SCHEDULE PH

(Form 1120) U. S. Treasury Department 

Internal Revenue Service

FOR CALENDAR YEAR 1960

or other taxable year beginning ,1960, and ending , 19

Name and address Employer Identification No.

UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME COMPUTATION

Instruction

and Line No.

1. Taxable income before net operating loss deduction and special deductions from Form 1120 (line 27)

Additions:

2. Contributions or gifts deducted in computing line 1 (line 18, Form 1120)

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 United States is satisfied or

released

5. Total of lines 2 to 4, inclusive

6. Total of lines 1 and 5

Deductions:

7. Federal and foreign income, war-profits, and excess profits taxes. (Not deducted in computing

line 1) (Schedule B)

8. Contributions or gifts deductible under section 545 (b) (2). (Schedule C)

9. Net operating 1oss for the preceding taxable year deductible under section 545 (b) (4)

10. Excess of net long-term capital gain over net short-term capital

loss (line 11, separate Schedule D, 1120)

Less: Income tax attributable to such excess. (Attach 

 computation if amount is different from line 19, sepa-

----------------------------- rate Schedule D, 1120)

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

12. Amounts used or irrevocably set aside to pay or retire indebtedness of any kind incurred

prior to January 11, 1934. (Schedule D)

13. Amount of a lien in favor of the United States. (See instructions for limitations)

14. Deduction for dividends paid (excluding dividends paid after close of taxable year).

(Schedule E)

15. Total of lines 7 to 14 inclusive

16. Undistributed personal holding company income before the deduction shown on line 17 (line 6, minus line 15)

Less: Dividends paid after close of taxable year (excluding deficiency dividends as defined in section 547 (d)

 but not in excess of the lesser of line 16 or 10% of line 1, Schedule E

17.

18. Undistributed personal holding company income (line 16 minus line 17)

COMPUTATION OF TAX

19. Tax on portion of line 18 not in excess of $2,000, at 75%

20. Tax on portion of line 18 in excess of $2,000, at 85%

21. Total Personal Holding Company tax due (total of lines 19 and 20) (Enter here and on line 8 (Tax Computation),

page 3, Form 1120, or on line 10, page 2, Form 1120-F, whichever is applicable)

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Page 2

SCHEDULE REQUIRED UNDER SECTION 6501 (f) (See page 6)

 (a) Personal Holding Company Income

---------------------------- 1. Dividends

2. ---------------------------- Interest

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

---------------------------- 4. Annuities

5. ---------------------------- Net gains from sale or exchange of stock or securities

6. ---------------------------- Net gains from futures transactions

7. Amounts received from estates and trusts and gains from the sale or other disposition of any interest in an estate

or trust

---------------------------- 8. Amounts received under personal service contracts and from the sale thereof

9. ---------------------------- Amounts received as compensation for use of corporation property by shareholder

---------------------------- 10. Rents

11. ---------------------------- Mineral, oil, or gas royalties

12. Copyright royalties

13. Total personal holding company income

(b) Stock Ownership

Enter below the names and addresses of the individuals who owned, directly or indirectly, at any time during the last half of the taxable year, more than 50 percent in value of the outstanding stock of the corporation:

Highest percentage of shares owned during last half of taxable year

Name Address

Preferred Common

(1)

(2)

(3)

(4)

(5)

Schedule A.—EXCESS OF EXPENSES AND DEPRECIATION OVER INCOME FROM PROPERTY NOT ALLOWABLE UNDER SECTION 545 (b) (8)

 (See Instruction 3)

1. Kind of Property 3. Cost or Other Basis 4. Depreciation

(a)

(b)

(c)

(d)

Total excess of expenses and depreciation over rent or other compensation. (Enter here and on line 3, page 1)

Explanation of expenses entered in column 5

State 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.—FEDERAL AND FOREIGN INCOME, WAR PROFITS, AND EXCESS PROFITS TAXES

 (See Instruction 7)

Nature of Tax Taxable Year Nature of Tax Amount Taxable Year Amount

Total. (Enter here and on line 7, page 1)

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5. Rapairs, Insurance, and Other

Expenses (section 162)

(Itemize below)

6. Aggregate of Expenses

and Depreciation in

Columns 4 and 5

7. Income from Rent or

Other Compensation

8. Excess (Column 6

minus Column 7)

