(Specific Instructions—Continued)

1, Form 1120, computed without regard to
section 443(b) (relating to income placed
‘on an annual basis). If such 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 busi-
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 ex-
cess of amount allowable under section
545(b)(8).—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 de-
preciation, Schedule A should be filled in
and the excess entered on line 3.

This adjustment must be made unless
the corporation establishes, in accordance
with section 545(b)(8), that the rent or
other compensation received was the high-
est 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 opera-
tion 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
corporation to sustain the excess deduc-
tions. A corporation claiming excess deduc-
tions must, in lieu of filling in Schedule A,
attach a statement claiming the deductions
together with a complete statement 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 de-
ducted under section 545(b)(9) for any lien
in favor of the U.S. must be added to tax-
able income in the taxable year in which
the lien is satisfied or released; similarly,
in the case of a partial satisfaction or re-
lease of such lien, to the extent satisfied
or released.

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. See in-
struction 13,

6. Federal and foreign income, war
profits, and excess profits taxes.—Attach
a schedule showing the nature of the tax,
the taxable year, and the amount. Section
545(b)(1) allows a deduction for Federal
income and excess profits taxes accrued
during the taxable year but not including
the accumulated earnings tax imposed by
section 531 or the personal holding com-
pany 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 taxable year
to foreign countries and U.S. possessions
if the corporation claims a credit for such
taxes in computing its income tax.

2

172-9363

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 chari-
table 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)(8) (excess 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 in
lieu 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 taxable
year computed without the deductions pro-
vided 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) allows a deduction for
amounts used or irrevocably set aside to
pay or retire indebtedness of any kind in-
curred 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 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 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 begin-
ning on and after January 1, 1934; (3)
amount actually used during the taxable
year to pay or retire the indebtedness; and
(4) amount irrevocably set aside during the
taxable year to pay or retire the indebted-
ness but not actually used during the tax-
able year for that purpose. In addition, the
statement shall indicate whether the deduc-
tion claimed represents (a) an amount ac-
tually used during the taxable year to pay
or retire the indebtedness, (b) an amount
irrevocably set aside during the taxable 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 11 or 12 represents an amount irrevo-
cably set aside to pay or retire the indebted-
ness, attach a statement explaining the cir-
cumstances and method by which it was
irrevocably set aside.

12. Amounts used or irrevocably set
aside to pay or retire qualified indebted-
ness.—Subject to the limitations described
in section 545(c), section 545(c)(1) allows
a deduction for amounts used, or amounts
irrevocably set aside (to the extent reason-
able with reference to the size and terms of
the indebtedness), to pay or retire qualified

‘Ye USS, GOVERNMENT PRINTING OFFICE :1972—O-458-101

indebtedness (as defined in section 545(c)
(3)). This deduction applies only to corpo-
rations described in section 545(c)(2).

‘Any corporation that claims this deduc-
tion must submit 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 infor-
mation showing that the distributor or trans-
feror corporation was a corporation de-
scribed in section 545(c)(2)(A).

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

Schedule C-2 must be completed 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 being claimed.

See instruction 11 for additional informa-
tion which must be submitted to establish
the reasonableness of amounts irrevo-
cably set aside to pay or retire qualified
indebtedness.

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 regula-
tions for time and manner of making the
election.

13. Lien in favor of the U.S.—The corpo-
ration 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 deduction. Thus, the deductions may
not exceed line 5 less the total of lines 6
through 12.

14. 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.

17. Dividends paid after close of tax-
able ‘year (excluding deficiency dividends
as defined in section 547(d)).—Enter on
line 17 and not in Schedule 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 corpo-
ration elects in its return for the taxable
year to have the dividends considered as
paid during 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 com-
pany income of certain foreign corpora-
tions.—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 taxable year by U.S. persons,
undistributed personal holding company in-
come is the amount determined by multi-
plying the undistributed personal holding
company 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. persons on any one day during such
period. (Section 545(a).)

Page 4


SCHEDULE PH

(Form 1120) Computation of U.S. Personal Holding

Department of the Treasury Company Tax ¢e catensar year 1972, or other taxable year 1972
Internal Revenue Service beginning , 1972 and ending , 19,

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)

2 Contributions deducted in computing line 1 (line 19, Form 1120)

3 Excess of expenses and depreciation under section 545(b)(8) (Schedule A)

ADDITIONS

4 Amount added to taxable income where lien in favor of the United States is satisfied or
released

5 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(b)(2) (attach schedule—see. instructions for
limitation) . SS

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 |
(line 8, separate Schedule D, Form 1120). . |

(b) Less: Income tax attributable to such excess (see ‘section 545(b)(6)— |
attach computation). . . . . .. see | _

10 Special deduction for bank affiliates allowable under section 545(b)(6)
11 Amounts used or irrevocably set aside to pay or retire indebtedness of any kind incurred prior
to January 1, 1934 (attach schedule—see instructions)

12 Amounts used or irrevocably set aside to pay or retire qualified indebtedness (Schedule C-1) .

DEDUCTIONS.

