Eligibility
Corporations where substantially all activities involve health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and stock is held by employees.
Frequently Asked Questions
Who is eligible for the Qualified Personal Service Corporation Cash Method?
Corporations where substantially all activities involve health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and stock is held by employees.
How does the Qualified Personal Service Corporation Cash Method work?
Qualified Personal Service Corporations (PSCs) are permitted to use the cash method of accounting regardless of gross receipts, provided they operate in specific fields.
What law authorizes the Qualified Personal Service Corporation Cash Method?
The Qualified Personal Service Corporation Cash Method is authorized under IRC §448 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §448
Source: Internal Revenue Code, Title 26, United States Code
§ 448. Limitation on use of cash method of accounting(a) General ruleExcept as otherwise provided in this section, in the case of a—(1) C corporation,
(2) partnership which has a C corporation as a partner, or
(3) tax shelter,
taxable income shall not be computed under the cash receipts and disbursements method of accounting.
(b) Exceptions(1) Farming businessParagraphs (1) and (2) of subsection (a) shall not apply to any farming business.
(2) Qualified personal service corporationsParagraphs (1) and (2) of subsection (a) shall not apply to a qualified personal service corporation, and such a corporation shall be treated as an individual for purposes of determining whether paragraph (2) of subsection (a) applies to any partnership.
(3) Entities which meet gross receipts testParagraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year.
(c) Gross receipts testFor purposes of this section—(1) In generalA corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000.
(2) Aggregation rulesAll persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one person for purposes of paragraph (1).
(3) Special rulesFor purposes of this subsection—(A) Not in existence for entire 3-year periodIf the entity was not in existence for the entire 3-year period referred to in paragraph (1), such paragraph shall be applied on the basis of the period during which such entity (or trade or business) was in existence.
(B) Short taxable yearsGross receipts for any taxable year of less than 12 months shall be annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.
(C) Gross receiptsGross receipts for any taxable year shall be reduced by returns and allowances made during such year.
(D) Treatment of predecessorsAny reference in this subsection to an entity shall include a reference to any predecessor of such entity.
(4) Adjustment for inflationIn the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to—(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 2017” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not a multiple of $1,000,000, such amount shall be rounded to the nearest multiple of $1,000,000.
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