2. Date

Acquired

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Page 3

Schedule C.—CONTRIBUTIONS OR GIFTS PAID. (See Instruction 8)

Name and Address of Organization Amount Amount

Total. (Enter here and on line 8, page 1, subject to appropriate percentage limitations)

Schedule D.—AMOUNT USED OR SET ASIDE TO PAY OR RETIRE INDEBTEDNESS INCURRED PRIOR TO JANUARY 1, 1934. (See Instruction 12)

I II III

1. Description of indebtedness

2. Date incurred or assumed

3. Date due

4. Original amount of indebtedness

5. Amount used or set aside prior to January 1, 1934, to pay or

retire such indebtedness

6. Excess of indebtedness on January 1, 1934, over total amount used

or set aside prior to that date to pay or retire such indebtedness.

7. Aggregate of amounts used or set aside to retire such indebtedness 

 in taxable years beginning on and after January 1, 1934 (not

including taxable year covered by this return)

8. Amount used or irrevocably set aside during the taxable year

covered by this return to pay or retire such indebtedness

9. Total of lines 7 and 8

10. Balance of indebtedness (line 6 minus line 9)

11. Indicate separately:

 (a) Amount actually used during the taxable year covered

by this return to pay or retire the indebtedness

(b) Amount irrevocably set aside during the taxable year

covered by this return to pay or retire the indebtedness, 

but not actually used during the taxable year for such

purpose

12. Portions of amounts entered on line 8 above, claimed as deductions

 for the taxable year covered by this return. (Enter portions of

amounts here and total of such portions on line 12, page 1)

Indicate by check mark whether the deduction claimed on line 12, page 1 of this return, represents:

A Amount actually used during the taxable year to pay or retire the indebtedness;

B Amount irrevocably set aside during the taxable year to pay or retire the indebtedness; or

C Combination of both A and B.

There must be furnished all of the facts and circumstances upon which the taxpayer relies to establish the reasonableness of the amount claimed as 

a deduction. Describe fully in an attached statement the plan for payment or retirement of the obligations, indicating date and method of adoption, and, 

where the plan is covered by a 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.

If the amount claimed as a deduction on line 12, page 1 of this return, represents an amount irrevocably set aside to pay or retire the indebtedness

explain fully in an attached statement the circumstances and method by which it was irrevocably set aside.

Schedule E.—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 in section 547

2. Consent dividends. (Submit schedule)

3. Taxable distributions (total of lines 1 and 2)

4. Dividend carryover from first and second preceding taxable years. (Submit schedule of computation)

S. Deduction for dividends paid (total of lines 3 and 4). (Enter here and on line 14, page 1)

(See page 4 for General Instructions)

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Corporations which must file Schedule PH (1120).—Every corporation 

which comes within the classification of a “personal holding company” must file 

a Schedule PH. The term “personal holding company” means any corporation, 

other than those listed in the exceptions below, 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 5 

individuals. For purposes of determining such stock ownership, an organization 

described in section 503 (b) 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 shall be considered an individual, unless 

such organization or trust meets the requirements of section 542 (a) (2).

GENERAL INSTRUCTIONS 

 (Under Subtitle A, Internal Revenue Code) 

 (References are to the Internal Revenue Code unless otherwise noted)

In the case of corporations filing consolidated returns, see section 542 (b).

The term “personal holding company,” as referred to above, does not include 

any of the following:

(1) A corporation exempt from tax under subchapter F (sec. 501 and 

following) ;

(2) a bank as defined in section 581; 

(3) a life insurance company;

(4) a surety company;

(5) a foreign personal holding company as defined in section 552; 

(6) a licensed personal finance company as defined in section 542 

(c) (6);

(7) a lending company as defined in section 542 (c) (7);

(8) a loan or investment corporation as defined in section 542 (c) (8);

(9) a finance company as defined in section 542 (c) (9);

(10) a foreign corporation the gross income and stock ownership of 

which falls within the provisions of section 542 (c) (10); and 

(11) a small business investment company as defined in section 542 .

(c) (11).

A foreign corporation, whether resident or nonresident, which is classified as 

a personal holding company under section 542 (not including a foreign personal 

holding company as defined in section 552) is subject to the tax imposed by 

section 541 with respect to its income from sources within the United States 

even though such income is not fixed or determinable annual or periodical 

income specified in section 881 (a). (See section 861.) In the case of a 

nonresident foreign corporation, Schedule PH shall be attached to Form 1120–F. 

