US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 269A

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

(a)

General rule

If—
(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
(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.
(b)

Definitions

For purposes of this section—
(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.

(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).

(3)

Related persons

All related persons (within the meaning of section 144(a)(3)) shall be treated as 1 entity.

Pub. L. 97–248, title II, § 250(a)96 Stat. 528Pub. L. 99–514, title XIII, § 1301(j)(4)100 Stat. 2657(Added , , ; amended , , .)

Editorial Notes

Amendments

Pub. L. 99–5141986—Subsec. (b)(3). substituted “section 144(a)(3)” for “section 103(b)(6)(C)”.

Statutory Notes and Related Subsidiaries

Effective Date of 1986 Amendment

Pub. L. 99–514Pub. L. 99–514section 141 of this titleAmendment by applicable to bonds issued after , except as otherwise provided, see sections 1311 to 1318 of , set out as an Effective Date; Transitional Rules note under .

Effective Date

Pub. L. 97–248, title II, § 250(c)96 Stat. 529

“The amendments made by this section [enacting this section] shall apply to taxable years beginning after .”
, , , provided that: