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Form 1120-SH: 1120 (Schedule H)
IRS Form 1120 (Schedule H) is used by a personal service corporation (PSC) that has elected under section 444 to have a tax year other than a calendar year. It determines if the PSC meets the minimum distribution requirement of section 280H. A newly organized PSC is considered to have met the requirement for its first year and does not need to complete the schedule.
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IRS Form 1120-SH - 1120 (Schedule H)
IRS Form 1120 (Schedule H) is used by a personal service corporation (PSC) that has elected under section 444 to have a tax year other than a calendar year. It determines if the PSC meets the minimum distribution requirement of section 280H. A newly organized PSC is considered to have met the requirement for its first year and does not need to complete the schedule.
Risk Radar
Scan points- 1Failing to complete Part II when line 13 exceeds line 4 limits deduction.
- 2Entering the wrong number of months in the deferral period on line 2.
- 3Using the preceding year test when the corporation is newly organized.
- 4Failing to attach Schedule H to Form 1120 when the requirement is not met.
- 5Not keeping Schedule H with tax records if the requirement is met.
Plain English
This schedule helps a personal service corporation that chose a different tax year figure out if it paid enough money to its employee-owners during the deferral period. If it didn't pay enough, the schedule limits how much the corporation can deduct for those payments. The schedule has two parts: Part I checks if the minimum distribution is met, and Part II calculates the maximum deduction if it's not.
Submission Date
- Filing date: 2012-07-17 00:00:00
- Preparation window: collect IDs, supporting records, and signatures in advance.
- Final review: verify names, dates, and required fields before submission.
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What this form is for
- Use this form when a personal service corporation (PSC) has elected under section 444 to have a tax year other than a calendar year, to determine if it meets the minimum distribution requirement of section 280H and to figure the deduction limit if not met.
- Do not use it when the PSC is newly organized in its first tax year, as it is considered to have met the requirement and does not need to complete Schedule H.
- Check Form 1120 instructions instead when you need general corporate income tax filing requirements or the Paperwork Reduction Act Notice.
Form selector
Use this form or another form?
PSC in first tax year of existence
Schedule H is not required because the PSC is considered to have met the section 280H distribution requirement for the first year.
✓ Confirm the PSC was organized in the current tax year and has no prior tax years.
PSC that meets the minimum distribution requirement (line 4 is equal to or greater than line 13)
Schedule H is completed but not attached to the tax return; keep it with tax records. The deduction is not limited.
✓ Compare line 4 and line 13 in Part I; if line 4 >= line 13, do not attach Schedule H.
PSC that does not meet the minimum distribution requirement (line 13 > line 4)
The deduction for applicable amounts is limited under section 280H; Part II must be completed and Schedule H attached to the return.
✓ Complete Part II and attach Schedule H to Form 1120; any disallowed amount is carried to the next tax year.
Schedule H (Form 1120) attached to Form 1120
Deadline or filing window
Not stated in the official source.
Checklist
What you need before filling it out
Line 1 – Applicable amounts from preceding tax year
Prior year tax return and payroll records showing amounts paid to employee-owners · Prior year Form 1120 and any supporting schedules
Line 4 – Applicable amounts from deferral period of applicable election year
Current year payroll records for the months in the deferral period · Payroll reports or accounting records for the deferral period months
Line 2 – Ratio of deferral period months to preceding tax year months
Number of months in the preceding tax year's deferral period and total months in preceding tax year · Prior year calendar or fiscal year data
Part I – Minimum distribution requirement determination
Complete lines 1 through 13 · Form instructions and prior year data
Part II – Maximum deductible amount (lines 14-19)
Complete only if line 13 > line 4 · Form instructions and current year deferral period data
Line 15 – Number of months in deferral period of applicable election year
Definition of deferral period from section 444 and Temporary Regulations · Section 444 election documents or IRS guidance
Line 19 – Maximum deductible amount
Add lines 14 and 18 · Form instructions
Before you submit
- 1Confirm the PSC has a section 444 election in effect for the tax year.
- 2Verify the PSC is not newly organized in its first tax year (if so, skip Schedule H).
- 3Complete Part I lines 1 through 4 using applicable amounts from the preceding tax year and the current deferral period.
- 4Compare line 4 and line 3: if line 4 is less than line 3, proceed to line 5; otherwise stop (requirement met).
- 5If line 4 < line 3, complete lines 5a-5c for the 3-year average test and compute line 12.
- 6Enter the smaller of line 3 or line 12 on line 13.
- 7If line 13 is more than line 4, complete Part II lines 14-19 to figure the maximum deductible amount.
- 8If Part II is completed, attach Schedule H to the PSC's Form 1120.
- 9If the minimum distribution requirement is met (line 4 ≥ line 3 or line 13 ≤ line 4), do not attach Schedule H; keep it with tax records.
- 10Sign and date the Form 1120 before filing.
- 11Keep a copy of the completed Schedule H (whether attached or not) with the PSC's tax records.