The term “personal holding company” as used in subtitle (A) does not include a 

foreign corporation if (1) its gross income from sources within the United States 

for the period specified in section 861 (a) (2) (B) is less than 50 percent of its 

total gross income from all sources and (2) all of its stock outstanding during the 

last half of the taxable year is owned by nonresident alien individuals, whether 

directly or indirectly through other foreign corporations.

Personal holding company income.—The term “personal holding company 

income” is defined by section 543 as the portion of the gross income which 

consists of:

(1) DIVIDENDS, ETC.—Dividends, interest, royalties (other than mineral, 

oil, or gas royalties or copyright royalties), and annuities. This paragraph 

shall not apply to interest constituting rent as defined in paragraph (7) or to 

interest on amounts set aside in a reserve fund under section 511 or 607 of 

the Merchant Marine Act, 1936. 

(2) STOCK AND SECURITIES TRANSACTIONS.—Except in the case of regular 

dealers in stock or securities, gains from the sale or exchange of stock or 

securities.

(3) COMMODITIES TRANSACTIONS.—Gains from futures transactions in 

any commodity on or subject to the rules of a board of trade or commodity 

exchange. This paragraph shall not apply to gains by a producer, processor, 

merchant, or handler of the commodity which arise out of bona fide 

hedging transactions reasonably necessary to the conduct of its business in 

the manner in which such business is customarily and usually conducted by 

others.

(4) ESTATES AND TRUSTS.—Amounts includible in computing the taxable 

income of the corporation under part I of subchapter J (sec. 641 and 

following, relating to estates, trusts, and beneficiaries); and gains from the 

sale or other disposition of any interest in an estate or trust. 

(A) Amounts received under a contract under which the corporation is 

to furnish personal services; if some person other than the corporation has 

the right to designate (by name or by description) the individual who is to 

perform the services, or if the individual who is to perform the services is 

designated (by names or by description) in the contract; and

(B) amounts received from the sale or other disposition of such a 

contract. This paragraph shall apply with respect to amounts received for 

services under a particular contract only if at some time during the taxable 

year 25 percent or more in value of the outstanding stock of the corporation 

is owned, directly or indirectly, by or for the individual who has performed, 

is to perform, or may be designated (by name or by description) as the one 

to perform, such services.

(6) USE OF CORPORATION PROPERTY BY SHAREHOLDER.—Amounts received as 

compensation (however designated and from whomsoever received) for the use 

of, or right to use, property of the corporation in any case where, at any time 

during the taxable year, 25 percent or more in value of the outstanding stock of 

the corporation is owned, directly or indirectly, by or for an individual entitled to 

the use of the property; whether such right is obtained directly from the 

corporation or by means of a sublease or other arrangement. This paragraph shall 

apply only to a corporation which has personal holding company income for the 

taxable year, computed without regard to this paragraph and paragraph (7), in 

excess of 10 percent of its gross income. For purposes of the preceding sentence, 

copyright royalties constitute personal holding company income.

(7) RENTS.—Rents, unless constituting 50 percent or more of the gross 

income. For purposes of this paragraph, the term “rents” means compensation, 

however designated, for the use of, or right to use, property, and the interest on 

debts owed to the corporation, to the extent such debts represent the price for 

which real property held primarily for sale to customers in the ordinary course of 

its trade or business was sold or exchanged by the corporation; but does not 

include amounts constituting personal holding company income under paragraph (6).

(8) MINERAL, OIL, OR GAS ROYALTIES.—Mineral, oil, or gas royalties, unless—

(A) such royalties constitute 50 percent or more of the gross income and

(B) the deductions allowable under section 162 (relating to trade or 

business expenses) other than compensation for personal services rendered 

by the shareholders, constitute 15 percent or more of the gross income.

(9) COPYRIGHT ROYALTIES.—Copyright royalties, unless—

(A) such royalties (exclusive of royalties received for the use of, or right 

to use, copyrights or interests in copyrights on works created in whole, or in 

part, by any shareholder) constitute 50 percent or more of the gross income,

(B) the personal holding company income for the taxable year not taking 

into account—

 (i) copyright royalties, other than royalties received for the use of, 

or right to use, copyrights or interests in copyrights in works created in 

whole, or in part, by any shareholder owning more than 10 percent of 

the total outstanding capital stock of the corporation, and

 (C) the deductions allowable under section 162 (other than deductions 

for compensation for personal services rendered by the share holders and 

other than deductions for royalties to shareholders) constitute 50 percent or 

more of the gross income.

