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Mitigating Personal Holding Company (PHC) Tax for Franchisors and Closely Held Businesses

A live 110-minute CPE webinar with interactive Q&A

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Thursday, August 14, 2025

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

Early Registration Discount Deadline, Friday, July 18, 2025

or call 1-800-926-7926
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This webinar will cover the personal holding (PHC) tax rules and offer suggestions to minimize and eliminate this additional tax liability. Our panel of veteran tax professionals will explain what constitutes personal holding company income (PHCI), reporting PHC tax, and which businesses are liable for PHC tax, with a particular focus on its impact on franchisors.

Description

The PHC tax is imposed annually on the undistributed income of a PHC. In simplest terms, PHC tax is an additional 20% annual tax on sheltered passive income. Unlike federal, state, sales, and similar commonly encountered taxes, a corporation may be unaware of its liability for PHC tax.

Under IRC Section 542, a PHC is any corporation that meets an adjusted ordinary gross income requirement and a stock ownership requirement. A company satisfies the gross income requirement if 60% of its adjusted ordinary gross income is PHC income. The stock ownership requirement is met if, for the last half of the taxable year, more than 50% of the value of a corporation's outstanding stock is owned, directly or indirectly, by five or fewer individuals.

Royalties are included explicitly in regulation § 1.543-1(b)(3) as PHCI. Since franchise fees are often classified as royalties, this income, and whether the PHC criteria are met, creates particular concerns for franchisors.

Steps can be taken to mitigate or avoid PHC tax. Franchises, franchisors, other closely held businesses, and their advisers must understand the application of Section 542, the PHC tax, to alleviate this potential tax burden.

Listen as our panel of corporate tax specialists explains the application of PHC tax for franchisors and other businesses.

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Outline

  1. Introduction
    1. Closely held C corporations
  2. PHC tax general rules
  3. Categorizing franchise income
    1. Section 1253
    2. Royalties vs. compensation for services
    3. S corporation treatment vs. C corporation treatment
  4. Passive activity rules for closely-held C corporations
    1. Net operating loss treatment vs. PAL
  5. Royalties: passive activity or portfolio income
  6. Interplay of passive activity rules with PHC rules
  7. Reporting PHC: Form 1120, U.S. Personal Holding Company (PHC) Tax
  8. Strategies for mitigating PHC tax
    1. Contract language
    2. Avoiding portfolio income classification
    3. PHC distributions
    4. Electing S status

Benefits

The panel will cover these and other critical issues:

  • Identifying PHCI
  • Meeting the stock ownership requirement
  • Strategies for mitigating PHC tax
  • Categorizing franchise income

Faculty

Hill, Kristin
Kristin Hill, CPA
CPA
Kristin Hill CPA

Ms. Hill specializes in tax planning and compliance for private businesses and their owners. She coordinates with...  |  Read More

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