§269A Personal service corporations formed or availed of to avoid or evade income tax

Summary

Stops use of a personal service corporation to avoid federal income tax when almost all its services are for one other business and it was formed mainly to lower an employee-owner’s tax or get a tax benefit they would not otherwise have. Personal service corporation: a company whose main work is providing personal services done mostly by employee-owners. Employee-owner: an employee who owns more than 10 percent of the stock on any day of the tax year (section 318 applies, with 5 percent replacing 50 percent). Related persons under section 144(a)(3) are treated as one entity.