deductions you must, instead of com-
pleting Schedule A, attach a statement
reporting the deductions with the com-
plete facts, circumstances, and argu-
ments to support them. The statement
must include the information required
by regulations section 1.545-2(h)(2).

Line 4—Amount added to taxable in-
come.—lf any amount was deducted
under section 545(b)(9) in a tax year
beginning before 1977 for a lien that
was Satisfied or released in a tax year
beginning on or after January 1, 1977,
you must include the amount deducted
in the corporation's income under sec-
tion 545. See Public Law 94-455, sec-
tions 1951(b)(9)(A) and (B).

If an amount is added, the share-
holders may elect to figure the tax on
dividends from the added income as
though they received them ratably over
the period the lien was in effect.

Deductions

Line 6—Federal and foreign income,
war profits, and excess profits taxes.—
Attach a schedule showing the kind of
tax, the tax year, and the amount.
Under section 545(b)(1), the company
can deduct Federal income taxes ac-
crued during the tax year, but not the
accumulated earnings tax under sec-
tion 531 or the personal holding com-
pany tax under section 541.

The foreign tax credit is not allowed
against personal holding company tax.
A deduction is allowed, however, for
income, war profits, and excess profits
taxes accrued (or considered paid un-
der sections 902(a) or 960(a)(1)(C))
during the tax year to foreign countries
and U.S. possessions. This is true if
the corporation claims a credit for the
taxes in figuring its income tax.

Line 7—Contributions.—Section 545
(b)(2) provides a different limitation
for charitable contributions for figuring
the personal holding company tax than
the 10% limitation used in determin-
ing the corporate income tax. The lim-
itations on charitable deductions of in-
dividuals apply, but are applied to the
taxable income to which the 10%
limitation applied. However, figure tax-
able income without deducting the
amount disallowed under section 545
(b)(6), (excess expenses and deprecia-
tion).

The contribution carryover under
section 170(d) is not allowed when
figuring personal holding company tax.

Page 4

Line 8—Net operating loss.—Section
545(b)(4) provides that instead of the
net operating loss deduction provided
in section 172, a deduction is allowed
for the net operating loss (as defined in
section 172(c)) for the preceding tax
year figured without the deductions
provided in part VIII (except section
248) of subchapter B.

Line 10—Amounts used or irrevocably
set aside.—Subject to the limitations
in section 545(c), section 545(c)(1) al-
lows a deduction for amounts used, or
irrevocably set aside, to the extent rea-
sonable, to pay or retire qualified in-
debtedness as defined in section 545
(c)(3). This deduction applies only to
corporations described in section 545
()(2).

Any corporation taking this deduc-
tion must provide detailed informa-
tion and any necessary computation
showing it is a corporation described
in section 545(c)(2)(A). To the extent
that it succeeds to the deduction by
section 381(c)(15), it must submit de-
tailed information showing that the
distributor or transferor corporation
was a corporation described in section
545(c)(2)(A).

A corporation succeeding to the de-
duction must adjust its qualified in-
debtedness to take this indebtedness
into account.

The corporation must establish that
the amount reported as a deduction is
reasonable. Attach a statement giving
a description of the indebtedness, date
incurred or assumed, date due, and
plan for payment or retirement of the
obligations (indicating date and meth-
od of adoption). If the plan is covered
by a mandatory sinking fund agreement
or similar arrangement, include a copy
of the indenture or agreement by which
the fund was established and under
which it is maintained.

The statement must also include:

© Amount of indebtedness on Jan-
uary 1, 1964;

Total amounts used or irrevoca-
bly set aside to pay or retire the indebt-
edness in earlier tax years beginning
on and after January 1, 1964;

e@ Amount actually used during the
tax year to pay or retire the indebted-
ness; and

© Amount irrevocably set aside dur-
ing the tax year to pay or retire the in-

‘tr US, GOVERNMENT PRINTING OFFICE : 1982—O-363-124

debtedness but not actually used dur-
ing the tax year for that purpose.

Also, the statement must show if the
deduction claimed represents:

© An amount actually used during
the tax year to pay or retire the indebt-
edness;

@ An amount irrevocably set aside
during the tax year to pay or retire the
indebtedness; or

© A combination of the two.

lf the amount reported as a deduc-
tion on line 10 represents an amount
irrevocably set aside, and not used, to
pay or retire the indebtedness, attach
a statement explaining the circum-
stances and method by which it was ir-
revocably set aside.

