# 26 U.S.C. § 269A: Personal service corporations formed or availed of to avoid or evade income tax

Source: OLRC release point 119-134 <https://uscode.house.gov/us/usc/119-134/t26/s269A>. Cite pinpoints as 26 U.S.C. § 269A(a)(1).

## § 269A(a) General rule

If—

**§ 269A(a)(1)** substantially all of the services of a personal service corporation are performed for (or on behalf of) 1 other corporation, partnership, or other entity, and

**§ 269A(a)(2)** the principal purpose for forming, or availing of, such personal service corporation is the avoidance or evasion of Federal income tax by reducing the income of, or securing the benefit of any expense, deduction, credit, exclusion, or other allowance for, any employee-owner which would not otherwise be available,

then the Secretary may allocate all income, deductions, credits, exclusions, and other allowances between such personal service corporation and its employee-owners, if such allocation is necessary to prevent avoidance or evasion of Federal income tax or clearly to reflect the income of the personal service corporation or any of its employee-owners.

## § 269A(b) Definitions

For purposes of this section—

**§ 269A(b)(1) Personal service corporation.** The term “personal service corporation” means a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners.

**§ 269A(b)(2) Employee-owner.** The term “employee-owner” means any employee who owns, on any day during the taxable year, more than 10 percent of the outstanding stock of the personal service corporation. For purposes of the preceding sentence, section 318 shall apply, except that “5 percent” shall be substituted for “50 percent” in section 318(a)(2)(C).

**§ 269A(b)(3) Related persons.** All related persons (within the meaning of section 144(a)(3)) shall be treated as 1 entity.

## Connections

Cites: § 144 Qualified small issue bond; qualified student loan bond; qualified redevelopment bond; § 318 Constructive ownership of stock

Cited by: § 263A Capitalization and inclusion in inventory costs of certain expenses; § 267 Losses, expenses, and interest with respect to transactions between related taxpayers; § 280H Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years; § 441 Period for computation of taxable income; § 465 Deductions limited to amount at risk; § 469 Passive activity losses and credits limited

## Amendments

- 1982-09-03: [Pub. L. 97-248](/26/act/97-248.md), 96 Stat. 528
- 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2657