(including personal holding company tax). See
section 6683.

Personal holding company income.—Personal
holding company income is that portion of ad-
justed ordinary gross income (as defined in sec-
tion 543(b)(2)) that consists of the items of
income described in section 543(a).

Specific Instructions

(Numbered to correspond with line numbers on
page 1 of this schedule.)

Note: For a foreign corporation all of whose
outstanding stock during the last half of the tax-
able year is owned by nonresident alien individ-
uals (whether directly or indirectly through for-
eign estates, foreign trusts, foreign partnerships,
or other foreign corporations), taxable income for
purposes of section 545(a) is that personal hold-
ing company income described in section 543(a)
(7), reduced by deductions attributable to that
income, and adjusted, with respect to the income,
in the manner provided in section 545(b). See sec-
tion 545(d).

1. Taxable income before net operating loss
deduction and special deductions.—Enter the
amount shown on line 28, page 1, Form 1120,
computed without regard to section 443(b) (re-
lating to income placed on an annual basis) but
as adjusted for section 465 (if applicable) as ex-
plained in the “Note” at the beginning of the
General Instructions. If such taxable income in-
cludes any amount with respect to coal or domes-
tic iron ore royalties, see section 631(c).

In the case of a foreign corporation (whether or
not engaged in a trade or business within the
U.S.) which qualifies as a personal holding com-
pany under section 542 but not as a foreign per-
sonal holding company under section 552, the
amount to be entered on line 1 must be computed
Under section 861 rather than under section 881
(@).

3. Expenses and depreciation in excess of
amount allowable under section 545(b)(8).—If
the corporation derived rent or other compensa-
tion for the use of, or right to use, property which
was less than the sum of the allowable expenses
and depreciation, complete Schedule A and enter
the excess on line 3.

This adjustment must be made unless the cor-
poration establishes, according to section 545(b)
(8), that the rent or other compensation received
was the highest obtainable, or if none was re-
ceived, that none was obtainable; that the prop-
erty was held in the course of a business carried
on bona fide for profit; and either that there was
reasonable expectation that the operation of the
Property would result in a profit, or that the prop-
erty was necessary to the conduct of the business.

The burden of proof is on the corporation
to sustain the excess deductions. A corporation
claiming excess deductions must, instead of com-
pleting Schedule A, attach a statement claiming
the deductions together with a complete state-
ment of facts, circumstances, and arguments to
support the deductions. The statement must show
the information required by section 1.545-
2(h)(2) of the regulations.

4. Amount added to taxable income where lien
in favor of the U.S. is satisfied or released—The
sum of the amounts deducted under section 545
(b)(9) for any lien in favor of the U.S. must be
added to taxable income in the taxable year in
which the lien is satisfied or released; similarly,
in the case of a partial satisfaction or release of
such lien, to the extent satisfied or released.

Where an amount is so added, the sharehold-
ers may elect to compute the tax on dividends
attributable to the added income as though they
were received ratably over the period the lien was
in effect. See instruction 13.

6. Federal and foreign income, war profits,
and excess profits taxes.—Attach a schedule

Page 4

showing the nature of the tax, the taxable year,
and the amount, Section 545(b)(1) allows a
deduction for Federal income taxes accrued dur-
ing the taxable year but not including the accu-
mulated earnings tax imposed by section 531 or
the personal holding company tax imposed by sec-
tion 541.

The foreign tax credit is not allowed against
personal holding company tax. A deduction is al-
lowed, however, for income, war profits, and
excess profits taxes accrued (or deemed paid un-
der section 902(a)(1) or 960(a)(1)(C)) during
the taxable year to foreign countries and U.S.
possessions if the corporation claims a credit for
‘such taxes in computing its income tax.

7. Contributions deductible under section
545(b)(2).—For purposes of the personal hold-
ing company tax, section 545(b)(2) provides a
different limitation for charitable contributions
than the 5% limitation used in determining the
corporate income tax. The limitations on chari-
table deductions of individuals are applicable but
are to be applied to the amount of taxable income
to which the 5% limitation applied. (See instruc-
tion 19, Form 1120.) However, taxable income
shall be computed without the deduction of the
amount disallowed under section 545(b)(8) (ex-
cess expenses and depreciation).

For purposes of the personal holding company
tax, the contribution carryover under section 170
(d) is not allowed.

8. Net operating loss for the preceding year.—
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 pre-
ceding taxable year computed without the deduc-
tions provided in part VIII (except section 248) of
subchapter B.

