each separate activity at the close of the tax
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 un-
der section 465(b) (3) and (4).

Where the corporation is involved in more
than one activity, and one or more of the ac-
tivities incurs a loss for the year, the loss
must be reported separately. The corpora-
tion should attach a schedule reflecting the
amount “at risk” and gross income and
deductions for the activity(ies) with the
loss(es).

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

If the Personal Holding Company sells or
otherwise disposes of an asset in, or its in-
terest in (either total or partial) an activity
to which the “‘at risk" rules apply, combine
the gain or loss on the sale or 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 limited because of
the “‘at risk” rules.

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

Line 26 of Form 1120, Other Deduc-
tions.—Any loss from an activity not allowed
for the corporation's 1978 tax year by reason
of section 465 is treated as a deduction allo-
cable to the activity in 1979. This deduction
is entered on line 26 of Form 1120. (See sec-
tion 465(a).)

Also, see section 189 which provides for
limitations on the deductions for real prop-
erty construction period interest and taxes
(other than low-income housing) and sec-
tion 280 for rules concerning certain ex-
penditures incurred in the production of
films, books, or similar property.

If taxable income includes any amount
with respect to coal or domestic iron ore
royalties, see section 631(c).

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

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

This adjustment must be made unless the
corporation establishes, according to section
545(b)(6), that the rent or other compensa-
tion received was the highest obtainable, or
if none was received, that none was obtain-
able; that the property 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 prop-
erty would result in a profit, or that the
property was necessary to the conduct of
the business.

The burden of proof is on the corporation
to sustain the excess deductions. A corpora-
tion claiming excess deductions must, in-
stead of completing Schedule A, attach a
statement claiming the deductions together
with a complete statement of facts, circum-
stances, and arguments to support the de-

Page 4

ductions. The statement must show the
formation 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.—If any amount was deducted un-
der section 545(b)(9) in a tax year be-
ginning before January 1, 1977, on account
of a lien which is satisfied or released in a
tax year beginning on or after January 1,
1977, the amount so deducted shall be in-
cluded in income for purposes of section
545 as provided in section 545(b)(9). (See
Public Law 94~455, section 1951(b)(9)(A)
and (B).)

Where an amount is so added, the share-
holders 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.

6. Federal and foreign income, war prof-
its, and excess profits taxes.—Attach a
schedule showing the nature of the tax, the
tax year, and the amount. Section 545
(b)(1) allows a deduction for Federal income
taxes accrued during the tax year but
not including the accumulated earnings tax
imposed by section 531 or the personal hold-
ing company tax imposed by 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 ac-
crued (or deemed paid under section 902
(a)(1) or 960(a)(1)(C)) during the tax
year to foreign countries and U.S. posses-
sions if the corporation claims a credit for
such taxes in computing its income tax.

7. Contributions deductible under sec-
tion 545(b)(2).—For purposes of the per-
sonal holding company tax, section 545(b)
(2) provides a different limitation for charita-
ble contributions than the 5% limitation
used in determining the corporate income
tax. The limitations on charitable deductions
of individuals are applicable but are to be
applied to the amount of taxable income to
which the 5% limitation applied. (See in-
struction 19, Form 1120.) However, taxable
income shall be computed without the de-
duction of the amount disallowed under sec-
tion 545(b)(6) (excess expenses and de-
preciation).

For purposes of the personal holding com-
pany 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 i
stead of the net operating loss deduction
provided in section 172, a deduction is al-
lowed for the net operating loss (as defined
in section 172(c)) for the preceding tax
year computed without the deductions pro-
vided in part VIII (except section 248) of
subchapter B.

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

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

Corporation succeeding to the deduction
by reason of section 381(c)(15) must make

‘Yc US, GOVERNMENT PRINTING OFFICE : 1979--O-283-116

necessary adjustments to Schedule C-2 to
take into account the indebtedness.

Complete Schedule C-2 in all cases
where qualified indebtedness has changed
during the tax year, even though no pay-
ments or set-asides were made and no de-
duction is claimed.

