deductions for the activity(ies) with the
loss(es).

If a loss from an activity is more than the
amount the Personal Holding Company is
“at risk” for the activity at the end of the tax
year, the amount 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 disposes
of an asset in, or its interest in (either total
or partial) an activity to which the ‘‘at risk’”
rules apply, combine the gain or loss on the
disposition with the profit or loss from the
activity to determine the net profit or loss
from the activity. If the Personal Holding
Company has a net loss, it may be limited
because of the “at risk” rules.

Any loss from an activity not allowed for
the corporation’s 1980 tax year by section
465 is treated as a deduction for the activity
in 1981. This deduction is entered on line
26 of Form 1120. (See section 465(a).)

If taxable income includes coal or domes-
tic iron ore royalties, see section 631(c).

See section 189 for limitations on the de-
ductions for real property construction pe-
riod interest and taxes (other than low-in-
come housing).

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

A foreign corporation (whether or not en-
gaged in a trade or business within the U.S.)
that qualifies as a personal holding com-
pany under section 542 but not as a foreign
personal holding company under section
552, enters on line 1 the amount figured
under section 861 and not under section
881(a).

3. Expenses and depreciation in excess
of amount allowable under section 545(b)
(6).—If the corporation earned rent or
other compensation for the use of, or right
to use, property that was less than the
total allowable expenses and depreciation,
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. If
none was received, the corporation must
show that none was obtainable. The prop-
erty must be held in the course of a_busi-
ness carried on bona fide for profit. There
must be reasonable expectation that the op-
eration of the property 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.
A corporation claiming excess deductions
must, instead of completing Schedule A, at-
tach a statement claiming the deductions
with a complete statement of facts, circum-
stances, and arguments to support the de-
ductions. The statement must show the in-
formation required by regulations section
1.545-2(h)(2).

4. Amount added to taxable income
when a lien in favor of the U.S. is satisfied
or released.—If any amount was deducted
under section 545(b)(9) in a tax year be-
ginning before January 1, 1977, for a lien
that is satisfied or réleased in’a tax year
beginning on or after January 1, 1977, the
amount deducted must be included in in-
come under section 545. (See P.L. 94-455,
sections 1951(b)(9)(A) and (B).)

lf an amount is added, the shareholders
may elect to figure the tax on dividends from

Page 4

the added income as though they were re-
ceived 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 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) or 960(a)(1)(C)) during the tax year
to foreign countries and U.S. possessions
if the corporation claims a credit for the
taxes in figuring its income tax.

7. Contributions deductible under sec-
tion '545(b)(2).—Section 545(b)(2) provides
a different limitation for charitable contribu-
tions for figuring the personal holding com-
pany tax than the 5% limitation used in de-
termining the corporate income tax. The
limitations on charitable deductions of in-
dividuals apply, but are applied to the tax-
able income to which the 5% limitation ap-
plied. (See instruction for line 19, Form
1120.) However, taxable income is figured
without the deduction of the amount dis-
allowed under section 545(b)(6) (excess ex-
penses and depreciation).

The contribution carryover under section
170(d) is not allowed for figuring the per-
sonal holding company tax.

8. Net operating loss for the preceding
tax year.—Section 545(b)(4) provides that
instead 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
figured without the deductions provided in
part Vill (except section 248) of subchapter

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 irrevocably set
aside (to the extent reasonable), to pay or
retire qualified 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
necessary computation showing that it is
a corporation described in section 545(c)
(2)(A). To the extent that it succeeds to the
deduction by section 381(c)(15), it must
submit detailed information showing that the
distributor or transferor corporation was a
corporation described in section 545(c)(2)
(A).

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

Complete Schedule C-2 in all cases
where qualified indebtedness has changed
during the tax year, even though you made
no payments or set-asides and claim no de-
duction.

The corporation must establish the rea-
sonableness of the amount claimed as a
deduction.

‘US. GOVERNMENT PRINTING OFFICE : 196-—O-343-120

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) total amounts used or irrevocably set
aside to pay or retire the indebtedness in
earlier tax years beginning on and after
January 1, 1964; (3) amount actually used
during the tax year to pay or retire the in-
debtedness; and (4) amount irrevocably set
aside during the tax year to pay or retire the
indebtedness but not actually used during
the tax year for that purpose. In addition, the
statement must show if the deduction
claimed represents (a) an amount actually
used during the tax year to pay or retire the
indebtedness, (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).

