I
106TH CONGRESS
2D SESSION
H. R. 4383
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
MAY 4, 2000
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 2000’’.
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 holding such stock by reason of
their former employment with such cor-
poration, or
‘‘(vi) former employees of such cor-
poration holding such stock by reason of
their current or former employment with
any controlled entity (as defined in para-
graph (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 vote or value) of the outstanding
stock of which is owned (directly or indi-
rectly) 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 indi-
rectly) by such corporation.
gard to this subparagraph) of such cor-
poration.
‘‘(iii) 
UNAFFILIATED
CONTROLLED
ENTITY.—For purposes of clause (i), the
term ‘unaffiliated controlled entity’ means,
with 
respect 
to 
an 
employee-owned
corporation—
‘‘(I) any corporation at least 50
percent (by vote or value) of the out-
standing stock of which is owned (di-
rectly or indirectly) by members of an
affiliated group (within the meaning
of section 1504(a)) which includes
such employee-owned corporation, and
‘‘(II) any partnership at least 50
percent of the capital interest or prof-
its interest in which is owned (directly
or indirectly) by members of such af-
filiated group.
Such term shall not include any corpora-
tion which is permitted to file a consoli-
dated return with such affiliated group.
‘‘(E) ENGINEERING
DEFINED.—For pur-
poses of paragraph (2), the term ‘engineering’
includes—
‘‘(i) professional services or activities
of an engineering nature, as defined by
State law, if applicable, which are required
to be performed or approved by a person
licensed, registered, or certified to provide
such services;
‘‘(ii) professional services or activities
of an engineering nature that are associ-
ated with research, planning, development,
design, construction, repair, or alteration
of real property; and
‘‘(iii) such other professional services
or activities of an engineering nature, or
incidental services, which members of the
engineering profession (and individuals in
their employ) may logically or justifiably
perform, including studies, investigations,
surveying, mapping, tests, evaluations, con-
sultations, comprehensive planning, pro-
gram 
management, 
conceptual 
design,
plans and specifications, value engineering,
construction phase services, design-build,
design-build-finance, design-build-operate-
maintain, 
design-build-finance-operate-
maintain, soils engineering, drawing re-
views, preparation of operating and main-
tenance manuals, and other related serv-
ices.
Professional services and activities referred to
in clause (i), (ii), or (iii) shall be considered en-
gineering without regard to the procurement
method, delivery method, owner, or service re-
cipient.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
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