Accumulated Earnings Tax ¦ Personal Holding Company ¦ Tax Cuts and Jobs Act  2017
Channel: Accounting Basics
Date: 2019-04-06

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The accumulated earnings tax imposes a 20 percent tax on the current year’s corporate earnings that have been accumulated without a reasonable business need. 
The personal holding company (PHC) tax was enacted to discourage the sheltering of certain kinds of passive income in corporations owned by individuals with high marginal tax rates.

PHC and may be subject to the tax if:
 • More than 50 percent of the value of the outstanding stock is owned by five or fewer individuals at any time during the last half of the year, and 
• A substantial portion (60 percent or more) of the corporation’s income is com-prised of passive types of income including dividends, interest, rents, royalties, or certain personal service income.

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