11. Amounts used or irrevocably set aside to
pay or retire indebtedness of any kind incurred
prior to January 1, 1934,—Section 545(b)(7) al-
lows a deduction for amounts used or irrevocably
set aside to pay or retire indebtedness of any kind
incurred before January 1, 1934, if such amounts
are reasonable with reference to the size and
terms of such indebtedness.

The corporation must furnish all of the facts
and circumstances upon which it relies to estab-
lish the reasonableness of the amount claimed
as a deduction.

Attach a statement showing a description of
the indebtedness, the date incurred or assumed,
the date due, and the plan for payment or retire-
ment of the obligations (indicating date and
method of adoption). If the plan is covered by
@ mandatory sinking fund agreement or similar
arrangement, submit a copy of the indenture or
agreement by which the fund was established and
under which it is maintained.

The statement must also include: (1) the
amount of indebtedness on January 1, 1934; (2)
aggregate of amounts used or irrevocably’ set
aside to pay or retire the indebtedness in prior
taxable years beginning on and after January 1,
1934; (3) amount actually used during the tax:
able year to pay or retire the indebtedness; and
(4) amount irrevocably set aside during the tax-
able year to pay or retire the indebtedness but
not actually used during the taxable year for that
purpose. In addition, the statement shall indicate
whether the deduction claimed represents (a) an
amount actually used during the taxable year to
pay to retire the indebtedness, (b) an amount ir-
Tevocably set aside during the taxable year to
Pay or retire the indebtedness, or (c) a combina-
tion of both (a) and (b).

If the amount claimed as a deduction on line
11 or 12 represents an amount irrevocably set
aside to pay or retire the indebtedness, attach a
statement explaining the circumstances and meth-
od by which it was irrevocably set aside.

‘He US, GOVERNMENT PRINTING OFFICE: 1976—O-218-103.

12. Amounts used or irrevocably set aside to
pay or retire qualified indebtedness.—Subject to
the limitations described in section 545(c), sec-
tion 545(c)(1) allows a deduction for amounts
used, or amounts irrevocably set aside (to the
extent reasonable with reference to the size and
terms of the indebtedness), to pay or retire quali-
fied indebtedness (as defined in section 545(c)
(3). This deduction applies only to corporations
described in section 545(c)(2).

Any corporation that claims this deduction
must provide detailed information and any neces-
sary computation showing that it is a corporation
described in section 545(c)(2)(A) or to the ex-
tent that it succeeds to the deduction by reason
of section 381(c)(15), it must submit detailed
information showing that the distributor or trans-
feror corporation was a corporation described in
section 545(c)(2)(A).

Corporations succeeding to the deduction by
reason of section 381(c)(15) must make neces-
sary adjustments to Schedule C-2 to take into
account the indebtedness.

Complete Schedules C-2 in all cases where
qualified indebtedness has changed during the
taxable year, even though no payments or set-
asides were made and no deduction is claimed.

See instruction 11 for additional information
which must be submitted to establish the reason.
ableness of amounts irrevocably set aside to pay
or retire qualified indebtednes.

Section 545(c)(4) allows corporations to elect
to treat as nondeductible certain amounts used
or irrevocably set aside to pay or retire qualified
indebtedness which are otherwise deductible
under section 545(c)(1). See section 1.545-3(e)
of the regulations for time and manner of making
the election.

13. Lien in favor of the U.S.—The corporation
may deduct the amount of any lien in favor of the
U.S. (notice of which has been filed as provided
in section 6323(f)) to which the corporation is
subject at the close of the taxable year. However,
the amount deducted may not exceed taxable
income as adjusted under sections 545(b) and
545(c), computed without regard to this deduc-
tion. Thus, the deductions may not exceed line
5 less the total of lines 6 through 12.

14. Deduction for dividends paid.—tnter the
amount of the dividends-paid deduction as com-
puted in Schedule B. (Section 561.)

In determining the deduction for dividends
paid, the rules in section 562 apply.

17. Dividends paid after close of taxable year
(excluding deficiency dividends as defined in sec-
tion 547(d)).—Enter on line 17 and not in Sched-
ule B, the amount of the dividends paid after the
close of the taxable year and on or before the
15th day of the third month thereafter, if the
corporation elects in its return for the ‘taxable
year to have the dividends considered as paid dur-
ing that taxable year.

Neither line 14 nor line 17 should include
deficiency dividends (those dividends which are
paid pursuant to a specific procedure set forth in
section 547).

