Discussion:Real Estate Appraiser a Personal Services Corp (PSC)?

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Tax Questions --> Real Estate Appraiser a Personal Services Corp (PSC)?


Ortaxman (talk|edits) said:

17 May 2007
I have a new client who is a real estate appraiser and conducts activities as a C-corp, no other employees or owners. Previously has not filed as a Personal Services Corporation (PSC) and previous preparer has been using graduated corporate tax rates. Would a real estate appraiser be subject to PSC rules and 35% flat tax? Are real estate appraisers considered "consultants" under the PSC rules?

Jdugancpa (talk|edits) said:

17 May 2007
Code Sec 269A(b) defines a personal service corp as: "a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners."

Seems fairly clear that a single sh/ee appraisal C corp meets that definition. So yes, it is subject to the flat 35% tax rate.

The second question, then to ask is, does it meet the definition of a Qualified PSC (QPSC) as defined in Sec 44/(d)(2). I would certainly argue that the only thing an appraisor does is consult with clients on the value of the item appraised.

Two solutions to this dilemma. 1) Remain an QPSC and manage taxable income so that it all gets bonused out at YE, or 2) Elect S status.

DZCPA (talk|edits) said:

17 May 2007
I feel they sell an appraisal report used for valuation purposes. No personal services here. They do not even have to speak to clients to do their job. I think previous preparer was correct. There is no consulting. They must be independent to their findings and only give the results of their research to the client.

Jdugancpa (talk|edits) said:

17 May 2007
No personal services??? The appraisors I know aren't conducting a capital intensive business where the revenues being generated come from assets owned by the corp. They have no assets other than the appraisor's skill. Personal services does not mean they have to drink coffee with each of their clients.

Bengoshi (talk|edits) said:

17 May 2007
Under the "Function Test" of Treas. Reg. 1.448-1T, I believe PSCs are limited to certain C-corps which provide services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or "consulting." Presumably consulting is most likely where appraisal services would be classified. But the regs define consulting as provision of advice and counsel, which ordinary appraisal work might not fall within...? However, if the appraisal services include providing advice on discounts, etc., would that make a difference?

Jdugancpa (talk|edits) said:

17 May 2007
Bengoshi, you are confusing QPSC's and PSC's. (QPSC's are a subset of PSC's). The definition of a PSC is given in 269A(b) as I have quoted above.

Bengoshi (talk|edits) said:

17 May 2007
I thought to be subject to the flat 35% tax rate, the services had to be in one of the enumerated fields?

Jdugancpa (talk|edits) said:

17 May 2007
You are correct that only QPSC's are subject to the 35% tax rate. (See Code Sec 11(b)(2). Actually I thought all PSC's were, until I double-checked.) But the tax treatment of PSC's that are not QPSC's is even worse, in that the IRS can reallocated income however they wish between the corp and the owner. In general, if you can be deemed to be a PSC, you are better off being a QPSC than a regular PSC. But specifically as to appraisors, in my estimation they fall into the category of consultants as defined in the regs (although the regs are murky).

Reg 1.448-1T(e)(4) states:

For purposes of paragraph (e)(4)(i)(H) of this section, the performance of services in the field of consulting means the provision of advice and counsel. The performance of services in the field of consulting does not include the performance of services other than advice and counsel, such as sales or brokerage services, or economically similar services. For purposes of the preceding sentence, the determination of whether a person's services are sales or brokerage services, or economically similar services, shall be based on all the facts and circumstances of that person's business. Such facts and circumstances include, for example, the manner in which the taxpayer is compensated for the services provided (e.g., whether the compensation for the services is contingent upon the consummation of the transaction that the services were intended to effect).

The regs give several illuminating but non-exhaustive examples.

Riley2 (talk|edits) said:

18 May 2007
Bengoshi, you are absolutely correct. A PSC for purposes of the Sec. 441 rules mandating a calendar year is a corporation engaged in one of the activities specified in Sec. 448 (relating to the cash method) and Sec. 11 (relating to the graduated tax rates. See Reg. Sec. 1.441-3(d)(1) below. Thus, unless we consider an appraiser to be a consultant, then I would say that the 441 PSC calendar year rules and 448 PSC cash basis rules do not apply to an appraiser, and that the appraiser may use the graduated tax rates under Sec. 11.

Reg. Sec. 1.441-3(d)(1)

d) Performance of personal services. (1) Activities described in section 448(d)(2)(A). For purposes of this section, any activity of the taxpayer described in section 448(d)(2)(A) or the regulations thereunder will be treated as the performance of personal services. Therefore, any activity of the taxpayer that involves the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting (as such fields are defined in §1.448-1T) will be treated as the performance of personal services for purposes of this section.

Dennis (talk|edits) said:

18 May 2007
An appraisal is essentially an informed opinion. Seems like the basic definition of consultant to me. ♫

Death&Taxes (talk|edits) said:

18 May 2007
Some pretty smart people disagree here; seems to me the obvious answer is to convert to S status unless there is some wonderful reason to remain a C such as medical costs.

Riley2 (talk|edits) said:

18 May 2007
The only area of disagreement that I see here is whether an appraiser can render advice and counsel (the definition of consulting under the regs). Not sure how an appraiser would ever render advice or counsel. I have yet to receive a single recommendation from any appraiser in my employ.

If you feel that the client is in jeopardy here, it is a simple matter to issue 6% of the corporate stock to a non-employee, thereby eliminating the 35% tax rate requirement entirely.

DZCPA (talk|edits) said:

18 May 2007
I agree.

To join in on this discussion, you must first log in.
Personal tools