- 12File Form 1120 by the due date (including extensions if applicable).
How to file this form
- 1Determine if the PSC is newly organized; if so, skip Schedule H and file only Form 1120.
- 2If the PSC has a section 444 election and is not newly organized, complete Part I lines 1-4 on Schedule H.
- 3Compare line 4 and line 3; if line 4 is less than line 3, continue to lines 5-12 for the 3-year average test.
- 4Compute line 13 as the smaller of line 3 or line 12.
- 5If line 13 is more than line 4, complete Part II lines 14-19 to figure the maximum deductible amount.
- 6If Part II is completed, attach Schedule H to the PSC's Form 1120.
- 7If the minimum distribution requirement is met, do not attach Schedule H but keep it with tax records.
- 8File the completed Form 1120 (with or without Schedule H attached) by the due date.
Known limitations
- 1A newly organized PSC is considered to have met the section 280H distribution requirements for its first tax year and does not need to complete Schedule H.
- 2If an existing corporation becomes a PSC and makes a section 444 election, it is treated as if it were a PSC for the 3 preceding tax years for purposes of Schedule H.
- 3If the PSC meets the minimum distribution requirement (line 4 ≥ line 3 or line 13 ≤ line 4), Schedule H is not attached to the return but must be kept with tax records.
- 4The deduction limitation under section 280H applies only if the minimum distribution requirement is not met; Part II then limits the deduction for applicable amounts.
- 5Any amount not allowed as a deduction due to the section 280H(d) limitation is treated as paid or incurred in the PSC's succeeding tax year.
Field map
Compact field-by-field guide
Entity Info
2 items
Full legal name of the corporation and its Employer Identification Number.
Current mailing address and date of incorporation.
Income
3 items
Total revenue from business operations before deducting costs.
Direct costs attributable to producing goods sold by the corporation.
Gross receipts minus cost of goods sold and returns/allowances.
Deductions
1 items
Sum of all business expenses including compensation, rent, interest, taxes, and depreciation.
Tax
2 items
Total income minus total deductions.
Tax calculated on taxable income using the applicable corporate tax rate, minus any credits.
Signatures
1 items
An authorized corporate officer must sign and date the return.
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Fillable formOpen in Editor->The current edition is Revision December 2011. No later revision is indicated in the source; verify on the IRS website for any updates.
What changed or needs a fresh check
- Edition date — confirm the form revision reads 'Rev. December 2011'.
- OMB number — confirm OMB No. 1545-0123 is present on the form.
- Newly organized PSC — confirm the PSC is not in its first tax year, otherwise skip Schedule H.
- Line 4 vs line 3 comparison — confirm you have compared line 4 and line 3; if line 4 is less than line 3, proceed to line 5.
- Part II completion condition — confirm you complete Part II only if line 13 is more than line 4.
- Attachment requirement — confirm Schedule H is attached to Form 1120 only if Part II is completed.
Quick Facts
Downloads
After you file
- 1Retain a copy of the completed Schedule H (whether attached or not) with the PSC's tax records for at least 3 years.
- 2If Schedule H was attached, confirm it is included with the filed Form 1120 and keep a copy of the entire return.
- 3If the minimum distribution requirement was met, store the Schedule H with tax records but do not attach to the return.
- 4If the deduction was limited under Part II, carry forward the disallowed amount to the next tax year as applicable.
- 5Monitor future tax years for continued compliance with section 280H if the section 444 election remains in effect.
- 6If an error is discovered after filing, file an amended Form 1120X to correct the return and attach a corrected Schedule H if needed.
- 7Note the due date for the next year's filing and any changes in the PSC's status that may affect Schedule H requirements.
Sources
- SRCForm p.1Schedule H is titled 'Section 280H Limitations for a Personal Service Corporation (PSC)' and is attached to Form 1120 if Part II is completed.
- SRCForm p.1A newly organized PSC is considered to have met the section 280H distribution requirements for the first year and does not have to complete Schedule H.
- SRCForm p.1If line 4 is less than line 3, go to line 5; otherwise stop (minimum distribution requirement met).
- SRCForm p.1If line 13 is more than line 4, complete Part II to figure the maximum deductible amount.
- SRCForm p.2Purpose: A PSC that elects under section 444 to have a tax year other than a calendar year is subject to the minimum distribution requirement of section 280H.
- SRCForm p.2Who Must File: A PSC that has elected under section 444 must complete Schedule H.
- SRCForm p.2Definitions: 'Applicable election year' is any tax year in which a section 444 election is in effect; 'Applicable amount' is any amount deductible by the PSC that is includible in gross income of an employee-owner.
- SRCForm p.2Exception: See Temporary Regulations section 1.280H-1T(c) for more information.
- SRCForm p.1OMB No. 1545-0123 is listed on the form.
- SRCForm p.1Part II instructions: Add lines 14 and 18 to get the maximum deductible amount on line 19.
