not be attributed through the investment company to its shareholders under the attribution rules of section 544(a) for purposes of determining whether the small business investment company is excepted from the term personal holding company under section 542(c)(8). However, stock of a business concern shall be attributed to an investment company s shareholders when such stock can be attributed to the shareholders through a business concern that is not a small business investment company , (Secs. 542, 544; 86 Rev. Rul , C.B Small loan company; precomputation of interest. A small loan company will not lose its exempt status merely by adopting the method of precomputing interest on loans authorized by the Illinois Small Loans Act. In determining whether such company is excepted from the definition of a personal holding company, that portion of interest charged by the company in excess of interest computed only on unpaid balances, although includible in gross income, may not be used in determining whether such company satisfies the percentage of gross income requirement. If the gross income requirement is met, after excluding such excess, the company will be exempt from personal holding company status (Sec. 342, 86 Rev. Rul , C.B Stock exchange member corporation. An individual who owns a membership on a stock exchange and works as a broker on the exchange floor may organize a member corporation and not be subject to the provisions of section 543(a)(7) relating to personal service contracts which produce personal holding company income (Sec. 543, 86 Rev. Rul , C.B Stock held in trust. Ownership of stock held in trust may redetermined actuarially for purposes of sections 421(d)(1)(C) and 544(a)(1). Rev. Rul revoked , (Secs. 421, 544; 86 Rev. Rul , C.B Tax on retained income. A regulated investment company that is also a personal holding company is liable for tax under both sections 541 and 852(b)(1) of the Code on its retained income , , (Secs. 541, 561, 852, 4982; 86 Rev. Rul , C.B Taxes paid; business expenses; pre The amounts paid in real estate and franchise taxes were includable in determining whether the deductions allowable under section 162 constituted 15 percent or more of the personal holding company s gross income for purposes of pre-1964 section 543(a)(8)(B) even though taxes were specifically deductible under section 164. (Secs. 162, 543; 86 Bayou Verret Land Co., 52 T.C. 971, Acq. in result, C.B. xviii.