18. Undistributed personal holding compan}
income of certain foreign corporations.—If 10%
or less in value of the outstanding stock of a for-
eign corporation is owned (see section 958(a))
during the last half of the taxable year by U.S.
persons, undistributed personal holding company
income is the amount determined by multiplying
the undistributed personal holding company in-
come (as determined without regard to this in-
struction) by the percentage in value of the cor-
poration’s outstanding stock which is the greatest
Percentage in value of its outstanding stock so
owned by U.S. persons on any one day during
such period. (Section 545(a).)

218-103-2


SCHEDULE PH
(Form 1120) Computation of U.S. Personal Holding 1976
Department ofthe Treasury Company Tax

Internal Revenue Service > Attach to your tax return.

Name Employer identification number
Computation of Undistributed Personal Holding Company Income
1 Taxable income before net operating loss deduction and special deductions (line 28, Form

1120 as modified for section 465 losses where applicable—see ‘‘Note’ in General

Instructions) . woe woe ee eee ee
2
2 2 Contributions deducted in computing line 1 (line 19, Form 1120)
=I
| 3 Excess of expenses and depreciation under section 545(b)(8) (Schedule A)

4 Amount added to taxable income where lien in favor of the U.S. is satisfied or released. . . |. S

Total of lines 1 through 4

6 Federal and foreign income, war profits, and excess profits taxes not deducted in computing
line 1 (attach schedule)

7 Contributions deductible under section 545(6)(2) (attach schedule—see instructions. for
limitation) . . oe soe wee

8 Net operating loss for the preceding taxable year deductible under section 545(b)(4)

9 (a) Excess of net long-term capital gain over net short-term capital loss
(from line 8, separate Schedule D, Form 1120) .

(b) Less: Income tax attributable to such excess (see section 545(b)(5)—

attach computation). . 2. 2... ww ee ee

10 Special deduction for bank affiliates allowable under section 545(b)(6)

2] 11 Amounts used or irrevocably set aside to pay or retire indebtedness of any kind incurred prior
z to January 1, 1934 (attach schedule—see instructions)
>
a 12 Amounts used or irrevocably set aside to pay or retire qualified indebtedness (Schedule CO ee
13 Amount of a lien in favor of the U.S. (see instructions for limitation) .
14 Deduction for dividends paid (excluding dividends paid after close of taxable year)
(Schedule B) . . ee ee . . eee ee
15 Total of lines 6 through 14
16 Undistributed personal holding company income before the deduction on line 17 (line 5
less line 15). - - ee
17 Less: Dividends paid after’ close of taxable year (excluding deficiency dividends 2 as defined
in section 547(d)) but not in excess of the lesser of line 16 or 20% of line 1,
Schedule B eon ee ew ew rs
18 Undistributed personal holding company income e (line 16 less line 17). Foreign corporations —
see instruction 18. oe.
z

19 Personal holding company tax (70% of line 18)

218-103-1


Schedule PH (Form 1120) 1976

Page 2

INFORMATION REQUIRED UNDER SECTION 6501(f). Section 6501(f) provides that if the information in (1) and (2) below is not submitted
with the corporation's return, the limitation period for assessment and collection of personal holding company tax shall be 6 years.

(1) Personal Holding Company Income

1 Dividends 2 6 1 ww we te
2 Interest. 6 6 6 ee ee ee ee

(a) 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 ew ee ee ee
5 Rents . . . Pe ee ee ey Ce

(a) Less: Adjustments described in section 543(b)(2)(A) (attach schedule). . .

6 Mineral, oil, and gas royalties... 1 6 ee ee ee ee ee ee

(a) Less: Adjustments described in section 543(b)(2)(B) (attach schedule). . .
7 Copyright royalties . 2 0. ee ee we ee ee ee ee
8 Produced filmrents. . 2 6 6 6 6 ee we ee ee ee ee ee
9 Amounts received as compensation for use of corporation property byshareholder. . . . . 2 «© «© ew «
10 Amounts received under personal service contracts and fromthesalethereof . . . 2. 6 e+ + ee ee
11 Amounts received from estates andtrusts . 2 2 2 2 1 6 ee ee ee ee et ee
12 Total personal holding company income (add lines 1 through 11) . . . . . .....-s .

(2) Stock Ownership. Enter the names and addresses of the individuals who owned, in the aggregate, directly or indirectly, at any time during the last half of

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

Highest percentage of shares owned during last half of taxableyear

Name Address Preferred

Common

(4).

@)

SCHEDULE A.—Excess of Expenses and Depreciation Over Income From Property Not Allowable Under Section 545(b)(8) (See instruction 3)

5 Re urance, and 7. Income from
2. Date 3. Cost or oth sai i 6. Total of fb. Excess (col. 6
1. Kind of property acquired basis | 4 Depreciation) other expenses (section | cofumns 4 and 5 | {ent or other Pte eoI 7)
(a)..
(b)..
(c).. ..
@).