The corporation must furnish all of the
facts and circumstances upon which it re-
lies to establish 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 retirement of the obligations
(indicating date and method of adoption).
If the plan is covered by a mandatory sink-
ing fund agreement or similar arrangement,
submit a copy of the indenture or agreement
by which the fund was established and un-
der which it is maintained.

The statement must also include: (1) the
amount of indebtedness on January 1, 1964;
(2) aggregate of amounts used or irrevoca-
bly set aside to pay or retire the indebted-
ness in prior tax years beginning on and
after January 1, 1964; (3) amount actually
used during the tax year to pay or retire
the indebtedness; and (4) amount irrevoca-
bly set aside during the tax year to pay
or retire the indebtedness but not actually
used during the tax year for that pur-
pose. In addition, the statement shall indi-
cate whether the deduction claimed repre-
sents (a) an amount actually used during the
tax year to pay or retire the indebted-
ness, (b) an amount irrevocably set aside
during the tax year to pay or retire the
indebtedness, or (c) a combination of both
(a) and (b).

If the amount claimed as a deduction on
line 10 represents an amount irrevocably
set aside to pay or retire the indebtedness,
attach a statement explaining the circum-
stances and method by which it was irrevo-
cably set aside.

Section 545(c)(4) allows corporations to
elect to treat as mondeductible 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 regu-
lations for time and manner of making the
election.

11. Deduction for dividends paid.—Enter
the amount of the dividends-paid deduction
as computed in Schedule B. (Section 561.)

In determining the deduction for divi-
dends paid, the rules in section 562 apply.

14. Dividends paid after close of tax
year (excluding deficiency dividends as de-
fined in section 547(d)).—Enter on line 14
and not in Schedule B, the amount of the
dividends paid after the close of the tax
year and on or before the 15th day of the
third month thereafter, if the corporation
elects in its return for the tax year to
have the dividends considered as paid dur-
ing that tax year.

Neither line 11 nor line 14 should include
deficiency dividends (those dividends which
are paid pursuant to a specific procedure
set forth in section 547).

15, Undistributed personal holding com-
pany income of certain foreign corpora-
tions.—If 10% or less in values of the out-
standing stock of a foreign corporation is
owned (see section 958(a)) during the last
half of the taxable year by U.S. persons,
undistributed personal holding company in-
come is the amount determined by multiply-
ing the undistributed personal holding com-
pany income (as determined without regard
to this instruction) by the percentage in
value of the corporation’s outstanding stock
which is the greatest percentage in value of
its outstanding stock so owned by U.S. per-
sons on any one day during such period.
(Section 545(a).)

283-116-1


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

Internal Revenue Service

> Attach to your tax return.

| 1979

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 modified for section 465 losses, section 189 limitations, or section 280 limitations
where applicable—see instructions) . a fe
2)
Zz
E 2 Contributions deducted in computing line 1 (Form 1120, line 19). 6 6 ew ewww fcc ectcteececeeceeneeenee
a
2] 3 Excess of expenses and depreciation under section 545(b)(6) (ScheduleA). . . . nececenceecenecseneeeesensen
4 Amount added to taxable income where lien in favor of the U.S. is satisfied or released. . [_—_—_—_—$______
5 Total—Add lines 1 through 4.
6 Federal and foreign income, war profits, and excess profits taxes not deducted in computing
line 1 (attach schedule) . . . . eececeeceneenses
7 Contributions deductible under section 545(b)(2) (attach schedule—see instructions. for
limitation). 6 ew fcc neeenenenenenenenenene
8 Net operating loss for the preceding tax year deductible under section 545(b)(4). . . . venetenecececececeneneeenseon
9 (a) Net capital gain (from separate Schedule D (Form 1120), line 8) .
(b) Less: Income tax attributable to such net capital gain (see section
g 545(b)(5)—attach computation) . . . . . . . ee. Lo _ veneece
S
8 10 Amounts used or irrevocably set aside to pay or retire qualified indebtedness (Schedule C—1) .
a
&| 11 Deduction for dividends paid (excluding dividends paid after close of tax year (Schedule B)) .
12 Total—Add lines 6 through 11 2. 1. ww ww ee ee ee
13 Subtract line12fromline5 2 6 1 ee ee eee ee
14 Less: Dividends paid after close of tax year (excluding “deficiency dividends as defined
in section 547(d)) but not in excess of the lesser of line 13 or 20% of line 1,
Schedule Be we ee ee et ee
15 Undistributed personal holding company income—Subtract line 14 from line 13. Foreign
corporations—see instructions . woe ee ee
x
16 Personal holding company tax (70% of line 15). . 2 . ww ew eee ee

283-116-1


Schedule PH (Form 1120) 1979

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.

