I
107TH CONGRESS
1ST SESSION
H. R. 1317
To amend the Internal Revenue Code of 1986 to clarify that qualified personal
service corporations may continue to use the cash method of accounting,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 29, 2001
Mr. NUSSLE (for himself and Mr. HERGER) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to clarify
that qualified personal service corporations may continue
to use the cash method of accounting, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Qualified Personal
Service Corporations Clarification Act of 2001’’.
SEC. 2. MODIFICATIONS TO DETERMINATION OF WHETHER
CORPORATION IS A QUALIFIED PERSONAL
SERVICE CORPORATION.
(a) STOCK HELD BY CERTAIN FORMER EMPLOYEES
TAKEN INTO ACCOUNT.—Subparagraph (B) of section
448(d)(2) of the Internal Revenue Code of 1986 (defining
qualified personal service corporation) is amended by
striking ‘‘or’’ at the end of clause (iii), by striking the pe-
riod at the end of clause (iv) and inserting a comma, and
by inserting after clause (iv) the following new clauses:
‘‘(v) former employees of such cor-
poration who performed the services re-
ferred to in subparagraph (A) and who are
holding such stock by reason of their
former employment with such corporation,
or
‘‘(vi) former employees of such cor-
poration who performed the services re-
ferred to in subparagraph (A) and who are
holding such stock by reason of their cur-
rent or former employment with any con-
trolled entity (as defined in paragraph
(4)(B)).’’
(b) OTHER MODIFICATIONS.—Paragraph (4) of sec-
tion 448(d) of such Code is amended to read as follows:
‘‘(4) SPECIAL RULES FOR PARAGRAPH (2).—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2)—
‘‘(i) community property laws shall be
disregarded,
‘‘(ii) stock held by a plan described in
section 401(a) which is exempt from tax
under section 501(a) shall be treated as
held by an employee described in para-
graph (2)(B)(i), and
‘‘(iii) at the election of the common
parent of an affiliated group (within the
meaning of section 1504(a)), all members
of such group may be treated as 1 tax-
payer for purposes of paragraph (2)(B) if
80 percent or more of the activities of such
group involve the performance of services
in the fields described in paragraph (2)(A).
‘‘(B) CONTROLLED ENTITY.—For purposes
of paragraph (2)(B)(vi), the term ‘controlled
entity’ means, with respect to a corporation—
‘‘(i) any corporation at least 50 per-
cent (by value) of the outstanding stock of
which is owned (directly or indirectly as
determined under section 318) by such
corporation, and
‘‘(ii) any partnership at least 50 per-
cent of the capital interest or profits inter-
est in which is owned (directly or indirectly
as determined under section 318) by such
corporation.
‘‘(C) NEW CORPORATIONS.—A corporation
shall be treated as a qualified personal service
corporation for each taxable year preceding the
first taxable year for which the corporation has
gross receipts if the corporation is a qualified
personal service corporation for such first tax-
able year.
‘‘(D) CERTAIN
STOCK
NOT
TAKEN
INTO
ACCOUNT.—
‘‘(i) IN GENERAL.—The determination
of whether an employee-owned corporation
is a qualified personal service corporation
shall be made without regard to stock in
such corporation which is held by employ-
ees of unaffiliated controlled entities. The
preceding sentence shall not apply to em-
ployees described in clause (v) or (vi) of
paragraph (2)(B).
‘‘(ii) 
EMPLOYEE-OWNED
CORPORA-
TION.—For purposes of clause (i), the