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

11. Deduction for dividends paid.—Enter
the amount of the dividends-paid deduction
from Schedule B. The rules in section 562
apply in determining the deduction for divi-
dends paid.

14, Dividends paid after the end of the tax
year (other than deficiency dividends de-
fined in section 547(d)).—Enter on line 14,
and not in Schedule B, the dividends paid
after the end of the tax year and by the 15th
day of the third month after the end of the
tax year if the corporation elects to have
the dividends considered as paid during that
tax year.

Neither line 11 nor line 14 should include
deficiency dividends paid under section 547.

15. Undistributed personal holding com-
pany income of certain foreign corpora-
tions.—If 10% or less in value of the out-
standing stock of a foreign corporation is
owned (see section 958(a)) during the last
half of the tax year by U.S. persons, undis-
tributed personal holding company income
is the amount determined by multiplying the
undistributed personal holding company in-
come (determined without this instruction)
by the percentage in value of the corpora-
tion’s outstanding stock which is the great-
est percentage in value of its outstanding
stock owned by U.S. persons on any one day
during the period.

17. The personal holding company tax
rate was reduced from 70% to 50% by the
Economic Recovery Tax Act of 1981, effec-
tive for tax years beginning after 12/31/81.
Since this reduction is a change in tax rates
to which the proration rules of section 21
apply, fiscal year 1981-82 corporations
that owe personal holding company tax
must prorate their tax to reflect this change.

343-120-1


SCHEDULE PH Computation of U.S. OMB No. 1540-0123
Cee on Personal Holding Company Tax 1981
Internal Revenue Service ® Attach to your tax return.

Name Employer identification number

Computation of Undistributed Personal Holding Company Income

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 limita-

tions—see instructions for line 1) .

»

Contrbutions deducted in figuring line 1 (Form 1120, line 19) .

ADDITIONS
np

3 Excess expenses and depreciation under section 545(b)(6) (Schedule A, line 2) .
4 Amount added to taxable income when a lien in favor of the U.S. is satisfied or released . |_4

5 Total—Add lines 1 through4. . 2. 7 1 we ee ee ee ee ee eT

6 Federal and foreign income, war profits, and excess profits taxes not deducted in figur-
ing line 1 (attach schedule) .

7 Contributions deductible under section 545(b)(2) (attach "schedule—see line 7 instruc:
tions for limitation) rs

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

9 a Net capital gain (from separate Schedule D (Form 1120), line 10) .
b Less: Income tax on this net capital gain (see section 545(b)(5)—

(b) Multiply (a) by the fraction number of days in tax year

(c) 50% of line 15. . wo [.17¢|
. . ‘number of days i in tax year ‘after 12/31/81
(d) Multiply (c) by the fraction number of days in tax year

g attach computation)
So
&| 10 Amounts used or irrevocably set aside to pay or retire qualified indebtedness (Schedule
a CHL line5) 6. ee ee ee {0
a
11 Deduction for dividends paid (other than dividends Paid after the end of the tax year
(Schedule B, line5)). . 2. 1 we ee Soe ee ee ee . {at
12 Total—Add lines 6through1l. 2. 1. 1 we ee ee ee ee ew [2
13 Subtract line 12fromline5. . 13].
14 Dividends paid after the end of the tax year ‘(other ‘than deficiency dividends ‘defined in
section 547(d)) but not more than the smaller of line 13 or 20% of Schedule B, line 1. | 14
15 Undistributed personal holding company income—Subtract line 14 from line 13. Foreign
corporations—see instructions for line 15. . woe ee ee 15
If your tax year ends after 12/31/81 complete line 17, do NOT complete line 16
16 Personal holding company tax for tax years ending on or before 12/31/81 (70% of line
15). [16 _
17 Personal holding company tax for tax years beginning before 1/1/82 and ending after |
12/31/81
Fy (a) 70% of line 15... . . . [Wal -
‘humber of days i in tax year before 1/1/82 oe ee |17b) a

(e) Tax, add lines (b) and (d) .