Section 545(c)(4) allows corpora-
tions to elect to treat as nondeductible
certain amounts used or irrevocably
set aside to pay or retire qualified in-
debtedness that are otherwise deduc-
tible under section 545(c)(1). See reg-
ulations section 1.545-3(e) for time
and manner of making the election.

Line 11—Deduction for dividends
paid.—Enter this deduction from
Schedule B. The rules in section 562
apply in determining the deduction for
dividends paid.

Line 14—Dividends paid after the end
of the tax year.—Enter on line 14, and
not in Schedule B, the dividends paid
after the end of the tax year and before
the 16th day of the third month follow-
ing the end of the tax year, if the corpo-
ration elects to have the dividends con-
sidered as paid during that tax year.

Do not include on line 11 or line 14
deficiency dividends paid under section
547.

Line 15—Undistributed personal hold-
ing company income of certain foreign
corporations.—If 10% or less in value
of the outstanding stock of a foreign
corporation is owned (see section 958
(a)) during the last half of the tax year
by U.S. persons, undistributed per-
sonal holding company income is de-
termined by multiplying the undistrib-
uted personal holding company income
(determined without this instruction)
by the percentage in value of the corpo-
ration’s outstanding stock. This per-
centage is figured by using the great-
est percentage in value of its out-
standing stock owned by U.S. persons
on any one day during the period.


SCHEDULE PH
(Form 1120)

Department of the Treasury
Internal Revenue Service

Computation of U.S.
Personal Holding Company Tax
» Attach to your tax return.

OMB No. 1545-0123

1982

Name Employer identification number
Computation of Undistributed Personal Holding Company Income
1 Taxable income before net operating loss deduction and special deductions (Form 1120, line 28 as
g modified for section 465 losses, section 189 limitations, or section 280 limitations—see instructions
So for line 1) . oe ee
— 2 Contributions deducted in figuring line 1 (form, 1120, line 19). 2. . corn ee
9 3 Excess expenses and depreciation under section 545(b)(6) (Schedule A, line 2). Sr ee erry
4 Amount added to taxable income when a lien in favor of the U.S. is satisfied or released .
5 Total—Add lines 1 through 4... ss ee
6 Federal and foreign income, war profits, and excess profits taxes not deducted in figuring line 1 (attach
schedule) «6 ee ee ee oe eee oe ee
7 Contributions deductible under section 545(b)(2) (see line 7 instructions for limitation)
8 Net operating loss for the preceding tax year (deductible under section 545(b)(4)). . . 7
9 a Net capital gain (from separate Schedule D (Form 1120), line 10) . Y
o b Less: Income tax on this net capital gain (see section 545(b)(5)— LD
S$ attach computation)... 6. ee ee ee ee LZ
5 10 Amounts used or irrevocably set aside to pay or retire qualified indebtedness (Schedule C, line 5) . 10 |
a 11 Deduction for dividends paid (other than dividends paid after the end of the tax year (Schedule B,
. 11
a line 5)) 6 0. ee ee woe ee
12 Total—Add lines G6 through 11. «6 6 ee ee ee ee
13 Subtract line 12 fromline5. . . - see ee . .
14 Dividends paid after the end of the tax year (other than deficiency dividends ‘defined i in 1 section 5A7(d))
but not more than the smaller of line 13 or 20% of Schedule B,linel. . . ~ woe ee | 14
15 Undistributed personal holding company in income—Subtract line 14 from line 13. Foreign corporations—
see instructions for line 15... . woe
z 16 Personal holding company tax (enter 50% of line 15 here and on Schedule J (Form 1120), line 7) . 16

INFORMATION REQUIRED UNDER SECTION 6501(f). If the information on income and stock ownership is not submitted with the corpora-

tion’s return, the limitation period for assessment and collection of personal holding company tax is 6 years.

Personal Holding Company Income

1 Dividends . . 1 we ee ee ee
2 a Interest. -
b Less: Amount excluded ‘under section 543(b)(2)(C) ‘(attach schedule) «

3 Royalties (other than mineral, oil, or gas royalties or copyright royalties). .

4 Annuities . 2 1. 6 ee ee
5aRents .. - . see eee

b Less: Adjustments described i in section 543(b)(2)(A) (attach schedule) .
6 a Mineral, oil, and gas royalties. . . . sone

b Less: Adjustments described in section 543(b)(2)(B) (attach schedule) .
7 Copyright royalties . 2. 6 6 ee ee ee ee ee
8 Produced film rents . . . sone see
9 Compensation received for use 2 of corporation property by shareholder. .
10 Amounts received under personal service contracts and from their sale. .
11 Amounts received from estates andtrusts . . - . - - 1 ee

12 Total personal holding company income—Add lines 1 through 11. - . - ss ss se

For Paperwork Reduction Act Notice, see page 1 of Form 1120 instructions.