@) Personal Holding Company Income

I Dividends © 6 6 ew ww ew ee ee ee ee
2 Interest. 2 6 2 6 ee ee we ee we ee ee ee he

(a) Less: Amount excluded under section 543(b)(2)(C) (attach schedule). . . .
3 Royalties (other than mineral, oil, or gas royalties or copyright royalties). . 2. . 2 « 6
4 Annuities . 2. 2 ee ew we we ee ee

5S Rents 2 2 6 2 ee ww we ww we ew te
(a) Less: Adjustments described in section 543(b)(2)(A) (attach schedule). . .

6 Mineral, oil, and gas royalties . . 2 6 2 6 «© 2 ee ee we we ee
(a) Less: Adjustments described in section 543(b)(2)(B) (attach schedule). . . |.

7 Copyright royalties » . 6 ee ee ee ee te ee et
8 Produced film rents. . 2 6 2 8 6 ee ee ee ww wh we we ee ee
9 Amounts received as compensation for use of corporation property by shareholder, 2 . « 2 « 2 © eo w@ @
10 Amounts received under personal service contracts andfromthesalethereof . . 2. . 6 © © «© © ew

11 Amounts received from estates andtrusts . . « rT
12 Total personal holding company income—Add lines 1 through ul ee

Enter the names and addresses of the individuals who owned, in the aggregate,
(2) Stock Ownership. retax years more inant 50% in value of the outstanding stock of the coreerstion,

irectly or indirectly, at any time during the last half of

Highest percentage of shares

‘owned during last half of tax year

Address
Name Preferred

Common

(b.

2).

@).

(4).

(5)

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

instruction 3)

5. Repairs, insurance, and| 7.
ir 2. Date 3. Cost or other iti % 6. Total of
1. Kind of property cand or 4, Depreciation | other expansas (Setion | cattnne 4 and 5

Income from
rent or other |8: Excess (col. 6

compensation less col. 7)

(a)..
(b)..

(c)..
(d)

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 11)

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

563, and (b) deficiency dividends as defined in section 547 . 6 2 6 6 ee ee ee ee ee
2 Consent dividends (attach Forms 972 and 973). . «© 6 2 6 ee ee ee ee ee ee
3 Taxable distributions—Add lines land2. 2. 1 6 ee ee ee ee
4 Dividend carryover from first and second preceding tax years (attach computation). . . . . . se we
5 Deduction for dividends paid—Add lines 3 and 4. Enter here and online 11, pagel. . . . . _

SCHEDULE C-1.—Computation of Deduction for Amounts Used or Irrevocably Set Aside to Pay or Retire Qualified ‘Tadebtedness (See instruction 10)

1 Indicate separately:
(a) Amount actually used during the tax year covered by this return to pay or retire qualified indebted-
ness (except payments from amounts irrevocably set aside before the tax 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 tax year covered by this return to pay or retire qualified
indebtedness, but not actually used during the tax year for such purpose. . « » + e+ « ws we
(c) Total—Add 1(a) and (by) - 6 6 we ww ee ee ee ee he ee

2 Reduction for amounts described in section 545(c)(5) (attach schedule) . . . «ee ee ee ee
3 Subtract line 2 from line l(c). . 6 6 ee ee ee
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). . Pr ey ee ewe

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

283-116-1


@ |f no entries are made on this page, detach and file only pages 1 and 2,4
‘Schedule PH (Form 1120) 1979 Page 3
SCHEDULE C-2.—Computation of Qualified Indebtedness. NOTE.—If vou were a personal holding company for the preceding tax year, omit lines 1
through 6 and enter on line 7 the amount of qualified indebtedness as of the beginning of the tax year covered by this return. If you were not a personal
holding company for the preceding tax 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 tax year beginning after1963. . . ee ee ee ee ee ee
2 Less: Amounts included in line 1 which were irrevocably set aside before the first day of the first tax year
beginning after 1963, to pay or retire indebtedness with respect to a contract (section 545(c)(3)(C)) . . . .
3 Subtract line 2fromlinel. 2 2. 2 1 wee soe eee .