For purposes of this subsection, the term “copyright royalties” means 

compensation, however designated, for the use of, or the right to use, copyrights 

in works protected by copyright issued under title 17 of the United States Code 

(other than by reason of sec. 2 or 6 thereof), and to which copyright protection is 

also extended by the laws of any country other than the United States of 

America by virtue of any international treaty, convention, or agreement, or 

interests in any such copyrighted works, and includes payments from any person 

for performing rights in any such copyrighted work. For purposes of this 

paragraph, the term “shareholder” shall include any person who owns stock 

within the meaning of section 544. This paragraph shall not apply to 

compensation which is rent within the meaning of paragraph (7), determined 

without regard to the requirement that rents constitute 50 percent or more of the 

gross income.

Stock ownership.—Section 544 contains the following provision with 

reference to stock ownership.

(a) CONSTRUCTIVE OWNERSHIP.—For purposes of determining whether a 

corporation is a personal holding company, insofar as such determination is 

based on stock ownership under section 542 (a) (2), section 543 (a) (5), section 

543 (a) (6), or section 543 (a) (9)—

(1) STOCK NOT OWNED BY INDIVIDUAL.—Stock owned, directly or 

indirectly, by or for a corporation, partnership, estate, or trust shall be 

considered as being owned proportiorately by its shareholders, partners, or 

beneficiaries.

(2) FAMILY AND PARTNERSHIP OWNERSHIP.—An individual shall be 

considered as owning the stock owned, directly or indirectly, by or for his 

family or by or for his partner. For purposes of this paragraph, the family of 

an individual includes only his brothers and sisters (whether by the whole 

or half blood), spouse; ancestors, and lineal descendants.

(3) OPTIONS.—If any person has an option to acquire stock, such stock 

shall be considered as owned by such person. For purposes of this 

paragraph, an option to acquire such an option and each one of a series of 

such options, shall be considered as an option to acquire such stock 

(4) APPLICATION OF FAMILY-PARTNERSHIP AND OPTION RULES.—

Paragraphs (2) and (3) shall be applied—

Page 4

(See pages 5 and 6 for additional instructions)

(5) PERSONAL SERVICE CONTRACTS.—

 (ii) dividends from any corporation in which the taxpayer owns at 

least 50 percent of all classes of stock entitled to vote and at least 50 

percent of the total value of all classes of stock and which corporation 

meets the requirements of this subparagraph and subparagraphs (A) 

and (C) 

is 10 percent or less of the gross income, and
(A) for purposes of the stock ownership requirement provided in 

section 542 (a) (2), if, but only if, the effect is to make the corporation a 

personal holding company;

GENERAL INSTRUCTIONS—Continued

Detach pages 5 and 6 before filing

(B) for purposes of section 543 (a) (5) (relating to personal service 

contracts) of section 543 (a) (6) (relating to the use of property by 

shareholders), or of section 543 (a) (9) (relating to copyright royalties), if, 

but only if, the effect is to make the amounts therein referred to includible 

under such paragraph as personal holding company income.

(5) CONSTRUCTIVE OWNERSHIP AS ACTUAL OWNERSHIP.—Stock 

constructively owned by a person by reason of the application of paragraph 

(1) or (3) shall, for purposes of applying paragraph (1) or (2), be treated as 

actually owned by such person; but stock constructively owned by an 

individual by reason of the application of paragraph (2) shall not be treated as 

owned by him for purposes of again applying such paragraph in order to 

make another the constructive owner of such stock.

(6) OPTION RULE IN LIEU OF FAMILY AND PARTNERSHIP RULE.—If stock may 

be considered as owned by an individual under either paragraph (2) or (3) it 

shall be considered as owned by him under paragraph (3).