Common confusion points
Do I need to attach Schedule H to my tax return?
The requirement depends on whether Part II is completed. If Part II is completed (because the minimum distribution requirement is not met), Schedule H must be attached. If Part II is not completed, keep Schedule H with tax records.
→ Check if line 13 > line 4; if yes, complete Part II and attach Schedule H.
What is the deferral period?
The deferral period is defined in section 444 and Temporary Regulations; it is the period of months between the end of the tax year and the following calendar year end.
→ Refer to Temporary Regulations section 1.280H-1T or the instructions for the definition specific to your tax year.
How do I calculate the preceding year test?
Enter applicable amounts from the preceding tax year on line 1, compute the ratio on line 2 (deferral period months / total months in preceding year), and multiply to get line 3. Then compare line 4 to line 3.
→ Use the preceding tax year's data, not the current year's.
What if my PSC is newly organized?
A newly organized PSC is considered to have met the distribution requirement for the first tax year and does not need to complete Schedule H.
→ Confirm this is the PSC's first tax year of existence.
What if my corporation became a PSC this year and made a section 444 election?
The corporation is treated as if it were a PSC for the 3 preceding tax years for purposes of the minimum distribution requirement. See Temporary Regulations section 1.280H-1T(e).
→ Review the 3 preceding tax years' applicable amounts and complete lines 5a-c if needed.
What are applicable amounts?
Applicable amounts are amounts otherwise deductible by the PSC that are includible in the gross income of an employee-owner. They include wages, bonuses, and other compensation.
→ Refer to the instructions for line 1 for an example of how to figure applicable amounts.
What if line 4 is less than line 3 but greater than line 13?
If line 4 is less than line 3, go to line 5 to compute the 3-year average test. If line 4 is greater than or equal to line 13, the minimum distribution requirement is met; do not complete Part II.
→ Compare line 4 to line 13 after completing lines 5-12.
What happens if I don't meet the minimum distribution requirement?
The deduction for applicable amounts is limited under section 280H. Complete Part II to figure the maximum deductible amount, attach Schedule H to Form 1120, and carry forward any disallowed amount to the next tax year.
→ Complete lines 14-19 and attach Schedule H to the return.
Workflow map
Related forms and next steps
Before
Current
After
Often used with
⚠ If something goes wrong
- Form 1120X – to amend the return if errors are discovered.
Questions about IRS Form 1120-SH
What is IRS Form 1120-SH used for?
This schedule helps a personal service corporation that chose a different tax year figure out if it paid enough money to its employee-owners during the deferral period. If it didn't pay enough, the schedule limits how much the corporation can deduct for those payments. The schedule has two parts: Part I checks if the minimum distribution is met, and Part II calculates the maximum deduction if it's not.
Who must file IRS Form 1120-SH?
A personal service corporation (PSC) that has elected under section 444 to have a tax year other than a calendar year must complete Schedule H. If the PSC does not meet the minimum distribution requirement of section 280H for the tax year, it must file the schedule with its Form 1120.
What information does IRS Form 1120-SH require?
The schedule collects applicable amounts paid or incurred to employee-owners from the preceding tax year and the deferral period of the applicable election year. Part I (lines 1-13) determines if the minimum distribution requirement is met using the preceding year test or the 3-year average test. Part II (lines 14-17) figures the maximum deductible amount if the requirement is not met.
How do I complete IRS Form 1120-SH?
First, check if the PSC is newly organized (exempt from completing the schedule). Then complete Part I: enter applicable amounts from the preceding tax year on line 1, compute the deferral period percentage on line 2, and enter amounts from the current deferral period on line 4. If line 4 is less than line 3, proceed to lines 5-13 for the 3-year average test. If line 13 exceeds line 4, complete Part II to calculate the maximum deductible amount. If the requirement is met, do not attach the schedule to Form 1120 but keep it with tax records.
What happens if IRS Form 1120-SH is filed incorrectly?
If the PSC does not meet the minimum distribution requirement, its deduction for applicable amounts paid or incurred to employee-owners is limited under section 280H. The PSC must complete Part II to figure the maximum amount it can deduct.
Do I need to attach Schedule H to my tax return?
The requirement depends on whether Part II is completed. If Part II is completed (because the minimum distribution requirement is not met), Schedule H must be attached. If Part II is not completed, keep Schedule H with tax records. Check if line 13 > line 4; if yes, complete Part II and attach Schedule H.
What is the deferral period?
The deferral period is defined in section 444 and Temporary Regulations; it is the period of months between the end of the tax year and the following calendar year end. Refer to Temporary Regulations section 1.280H-1T or the instructions for the definition specific to your tax year.
How do I calculate the preceding year test?
Enter applicable amounts from the preceding tax year on line 1, compute the ratio on line 2 (deferral period months / total months in preceding year), and multiply to get line 3. Then compare line 4 to line 3. Use the preceding tax year's data, not the current year's.
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