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

343-120-2


Schedule PH (Form 1120) 1981

Page 2

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

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

Personal Holding Company Income

1 Dividends © 6 6 ee ew ee
2 Interest. . tone soe eee
b Less: Amount excluded under ‘section 543(b)(2)(C) ‘(attach schedule) « soe ee
3 Royalties (other than mineral, oil, or gas royalties or copyright royalties). . . »« .« « «
4 Annuities 2. 6 6 ee ee ee we ee ee ee

5aRents ..- see sone ee
b Less: Adjustments described in section 543(b)(2)(A) (attach schedule) .
6 a Mineral, oil, and gas royalties. . . . 2... wee
b Less: Adjustments described in section 543(b)(2)(B) ‘attach schedule) soe ee
7 Copyright royalties 2 6 6 6 6 ee ee ee ee ew ee ee
8 Produced film rents. 2 6 6 6 8 6 8 6 ee ee ee ee ee ee ee ee
9 Compensation received for use of corporation property by shareholder... 1 1 ee ee et et
10 Amounts received under personal service contracts and fromtheirsale. . . 2. + 6 + ee ee ee
11 Amounts received from estates and trusts . . « oe a

12 Total personal holding company income—Add lines 1 through 11... _

Stock Ownership. Enter the names and addresses of the individuals who together owned, Girestly or Indirectly ot any time during the Tast half of the tax year,

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

Highest percentage of shares

‘owned during last half of tax year

Name Address
Preferred

Common

SCHEDULE A.—Excess of Expenses and Depreciation Over Income From Property Not Allowable Under Section 545(b)(6) (See instruction for line 3)

je. Repairs, insurance, and Income from
‘a. Kind of property b, Date ¢. Cost or other | 4, Depreciation | other expenses (section . Total of Brent or other [Ms Excess (col. f
acquired basis atte) Cattech’schedule) | columns d ande | Compensation | les8 col. g)

2 Total excess of expenses and depreciation over rent or other compensation. Enter here and on line 3, page 1. NOTE: Attach a statement showing

the names and addresses of persons from whom rent or other compensation was received for the use of, or the right to use, each property.

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

1 Taxable dividends paid (do not include dividends considered as paid in the preceding tax year under section 563,

or deficiency dividends as defined in section 547). 6. 6 6 ee ee ee ee ee ee
2 Consent dividends (attach Forms 972 and 973). «© «© © © 2 6 ee ee ee eh ee
3 Taxable distributions—Add lines 1 and 2. 6 6 6 6 6 ew ee ee ee ee
4 Dividend carryover from first and second preceding tax years (attach computation). . . + - 2 + eee
5 Deduction for dividends paid—Add lines 3 and 4. Enter here and on line 11, pagel... - + + +

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

instruction for line 10)

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

retire qualified indebtedness for a contract). 2 - ee 6 6 ee ee ee ee ee ee

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 that purpose. «© 2 - ee 6 ee et ee ee ee

© Total—Add lines laandb. . . « we eee ry we ee ee ee
2 Reduction for amounts described in section 545(¢)(5) (attach schedule) ee
3 Subtract line 2 from line lc. . . . - e ee se ee ee
4 Part of amount shown on line 3 which is treated as nondeductible by the election in section 545(c)(4) (attach
statement—see instructions). . . . eee ee

5 Amount claimed as a deduction—Subtract ‘line 4 ‘trom tine : 3. Enter here and on tine 10, page 1... ee

343-120-1


Schedule PH (Form 1120) 1981 Page 3

SCHEDULE C—2.—Computation of Qualified Indebtedness. NOTE.—If you 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 at the beginning of the tax year covered by this return. If you were not a personal holding com-
pany for the preceding tax year, complete all applicable lines.

1 Enter indebtedness incurred after 1933 and before 1964 that was outstanding on the first day of the first tax year

beginning after 1963 2. 6. ee ee ee fe
2 Amounts included in line 1 that were irrevocably set aside before the first day of the first tax year beginning
after 1963 to pay or retire indebtedness for a contract (section 545(c)(3)(C)). «6 6 ee ee ee