(b) CONVERTIBLE SECURITIES.—Outstanding securities convertible into stock 

(whether or not convertible during the taxable year) shall be considered as 

outstanding stock—

SPECIFIC INSTRUCTIONS

The following instructions are numbered to correspond with line numbers on page 1 of this schedule 

(1) for purposes of the stock ownership requirement provided in section 

542 (a) (2), but only if the effect of the inclusion of all such securities is to 

make the corporation a personal holding company;

(2) for purposes of section 543 (a) (5) (relating to personal service 

contracts), but only if the effect of the inclusion of all such securities is to 

make the amounts therein referred to includible under such paragraph as 

personal holding company income;

(3) for purposes of section 543 (a) (6) (relating to the use of property by 

shareholders), but only if the effect of the inclusion of all such securities is to 

make the amounts therein referred to includible under such paragraph as 

personal holding company income; and

(4) for purposes of section 543 (a) (9) (relating to copyright royalties), but 

only if the effect of the inclusion of all such securities is to make the amounts 

therein referred to includible under such paragraph as personal holding 

company income.

The requirement in paragraphs (1), (2), (3), and (4) that all convertible securities 

must be included if any are to be included shall be subject to the exception that, 

where some of the outstanding securities are convertible only after a later date 

than in the case of others, the class having the earlier conversion date may be 

included although the others are not included, but no convertible securities shall 

be included unless all outstanding securities having a prior conversion date are 

also included.

1. Taxable income before net operating loss deduction and special 

deductions, Form 1120.—Enter here the amount shown on line 27, page 1, 

Form 1120, computed in accordance with the provisions of subtitle A, but 

without regard to section 443 (b) (relating to income placed on an annual basis). 

In the event such taxable income on line 1 includes any amount with respect to 

coal royalties to which section 631 (c) is applicable, see section 631 (c) and the 

regulations thereunder.

In the case of a nonresident foreign corporation (not engaged in trade or 

business within the United States) 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). The taxable income so computed will 

reflect, in addition to income from all other sources within the United States, 

gains from sales or exchanges made within the United States of capital assets 

including stocks, securities, and commodities. Although such gains may not be 

subject to tax under section 881 (a), they are subject to the tax imposed by 

section 541.

3. Expenses and depreciation applicable to property of the taxpayer in excess 

of amount allowable under section 545 (b) (3).—If the corporation derived rent 

or other compensation for the use or right to use property which was less than 

the sum of the expenses incurred in connection therewith and deductible under 

section 162 and the depreciation allowable under section 167, Schedule A 

should be filled in and the excess of the expenses and depreciation over the rent 

or other compensation shown therein should be entered on line 3, page 1. This 

adjustment must be made unless the taxpayer establishes, in accordance with 

section 545 (b) (8), that the rent or other compensation received was the highest 

obtainable, or, if none was received, that none was obtainable; 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 property would 

result in a profit, or that the property was necessary to the conduct of the 

business.

The burden of proof will rest upon the taxpayer to sustain the deduction of 

the aggregate of the expenses and depreciation allowed under subtitle A in 

excess of the rent or other compensation derived from tile property. A 

corporation claiming such excess deductions shall, in lieu of filling in Schedule 

A, attach to the return a statement setting forth its claim for allowance of the 

deductions together with a complete statement of facts, circumstances, and 

arguments on which it relies in support of the deductions. Such statement shall 

show:

(a) A description of the property;

(b) The cost or other basis to the corporation and the nature and value of the 

consideration paid for the property;

(c) The name and address of the person from whom the property was 

acquired and the date thereof;

(d) The name and address of the person to whom the property was leased or 

rented, or the person permitted to use the property, and the number of shares of 

stock, if any, held by such person and the members of his family;

(e) The nature (cash, securities, services, etc.) and gross amount of the rent or 

other compensation received or accrued for the use of, or tile right to use, the 

property during the taxable year and for each of the 5 preceding years and the 

amount of the expenses incurred with respect to, and the depreciation sustained 

on, the property for such years;

(f) Evidence that the rent or other compensation was the highest obtainable 

and if none was received or accrued, a statement of the reasons therefor;

(g) A copy of the contract, lease, or rental agreement; 

(h) The purpose for which the property was used;

(i) The business carried on by the corporation with respect to which the 

property was held and the gross income, expenses, and net income derived from 

the conduct of such business for the taxable year and for each of the 5 preceding 

years;

(j) A statement of any reasons which existed for expectation that the 

operation of the property would be profitable, or a statement of the necessity for 

the use of the property in the business of the corporation and the reasons why the 

property was acquired;

(k) Any other information on which the corporation relies.