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 14)

1 Taxable dividends paid, excluding (a) dividends considered as paid in the preceding taxable year under section

563, and (b) deficiency dividends as defined insection547. - . . 6 ee ee eee ee ee ee
2 Consent dividends (attach Forms 972 and 973) - - - 6 6 ee ee ee ee ee
3 Taxable distributions (total oflinesland2). . - 6 1 ee ee ee ee ee

4 Dividend carryover from first and second preceding taxable years (attach computation). - . --.. + +
5 Deduction for dividends paid (total of lines3 and 4). _Enterhereandonline14,pagel . . - - -- +--+

SCHEDULE C-1.—Computation of Deduction for Amounts Used or Irrevocably Set Aside to Pay or Retire Qualified Indebtedness (See instruction 12)

1 Indicate separately:
(a) Amount actually used during the taxable year covered by this return to pay or retire qualified indebted-
ness (except payments from amounts irrevocably set aside before the taxable year to pay or retire
qualified indebtedness with respect to a contract, as described in section 545(c)(3)(C))- - - + + + +

(b) Amount irrevocably set aside during the taxable year covered by this return to pay or retire qualified

indebtedness, but not actually used during the taxable year forsuch purpose... - - 7. eee

(©) Total ee

2 Reduction for amounts described in section 545(c)(5) (attach schedule)... - . - ee ee ee ee
3 Linel(c)lessline2 . - - 1 ee ee ee ee ee ee ee ke
4 Portion of amount shown on line 3 which is treated as nondeductible by reason of the election provided in section

545(c)(4) (attach statement—see instructions) . © 6 6 ee ee ee ee
5 Amount claimed as a deduction (line 3 less line 4). Enter here and on line 12, pagel . . o.

218-103-1


Mx |f no entries are made on this page, detach and file only pages 1 and 2,4
Schedule PH (Form 1120) 1976 Page 3
SCHEDULE C—2.—Computation of Qualified Indebtedness. NOTE.—If you were a personal holding company for the preceding taxable year, omit lines 1
through 6 and enter on line 7 the amount of qualified indebtedness as of the beginning of the taxable year covered by this return. If you were not a personal
holding company for the preceding taxable year, complete all applicable lines.

1 Enter amount of indebtedness which was incurred after 1933, and before 1964, and which was outstanding as
of the first day of the first taxable year beginning after 1963... 2 1 ee ee te ee ee

2 Less: Amounts included in line 1 which were irrevocably set aside before the first day of the first taxable year
beginning after 1963, to pay or retire indebtedness with respect to a contract (section 545(c)(3)(C)) . . .

3 Linellessline2. 2 1 6 ee ew ee ee

4 Aggregate amount of indebtedness incurred after 1963, and before the taxable year covered by this return,
for the purpose of making a payment or set-aside in the same taxable year, but, in the case of such a payment or
set-aside, enter such indebtedness only to the extent the deduction otherwise allowed in section 545(c)(1) for
such payment or set-aside was treated as nondeductible by reason of the election provided in section 545(c)(4).

(See section 545(c)(3)(A)(il)) © 6 we ee

5 Totaloflines3and4 . . . . sw es . . oe
6 Less: (a) Aggregate of amounts actually used or irrevocably set aside (including amounts
which were treated as nondeductible by reason of the election provided in sec-

tion 545(c)(4)) to pay or retire qualified indebtedness in taxable years begin-

ning after 1963 (not including taxable year covered by this return). . . «

(b) Aggregate amount of pro rata reductions in taxable years beginning after

1963 (not including taxable year covered by this return) with respect to dis-

position of certain property after 1963 (section 545(c)(6)) . . . . . .

(c) Aggregate of amounts which ceased to be outstanding during taxable years be-

ginning after 1963 (not including taxable year covered by this return) other than

as a result of a payment or set-aside (attach statement). . . . . . . &

7 LineSlessline6. 6. 2 6 ee ee ee

8 Total indebtedness incurred during the taxable year for the purpose of making a payment or set-aside in the same
taxable year, but, in the case of such a payment or set-aside, enter such indebtedness only to the extent the de-
duction otherwise allowed in section 545(c)(1) for such payment or set-aside is treated as nondeductible by
reason of the election provided in section 545(c)(4). (See section 545(c)(3)(A)(ii)) - «6 ee ee ee