363-124-1


Schedule PH (Form 1120) 1982

Page 2

Stock Ownership.Enter the names and addresses of the individuals who together owned, directly or indirectly at any time during the last half

of the tax year, more than 50% in value of the outstanding stock of the corporation.

Highest percentage of shares owned during last half of tax year

Name Addi
ess Preferred

Common

SCHEDULE A.—Excess of Expenses and Depreciation Over Income From Property Not Allowable Under Section 545(b)(6)

(See instruction for line 3)

e. Repairs, insurance, and
a, Kind of property b. Date ©. Cost or other | d, Depreciation | other expenses (section 4. Total of
acquired basis {e2) (attach schedule) | columns d and e

Income from
Bi antorether” |B. Excess (col. £

compensation less col. g)

2 Total excess of expenses and depreciation over rent or other compensation. Enter here and on line 3, page 1. NOTE: Attach
a statement showing the names and addresses of persons from whom rent or other compensation was received for the use

of, or the right to use, each property . . . . . .

SCHEDULE B.—Deduction for Dividends Paid (See instruction for line 11)

1 Taxable dividends paid (do not include dividends considered as paid in the preceding tax year under section
563, or deficiency dividends as defined in section 547). ©. 6 1 1 ee ee ee ee 1
2 Consent dividends (attach Forms 972 and 973). . . -© © ee 2 ee ee ee 2
3 Taxable distributions—Add lines l and2. .... - =
4 Dividend carryover from first and second preceding tax years (attach computation). . . . .. 4
5 Deduction for dividends paid—Add lines 3 and 4. Enter here and on line 11, page 1. 5
SCHEDULE C.—Computation of Deduction for Amounts Used or Irrevocably Set Aside to Pay or Retire Qualified

Indebtedness (See instructions for line 10)

1 a Amount actually used during the tax year covered by this return to pay or retire qualified indebtedness
(except payments described in section 545(c)(3)(C) from amounts irrevocably set aside before the tax
year to pay or retire qualified indebtedness for a contract). . . . . - see ee

b Amount irrevocably set aside during the tax year covered by this return to p pay or retire qualified

indebtedness, but not actually used during the tax year for that purpose. . . . . 1b

© Total—Add lines laandb. 6 we ee ee ee ee ee |e

2 Reduction for amounts described in section 545(c)(5) (attach schedule). . . . . « 2

3 Subtract line 2 from line Ic. . . . - we sone oo rs ad
4 Part of amount shown on line 3 which is treated as nondeductible by the election in section 545(c)(4)

(attach statement—see instructions). . 2... 2 ee eee ee ee 4

5 Amount claimed as a deduction—Subtract line 4 from line 3, Enter here and on line 10, page 1. - 5

363-124-1


General Instructions

(References are to the Internal Revenue Code.)

New Law

The Tax Equity and Fiscal Responsi-
bility Act of 1982 made the following
changes to the personal holding com-
panies engaged in a lending or finance
business.

(1) For tax years beginning after De-
cember 31, 1980:

(a) The definition of such a busi-
ness is expanded to include
the business of making loans
in indefinite maturity credit
transactions (section 542(d)
(1)(C)); and

(b) The 60-month loan maturity
limitation is increased to 144
os (section 542(d)(1)(B)
(i).

(2) For tax years beginning after De-
cember 31, 1981, the business ex-
pense test has been modified to
include 5% of ordinary gross in-
come in excess of $1 million (sec-
tion 542(c)(6)(C)(ii)).

Purpose

This schedule is used to figure per-
sonal holding company tax.

Who Must File

Every personal holding company
must have this schedule attached to
its income tax return.

Definitions

Personal Holding Company.—A corpo-
ration is a personal holding company
if:

© At least 60% of its adjusted ordi-
nary gross income, defined in section
543(b)(2), for the tax year is personal
holding company income as defined in
section 543(a), and

@ At any time during the last half of
the tax year more than 50% in value of
its outstanding stock is owned, di-
rectly or indirectly, by not more than 5
individuals.

For exceptions to the term ‘‘personal
holding company,” see section 542(c).