13 Amount of a lien in favor of the United States (see instructions for limitation) . —_
14 Deduction for dividends paid (excluding dividends paid after close of taxable year)
(Schedule B) . . woe ee ee woe

15 Total of lines 6 through 14

16 Undistributed personal holding company income before the deduction shown on line 17 (line 5
less line 15)...
17 Less: Dividends paid after “close of taxable year (excluding deficiency dividends z as defined
in section 547(d)) but not in excess of the lesser of line 16 or 20 percent of line 1,
Schedule B

18 Undistributed personal holding company income e line ‘16 less line 17). Foreign corporations —
see instruction 18 . :

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



Schedule PH (1120) 1972 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 we ee ee
2 Interest . . + - .
(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 - - 6 ee ee ee ee
5 Rents... - soe tae

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

(a) Less: Adjustments described in section 543(b)(2)(B) (attach schedule)
7 Copyright royalties © 5 vv ss Se
8 Produced film rents . . - . .
9 Amounts received as compensation for use sof corporation property by sh shareholder. . - . . . ee
10 Amounts received under personal service contracts and fromthe salethereof - - . . . . - +e
11 Amounts received from estates and trusts. - rT
12 Total personal holding company income (add lines 1 through 11)... ee
(2) Stock Ownership. Enter the names and addresses of the individuals who owned, in the aggregate, directly or indirectly, at any time dur-
ing 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
Preferred ‘Common

Name Address

(1)...

(2)...

@).

(4)...

(5)

7
‘rent or athor” |B. Excess (col. 6

compensation less col. 7)

6. Total of

1. Kind of property 2. Date columns 4 and 5

acquired

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 in section 547. - ta

2 Consent dividends (attach schedule)... 6. ee ee
3 Taxable distributions (total of linesland2). . . . . . 2. a

4 Dividend carryover from first and second preceding taxable years (attach computation) . Se
5 Deduction for dividends paid (total of lines 3 and 4). Enter here and online 14, pagel . . ol
SCHEDULE C-1.. —Computation « of Deduction for Amounts Used or irrevocably Set Aside to Pay or Retire Qualified Indebtedness Gee 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 quali ied
indebtedness, but not actually used during the taxable year for such purpose - - . .... +.
(c) Total
2 Reduction for amounts described in section 545(c)(5) (attach schedule)» - 6 0 ee ee ee ee
B Line l(c) lessline2 - 6 6

4 Portion of amount shown on line 3 which is treated as nondeductible by reason of the election Provided i in section
545(c)(4) (attach statement—see instructions) . nn __
5 Amount claimed as a deduction (line 3 less line 4). Enter here and on line 12, page 1 sone



Mat no entries are made on this page, detach and file only pages 1 and 24
Schedule PH (1120) 1972 Page 2

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 precedin; ble year, complete all applicable lines.

1 Enter amount of indebtedness which was incurred after December 31, 1933, and before January 1, 1964, and
which was outstanding as of the first day of the first taxable year beginning after December 31, 1963 .

2 Less: Amounts included in line 1 which were irrevocably set aside before the first day of the first taxable
year beginning after December 31, 1963, to pay or retire indebtedness with respect to a contract (section

BA5(c(3)(C)) 2
Linellessline2. . . . -

Aggregate amount of indebtedness incurred after December ‘31, 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 n provided in
section 545(c)(4). (See section 545(¢)(3)(AV(i)) . 6 ee ee .

BTotalofines3and4 .. ee ee

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 December 31, 1963 (not including taxable year covered by this return).

(b) Aggregate amount of pro rata reductions in taxable years beginning after De-
cember 31, 1963 (not including taxable year covered by this return) with re-
spect to disposition of certain "property after December 31, 1963 (Section |
545(c)(6)) . . re . 2

(c) Aggregate of amounts which ceased to be outstanding during taxable years be-
ginning after December 31, 1963 (not including taxable year covered by this re-
turn) other than as a result of a payment or set-aside (attach statement).

LineSlessline6. . . . . soe : .

Total indebtedness incurred during the taxable year for the | purpose of making a payment or rset aside i in 1 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)) -

9 Line7plusline8. . . . . e cone oe

10 Less: (a) Amounts included in line 9 which were, at any ‘time after December a1, 1963,
and before payment 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

percent in value of your outstanding stock. NOTE.—If you were a personal hold-

ing 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)(3)(B)) «ee ee ee ee ee ee

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

able year (section 545(c)(6))- 6 ee ee

ll LineQlesslinelO 2. ee ee es :
12 Less: Amounts included in line 11 which ceased to be outstanding during the taxable year ; other than as a result
of a payment or set-aside (attach statement) © 6. 6 ee ee
13 Qualified indebtedness before payments and set-asides (line 11 lessline12). . . . . :

14 Amounts used or irrevocably set aside (including amounts which were treated as nondeductible byt 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 less line 14) - oe :

Rw

o

N

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

Who must file Schedule PH.—Every per-
sonal holding company must file a Sched-
ule PH. The term “personal holding com-
pany” means any corporation 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 owner-
ship, 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 individ-
ual, unless such organization 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) ap-
plies) is not a personal holding company if
all of its outstanding stock during the last
half of the taxable year is owned by non-
resident alien individuals, whether directly
or indirectly through foreign estates, foreign
trusts, foreign partnerships, or other for-
eign 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 applicable penalties)
shall be imposed equal to 10% of the taxes
imposed by chapter 1 of the Code (including
personal holding company tax). See section

Personal holding company income.—
Personal holding company income is that
portion of adjusted ordinary gross income

(as defined in section 543(b)(2)) which
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 ail of
whose outstanding stock during the last
half of the taxable year is owned by non-
resident alien individuals (whether directly
or indirectly through foreign estates, foreign
trusts, foreign partnerships, or other for-
eign corporations), taxable income for pur-
poses of section 545(a) is that personal
holding company income described in sec-
tion 543(a)(7), reduced by deductions at-
tributable to that income, and adjusted,
with respect to the income, in the manner
provided in section 545(b). See section
545(d).

1. Taxable income before net operating
loss deduction and special deductions.—
Enter the amount shown on line 28, page