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Unformatted text preview: e ordinary loss. In this instance, no ordinary loss is available to Jackson
because he is not the original owner of the stock. CPA-01995 Type1 M/C 6. CPA-01995 ARE C03 #1 A-D Corr Ans: C PM#6 R 3-01 Page 39 Which of the following is not true with regard to personal holding companies (PHCs)?
a. The additional tax (penalty) is self-assessed by the PHC.
b. Personal holding companies are not subject to the accumulated earnings tax.
c. Personal holding companies, as specifically defined by the Code, are corporations that meet certain
"closely-held" ownership criteria and have over 50% of their adjusted gross income consisting of net
rent (less than 50% of ordinary gross income), taxable interest, most royalties, and dividends from an
unrelated domestic corporation.
d. There is no penalty if net earnings are distributed, as the penalty only applies to income that has not
Choice "c" is correct. While most of the information in the item is correct, it is when over 60% of the
adjusted gross income of a closely-held (more than 50% owned by 5 or fewer individuals either directly or
indirectly at any time during the last h...
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