4. Amount added to taxable income where lien in favor of the United States is 

satisfied or released.—The sum of the amounts deducted from taxable income 

under section 545 (b) (9) with respect to any lien in favor of the United States 

must be added to taxable income, in computing undistributed personal holding 

company 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 to taxable income, the 

shareholders of the corporation may, pursuant to regulations prescribed by the 

Secretary or his delegate, elect to compute the income tax with respect to such 

dividends as are attributable to such amount as though they were received 

ratably over the period the lien was in effect. See Specific Instruction 13.

7. Federal and foreign income, war profits, and excess profits taxes.—Section 

545 (b) (1) provides that there shall be allowed as a deduction from taxable 

income Federal income and excess profits taxes accrued during the taxable year, 

but not including the accumulated earnings tax imposed by section 531, the 

personal holding company tax imposed by section 541, or the taxes imposed by 

corresponding sections of a prior income tax law. However, a taxpayer shall 

deduct Federal income and excess profits taxes under this paragraph when paid 

if for each taxable year in which it was subject to tax imposed by section 500 of 

the Internal Revenue Code of 1939 it deducted such taxes when paid, unless it 

elects, in its return for a taxable year ending after June 30, 1954, to deduct the 

taxes described in this paragraph when accrued, in which case only taxes 

accrued may be deducted. Such an election shall be irrevocable and shall apply 

to the taxable year for which the election is made and all subsequent taxable years.

The credit allowed to domestic corporations by section 901 for income, war 

profits, and excess profits taxes of foreign countries and United States 

possessions is not allowed as a credit with respect to the personal holding 

company tax. There shall be allowed as a deduction from taxable income, 

however, the income, war profits, and excess profits taxes accrued during the 

taxable year to foreign countries and possessions of the United States if the 

taxpayer claims a credit for such taxes in computing its income tax.

Foreign corporations should treat such taxes as deductions to be allocated 

in accordance with section 861 in computing income from sources within the 

United States, and in such cases taxes of this nature will be reflected in taxable income stated on line 1 instead of being stated separately as a deduction on 

line 7.

8. Contributions or gifts deductible under section 545 (b) (2).—For purposes of 

the personal holding company tax, section 545 (b) (2) provides for a different 

limitation on deductions for charitable contributions than the 5 percent limitation 

for purposes of determining the corporate 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 percent limitation applied. (See Specific 

Instruction 18, Form 1120.) However, a further adjustment for this purpose is 

that the taxable income shall also be computed without the deduction of the 

amount disallowed under section 545 (b) (8) (relating to expenses and 

depreciation applicable to property of the taxpayer).

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For purposes of the personal holding company tax, the contribution carryover 

under the provisions of section 170 (b) (2) is not allowed (section 542 (b) (2) of 

the Code as amended).

SPECIFIC INSTRUCTIONS—Continued

9. Net operating loss for the preceding year deductible under section 545 (b) 

(4).—Section 545 (b) (4) provides that in lieu of the net operating loss deduction 

provided in section 172 there shall be allowed the amount of the net operating 

loss (as defined in section 172 (c)) for the preceding taxable year computed 

without the deductions provided in Part VIII (except organizational expenses, 

section 248) of subchapter B.

12. Amounts used or irrevocably set aside to pay or retire indebtedness of 

any kind incurred prior to January I, 1934.—Enter on line 12 the total amount 

reflected in line 12, Schedule D. Section 545 (b) (7) provides that in determining 

undistributed personal holding company income there shall be allowed as a 

deduction 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.

13. Lien In favor of the United States.—The taxpayer may deduct the amount of 

any lien in favor of the United States (notice of which has been filed as provided 

in section 6323 (a) (1), (2), or (3) ) to which the taxpayer is subject at the close 

of the taxable year. However, the amount deducted may not exceed taxable 

income as adjusted under section 545 (h), computed without regard to this 

deduction. Thus the amount to be entered on line 13 shall not exceed line 6 less 

the total of lines 7 through 12, inclusive.

14. Deduction for dividends paid.—Enter on line 14 the amount of the 

dividends-paid deduction as computed in Schedule E. The deduction for 

dividends paid is the sum of (1) the dividends paid during the taxable year, (2) 

the consent dividends for the taxable year, and (3) the dividend carryover from 

the 2 preceding taxable years.

In determining the deduction for dividends paid, the rules provided in section 

562 (relating to rules applicable in determining dividends eligible for 

dividends-paid deduction) and section 563 (relating to dividends paid after the 

close of the taxable year) shall be applicable.

In general, a consent dividend is not an actual corporate distribution but is a 

hypothetical distribution evidenced by shareholders' consents to treat as a 

dividend an amount which would constitute a dividend if distributed in money to 

such shareholders on the last day of the taxable year of such corporation. Such 

consent dividend may be availed of only if the person filing such consent owns 

common stock (or participating preferred stock, the participating rights of which 

are unlimited), and the amount specified in the consent is pro rata, with no 

preference to any share of stock as compared with other shares of the same class, 

and with no preference to one class of stock as compared with another class 

except to the extent that the former is entitled to such preference. The effect of 

the consent is that the amount of the consent dividend is treated both as a 

dividend and as a contribution to the capital of the corporation by the 

shareholder on the last day of the taxable year of the corporation. A consent shall 

be filed in duplicate on Form 972 at any time but not later than the due date of 

the corporations income tax return for the taxable year for which credit is 

claimed. In addition, Form 973 must be filed by the taxpayer corporation. 

The dividend carryover to a taxable year shall be determined as follows: 

(1) For each of the 2 preceding taxable years there shall be determined the 

taxable income computed with the adjustments provided in section 545 (relating 

to the computation of undistributed personal holding company income)

(whether or not the taxpayer was a personal holding company for either of such 

preceding taxable years), and there shall also be determined for each such year 

the deduction for dividends paid during such year as provided in section 561 

(but determined without regard to the dividend carryover to such year).

(2) There shall be determined for each such taxable year whether there is an 

excess of such taxable income over such deduction for dividends paid or an 

excess of such deduction for dividends paid over such taxable income, and the 

amount of each such excess.

(3) If there is an excess of such deductions for dividends paid over such 

taxable income for the first preceding taxable year, such excess shall be allowed 

as a dividend carryover to the taxable year.

(4) If there is an excess of such deduction for dividends paid over such 

taxable income for the second preceding taxable year, such excess shall be 

reduced by the amount determined in paragraph (5), and the remainder of such 

excess shall be allowed as a dividend carryover to the taxable year.

(5) The amount of the reduction. specified in paragraph (4) shall be the 

amount of the excess of the taxable income, if any, for the first preceding taxable 

year over such deduction for dividends paid, if any, for the first preceding 

taxable year.

17. Dividends paid after close of taxable year (excluding deficiency dividends 

as defined in section 547 (d)).—Enter or line 17 and not in Schedule E, the 

amount of the dividends paid after the close of the taxable year and before the 

15th day of the third month thereafter, if the taxpayer elects in its return for the 

taxable year to have such dividends considered as paid during such taxable year. 

The amount allowed as a dividend under this paragraph with respect to any 

taxable year shall not exceed either the undistributed personal holding company 

income of the corporation for the taxable year, computed without regard to the 

dividends paid pursuant to this paragraph (line 16 of page 1 of this Schedule) or 

10 percent of the sum of the dividends paid during the taxable year, computed 

without regard to this paragraph (i. e., 10 percent of line 3, Schedule E).

Neither line 14 nor line 17 should include “deficiency dividends.” The term 

“deficiency dividends” means in general only those dividends which are paid by 

a corporation pursuant to a specific procedure set forth in section 547, which 

includes a requirement that there must first be a determination by a court, by 

closing agreement, or (under regulations) a written agreement signed by the 

District Director and by or on behalf of the taxpayer relating to the liability of 

the corporation for personal holding company tax.

Schedule required under section 6501 (f).—Section 6501 (f) provides as 

follows:

(f) Personal Holding Company Tax.—If a corporation which is a personal 

holding company for any taxable year fails to file with its return under chapter 1 

for such year a schedule setting forth—

(1) the items of gross income, described in section 543 (a), received by the 

corporation during such year, and

(2) the names and addresses of the individuals who owned, within the 

meaning of section 544 (relating to rules for determining stock ownership), at 

any time during the last half of such year more than 50 percent in value of the 

outstanding capital stock of the corporation,

the personal holding company tax for such year may be assessed, or a 

proceeding in court for the collection of such tax may be begun without 

assessment, at any time within 6 years after the return for such year was filed.

U. S. GOVERNMENT PRINTING OFFICE : 1960—O–556161

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