Page:United States Statutes at Large Volume 96 Part 1.djvu/570

 96 STAT. 528

PUBLIC LAW 97-248—SEPT. 3, 1982

individual who is an employee within the meaning of subsection (c)(1)"(A) his total compensation shall include his earned income (as defined in subsection (c)(2)), and "(B) his basic or regular rate of compensation shall be determined (under regulations prescribed by the Secretary) with respect to that portion of his earned income which bears the same ratio to his earned income as the basic or regular compensation of the employees under the plan (other than employees within the meaning of subsection (c)(1)) bears to the total compensation of such employees." 26 USC 401 note. (b) EFFECTIVE DATE.—The amendments made by this section shall apply to plan years beginning after December 31, 1983. SEC. 250. AUTHORITY OF SECRETARY TO ALLOCATE INCOME AND DEDUCTIONS IN THE CASE OF CERTAIN CORPORATIONS.

(a) IN GENERAL.—Part IX of subchapter B of chapter 1 (relating to items not deductible) is amended by adding after section 269 the following new section: 26 USC 269A.

"SEC. 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 103(b)(6)(C)) shall be treated as 1 entity." (b) CLERICAL AMENDMENT.—The table of sections for part IX of subchapter 1 is amended by inserting after the item relating to section 269 the following new item: "Sec. 269A. Personal service corporations formed or availed of to avoid or evade income tax."

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