3 Subtract line2fromlinel. . 2. 1. 1 ee woe woes ee ne

4 Total indebtedness incurred after 1963 and before t! this tax year for making a payment or set-aside in the same
tax year. Enter this indebtedness only if the deduction otherwise allowed in section 545(c)(1) for this payment

or set-aside was treated as nondeductible by the election in section 545(c)(4). (See section 545(c)(3)(A)(ii).) «
5 Total—Add lines 3and 4. 6 ww we ee fe
6 a Total amounts actually used or irrevocably set aside (including amounts treated as
nondeductible by the election in section 545(c)(4)) to pay or retire qualified indebted-
ness in tax years beginning after 1963 (not including this tax year). . . . . .
b Total pro rata reductions in tax years beginning after 1963 (not including this tax year)
for the disposition of certain property after 1963 (section 545(c)(6)). . . . - + +
c Total amounts that ceased to be outstanding during tax years beginning after 1963
(not including this tax year) other than by a payment or set-aside (attach statement) .
7 Subtract line 6 fromline5. . . . soe ee ee
8 Total indebtedness incurred during the ‘tax year for making a , payment or set- f-aside in ‘the same tax year. Enter
indebtedness only if the deduction otherwise allowed in section 545(c)(1) for the payment or set-aside is treated
as nondeductible by the election in section 545(c)(4). (See section 545(c)(3)(A)(ii).). - - + ee ee
9 Total—Add lines 7and8. . . . . .
10 a Amounts included in line 9 that, after 1963 and before payment or set-aside, were owed
to a person who then owned (or was considered as owning under 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 amounts that were owed at any time on or

after the first day of this tax year. 2 2. ee ee ee ee ee
b Pro rata reduction for the disposition of certain property during the tax year under sec-
tion 545(c)(6). 6 ee ee
11 Subtract line 10 from line9. 2 6 6 ee ee ee ee
12 Amounts in line 11 which ceased to be outstanding during the ‘tax year other than by a payment or set-aside
(attach statement) . . . . . ee soe ee eee re ry
13 Qualified indebtedness before payments and set: asides Subtract line 12 from line ul. eee ee ee ee

14 Amounts used or irrevocably set aside (including amounts treated as nondeductible by the election in section

545(c)(4)) during the tax year to pay or retire an amount shown on line 13. . . -
15 Qualified indebtedness at the end of the tax year—Subtract line 14 from line 13 -

General Instructions

(References are to the Internal Revenue Code.)

New Law.—Effective for tax years begin-
ning after 12/31/81, the tax rate for per-
sonal holding companies has been reduced
from 70% to 50%. See instruction for line
17 for more details.

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 (defined in section 543(b)(2))
for the tax year is personal holding company income
(defined in section 543(a)), and if at any time dur-
ing the last half of the tax year more than 50% in
value of its outstanding stock is owned, directly or
indirectly, by or for 5 or fewer individuals.

An organization described in section 401(a), 501
(©)(17), or 509(a), or a part of a trust permanently
set aside or to be used exclusively for the purposes
described in section 642(c) is considered an individ-
ual, except as provided in section 701(0) of P.L. 95-
600. (See section 542(a)(2).)

For exceptions to the term “personal holding com-
pany,” see section 542(c).

A foreign corporation (except one that 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, directly or indirectly. See section
542(c)(7).

Failure of foreign corporations to file—If a foreign
corporation that is a personal holding company fails
to file a true and accurate return of the tax imposed
by section 541, a penalty (in addition to any other
penalties) will be imposed of 10% of the taxes im-
posed by chapter 1 of the Code (including personal
holding company tax). See section 6683,

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 (directly or indirectly),
taxable income for section 545(a) is per-
sonal holding company income described
in section 543(a)(7), reduced by deductions
for that income, and adjusted for the in-
come, as provided in section 545(b).

1. Taxable income before net operating
loss deduction and special deductions.—

Enter the amount shown on Form 1120,
page 1, line 28, figured without section 443
(b) (income placed on an annual basis) but
adjusted for sections 189, 280, and 465.

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
total amount for which the personal holding
company is “at risk"’ for each separate activ-
ity at the end of the tax year. The corpora-
tion is “‘at risk” for an activity for amounts
described in sections 465(b)(1) and (2). The
amounts borrowed are not considered to be
“at risk” if the amounts are excluded under
sections 465(b)(3) and (4).

If the corporation is involved in more
than one activity, and one or more of the ac-
tivities incurs a loss for the year, the losses
must be reported separately. The corpora-
tion should attach a schedule showing the
amount “at risk” and gross income and

343-120-1