4 Aggregate amount of indebtedness incurred after 1963, and before the tax year covered by this return,
for the purpose of making a payment or set-aside in the same tax 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 payments or set-aside was treated as nondeductible by reason of the election provided in section 545(c)(4).
(See section 545(c)(3)(A)(ii)). 6 we

5 Total—Add lines 3 and4 2. 1 ee we ee
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 tax years beginning after

1963 (not including tax year covered by this return). . . . . . . . .

(b) Aggregate amount of pro rata reductions in tax years beginning after 1963 (not
including tax year covered by this return) with respect to disposition of certain

property after 1963 (section 545(c)(6)) - . . . ee ee ke

(c) Aggregate of amounts which ceased to be outstanding during tax years beginning

after 1963 (not including tax year covered by this return) other than as a result

of a payment or set-aside (attach statement). . . 2. . 1 ee eee

7 Subtract line 6 from line5. 6 6 6 ee ee ee

8 Total indebtedness incurred during the tax 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)). . ee. ee ee

9 Total—Add lines 7and8. 2-1 ee ee ee

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 tax year, enter such amounts which were owed at any time on or after
the first day of the tax year covered by this return (section 545(c)(3)(B)) .

(b) Pro rata reduction with respect to disposition of certain property during the tax

year (section 545(c)(6)). . 2. . ew ee ee ee
11 Subtract line 10 from lineQ ew ee
12 Less: Amounts included in line 11 which ceased to be outstanding during the tax year other than as a result
of a payment or set-aside (attach statement). . . . 2 1. ee ee ee ee ee —_

13 Qualified indebtedness before payments and set-asides—Subtract line 12fromlinell. . 2. 2 2 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 tax year to pay or retire amount shown online13. . . . -
15 Qualified indebtedness as of end of tax year—Subtract line 14 from line 13 . a

General Instructions

(References are to the Internal Revenue Code.)

Who must file Schedule PH.—Every personal hold-
ing company must attach Schedule PH (Form 1120)
to its income tax return. A corporation is a “personal
holding company” if at least 60% of its adjusted
ordinary gross income (as defined in section 543
(b)(2)) for the tax year is personal holding company
income (as defined in section 543(a)), and if 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 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) or a corresponding provision of a
prior income tax law is considered an individual ex-
cept as provided for in section 701(0) of the Revenue
Act of 1978. (See section 542(a)(2).)

For exceptions to the term “personal holding com-
pany,” 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 all of its outstanding stock during
the last half of the tax year is owned by nonresident

alien individuals, whether directly or indirectly through
foreign estates, foreign 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 addi-
tion to any other applicable penalties) shall be im-
posed equal to 10% of the taxes imposed by chapter 1
of the Code (including personal holding company tax).
See section 6683.

Personal holding company income.—Personal hold-
ing company income is that portion of adjusted ordi-
nary gross income (as defined in section 543(b)(2))
that consists of the items of income described in sec-
tion 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 year is owned by nonresident
alien individuals (whether directly or indi-
rectly through foreign estates, foreign
trusts, foreign partnerships, or other foreign
corporations), taxable income for purposes

of section 545(a) is that personal holding
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 sec-
tion 545(b). See section 545(d).

1. Taxable income before net operating
loss deduction and special deductions.—
Enter the amount shown on Form 1120,
page 1, line 28, computed without regard
to section 443(b) (relating to income placed
on an annual basis) but as adjusted for sec-
tions 465, 189, or 280.

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
section 465 losses.

Section 465 contains special ‘“‘at risk”
rules which limit the losses of a Personal
Holding Company. The “‘at risk” rules apply
to a Personal Holding Company engaged in
any activity (except the holding of real prop-
erty, other than mineral property) as a trade
or business or for the production of income.

Section 465(d) losses are limited to the
aggregate amount with respect to which the
personal holding company is “at risk’ for

283-116-1