Individual.—An organization de-
scribed in section 401(a), 501(c)(17),
or 509(a), or a part of a trust perma-
nently set aside or to be used exclu-
sively for the purpose described in
section 642(c) is also considered an
individual, except as provided in sec-
tion 701(0) of Public Law 95-600. See
section 542(a)(2).

Foreign Corporation.—A foreign cor-
poration is not a personal holding
company if all its outstanding stock

363-124-1

during the last half of the tax year is
owned by nonresident alien individuals,
directly or indirectly. An exception is
a foreign corporation that has income
to which section 543(a)(7) applies.

Foreign Corporations Must File a Re-
turn.—lf a foreign corporation that is a
personal holding company does not file
Schedule PH as required, the corpora-
tion will be charged a penalty. The pen-
alty is 10% of the corporation’s fed-
eral income taxes (including the per-
sonal holding company tax) and is in
addition to any other penalties charged
the corporation. See section 6683.

Note: For a foreign corporation all
of whose outstanding stock during the
last half of the tax year is owned di-
rectly or indirectly by nonresident alien
individuals, taxable income for section
545(a) is only income received under a
contract for personal services as de-
scribed in section 543(a)(7). This in-
come must be reduced by deductions
for that income, and have special ad-
justments made to the income, as pro-
vided in section 545(b).

Specific Instructions

These instructions are numbered to
correspond with the line numbers on
page 1 of Schedule PH (Form 1120).
Other line items on the form are self-
explanatory.

Additions

Line 1—Taxable income before net op-
erating loss deduction.—Enter the
amount shown on Form 1120, page 1,
line 28. If you figured the income on
line 28 using section 443(b) (placing
the income on an annual basis), refig-
ure it without that section. However,
adjust it for sections 189, 280, and

See section 189 for limitations on
deductions for construction period in-
terest and taxes on real property other
than low income housing.

See section 280 for the limitation
on deduction of certain expenditures
incurred in the production of films,
books, or similar property.

Section 465 contains special at risk
rules that generally limit a personal
holding company’s losses. The at risk
rules may apply to a personal holding
company engaged in any activity as a
trade or business or for the production
of income. However, the rules do not
apply to the holding of real property
other than mineral property.

Section 465(d) losses are generally
limited to the total for which the per-
sonal holding company is at risk for
each separate activity at the end of the
tax year. Generally, the corporation is
at risk for an activity for amounts de-

scribed in sections 465(b)(1) and (2).
The amounts borrowed are not consid-
ered to be at risk if they are excluded
under sections 465(b)(3) and (4).

If the corporation is involved in more
than one activity, one or more of which
incurs a loss for the year, report the
losses for each activity separately. At-
tach a schedule showing the amount
at risk and gross income and deduc-
tions for the activities with the losses.

lf a loss from an activity is more
than the amount the personal holding
company is at risk for the activity at the
end of the tax year, the amount of that
loss that is included on line 28 of Form
1120 cannot be more than the amount
at risk for the activity.

If the personal holding company dis-
poses of an asset in, or its interest in
(either total or partial), an activity to
which the at risk rules apply, combine
the gain or loss on the disposition with
the profit or loss from the activity to
determine the net profit or loss from
the activity. If the personal holding
company has a net loss, it may be lim-
ited because of the at risk rules.

Treat any loss from an activity not
allowed for the corporation’s 1981 tax
year by section 465 as a deduction for
the activity in 1982. Include this de-
duction on line 26 of Form 1120. See
section 465(a).

lf you are a foreign corporation
(whether or not engaged in a trade or
business within the United States) that
qualifies as a personal holding com-
pany under section 542 but not as a
foreign personal holding company
under section 552, enter on line 1 the
amount figured under section 861 and
not under section 881(a).

Line 2—Contributions.—See instruc-
tions for Form 1120.

Line 3—Expenses and depreciation.—
If the corporation earned rent or other
compensation for the use of, or right
to use, property that was less than the
total allowable expenses and deprecia-
tion, complete Schedule A and enter
the excess on line 3.

You must make this adjustment un-
less you establish, according to section
545(b)(6), that the rent or other com-
pensation the corporation received was
the highest obtainable. If none was re-
ceived, you must show that none was
obtainable. The property must be held
in the course of a business carried on
for profit. There must be reasonable
expectation that the property's opera-
tion would result in a profit, or that the
property was necessary to conduct the
business.

The burden of proof is on the corpo-
ration. For a corporation with excess

Page 3