9 Line7 plusline8. . . .
10 Less: (a) Amounts included in line 9 which were, at any time after 1963, and before pay-
ment or set-aside, owed to a person who at such time owned (or was considered

as owning within the meaning of section 318(a)) more than 10% in value of

your outstanding stock. NOTE.—If you were a personal holding company for the

preceding taxable year, enter such amounts which were owed at any time on or

after the first day of the taxable year covered by this return (section 545(c)

QB). ee
(b) Pro rata reduction with respect to disposition of certain property during the tax-
able year (section 545(c)(6)). - 6 6 ee ee ee ee ee
11 LineQlesslinelO 2 6 6 ee ee ee ee ee ee ee
12 Less: Amounts included in line 11 which ceased to be outstanding during the taxabie year other than as a result
of a payment or set-aside (attach statement) . . 2 2 ee ee ee ee ee ee ee
13 Qualified indebtedness before payments and set-asides (line lllessline12). . . . . 2 2 es ee ee

14 Amounts used or irrevocably set aside (including amounts which were treated as nondeductible by reason of the

election provided in section 545(c)(4)) during the taxable year to pay or retire amount shown on line 13 .

15 Qualified indebtedness as of end of taxable year (line 13 lessline14). . . . . .

General Instructions
(References are to the Internal Revenue Code.)

Note: Line 28 of Form 1120.—The amount to
be entered on line 28 of Form 1120 of a Per-
sonal Holding Company is to be adjusted for
certain section 465 losses.

Effective for taxable years beginning after
December 31, 1975, section 465 limits Personal
Holding Company losses used in computing line
28 for the following activities:

(a) holding, producing, or distributing motion
picture films or video tapes,

(b) farming (as defined in section 464(e)), or

(c) leasing any section 1245 property, or

(@) exploring for, or exploiting, oil and gas
resources.

‘The losses of these section 456 activities are
limited to the aggregate amount with respect to
which the personal holding company is “at-risk”
for each separate activity at the close of the
taxable year. The corporation is considered
“at-risk” for an activity with respect to the
amounts described in section 465(b)(1) and (2).
The amounts borrowed are not considered to be
“at-risk” if such amounts are excluded under
section 465(b)(3) and (4).

Where the corporation is involved in more
than one activity, and one or more of the ac-
tivities is a section 465 activity with a loss for
the year, then each section 465 activity profit and
loss is to be computed separately. The corporation
should attach a schedule reflecting the amount
“at-risk” and gross income and deductions for
each section 465 activity.

If a loss from a section 465 activity exceeds
the amount the Personal Holding Company is
“at-risk” at the end of the taxable year, the
amount that would otherwise be entered on line
28 of Form 1120 is to be modified for the excess.
(Attach schedule.)

Any loss from a section 465 activity not al-
lowed under this section for the taxable year shall
be treated as a deduction allocable to such ac-
tivity in the first succeeding taxable year.

See section 204(c)(2) and (3) of the Tax Re-
form Act of 1976 concerning special transitional
rules relating to movies, video tapes, and leasing
activities.

Also, see section 189 which provides for a
limitation on the deductions for construction
period interest and taxes in the case of non-
residential real property.

Who must file Schedule PH.—Every personal
holding company must attach Schedule PH
(Form 1120) to its income tax return. A corpora-
tion is a ‘‘personal holding company” if at least
60% of its adjusted ordinary gross income (as

defined in section 543(b)(2) for the taxable year
is personal holding company income (as defined
in section 543(a)), and if at any time during the
last half of the taxable year more than 50% in
value of its outstanding stock is owned, directly
or indirectly, by or for not more than 5 individuals.

For purposes of determining stock ownership,
an organization described in section 401(a),
501(c)(17), or 509(a) or a portion of a trust
permanently set aside or to be used exclusively
for the purposes described in section 642(c) is
considered an individual, unless such organiza-
tion or trust meets the requirements of the last
sentence of section 542(a)(2).

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

A foreign corporation (except one which has
income to which section 543(a)(7) applies) is not
a personal holding company if ail of its outstand-
ing stock during the last half of the taxable year
is owned by nonresident alien individuals, whether

rectly or indirectly through foreign estates, for-
eign trusts, foreign partnerships, or other foreign
corporations. See section 542(c)(7).

Failure of foreign corporations to file—If a
foreign corporation which is a personal holding
company fails to file or cause to be filed a true
and accurate return of the tax imposed by section
541, a penalty (in addition to any other appli-
cable penalties) shall be imposed equal to 10%
of the taxes imposed by chapter 1 of the Code

218-103-1