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Comparing the AET and PHC Taxes
The intent of the AET and PHC taxes is to prevent closely held corporations from keeping earnings within the company to avoid taxes for the stockholders.
While the tax rate for each is the same, the two do differ:
| AET | PHC | |
|---|---|---|
| Intent | The AET requires a showing of intent. | The PHC doesn't require a showing of intent. So it can catch people off guard. |
| Past history | Past-years accumulations of earnings can greatly affect taxes under the AET. | The PHC calculations are for the present tax year, so it can apply to newly formed companies. |
| Tax possibility | The AET poses a possibility of being applied to a closely held corporation. | The PHC poses a greater possibility of being applied to a closely held corporation due to constructive stock ownership rules. |
| Dividend distribution | Dividend distribution can eliminate the requirement for the tax. The AET has a 4½-month grace period as well as a consent procedure. | Dividend distribution can eliminate the requirement for the tax. The PHC also has a 4½-month grace period, a consent procedure, and a deficiency procedure. |
| Reporting procedures | The AET has no special reporting procedure and is assessed by the IRS. | The PHC requires the filing of a Schedule PH along with the Corporate Income Tax form. |
Memory Jogger
Which of the following statements is true?
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