This guide is for U.S. corporations and for Australian businesses or owners who manage a U.S. entity. Australian ownership or operations alone do not create a Schedule PH obligation. Only the statutory tests do.
Below, you'll see how to spot a potential personal holding company, apply the current tests, complete the schedule, calculate any tax, and keep the right records.
Key Takeaways
- Schedule PH applies only when ownership, income, and exclusion rules all point to personal holding company status.
- The ownership test and the income test are separate, and both must be met.
- Schedule PH differs from Schedule D (capital gains) and Schedule G (voting-stock ownership).
- Foreign shareholders, attribution issues, or complex passive income call for a U.S. tax review.
What Is Schedule PH and When Does a Corporation Need It?
Purpose and relationship to Form 1120
Schedule PH calculates the personal holding company (PHC) tax on undistributed PHC income. Form 1120 has a "Personal holding co (attach Sch. PH)" checkbox, and the 2025 instructions send the tax to Schedule J, line 8, calculated at Schedule PH, Part III, line 26, per the IRS Form 1120.
The schedule draws on taxable income, deductions, dividends, and distributions reported on the return. One caution on versions: the latest Schedule PH posted by the IRS is marked Rev. November 2015, with instructions dated December 2016. Check the IRS forms page for any newer revision before you file, and use the latest posted version rather than relying on line numbers quoted elsewhere.
Who should assess whether Schedule PH applies?
Screen for PHC status if the corporation is closely held, or receives meaningful dividends, interest, rents, royalties, or similar income. Passive income alone does not make a corporation a PHC.
Section 542(c) lists exclusions:
- Tax-exempt corporations
- Banks and domestic building and loan associations
- Life insurance companies and surety companies
- Foreign corporations
- Qualifying lending or finance companies
- Licensed, active Small Business Investment Companies
- Corporations in specified bankruptcy proceedings (unless avoiding PHC tax is the case's major purpose)
Several of these carry statutory conditions. They are not blanket exemptions.
Schedule PH compared with other Form 1120 schedules
| Schedule | What it covers |
|---|---|
| PH | PHC tests and tax |
| C | Dividends, inclusions, and special deductions |
| D | Capital gains and losses |
| G | Certain voting-stock owners |
| M-1 / M-3 | Book-to-tax reconciliation (M-3 generally for $10 million or more in total assets) |
The $10 million M-3 threshold has nothing to do with PHC status.
How to Determine Whether a Corporation Is a Personal Holding Company
Both tests come from 26 U.S.C. Sec. 542. Failing either one means the corporation is not a PHC for that year.
The stock ownership test
At any time during the last half of the tax year, more than 50% in value of the stock must be owned, directly or indirectly, by or for five or fewer individuals.
Section 544 attribution makes this harder than reading the share register:
- Entity-held stock is attributed proportionally to owners or beneficiaries
- Family attribution covers siblings, spouses, ancestors, and lineal descendants
- Stock under options is treated as owned
- Certain convertible securities are treated as outstanding
Build a documented ownership chart that traces every shareholder to the individual level. This matters for Australian owners holding through a company or trust, since look-through can collapse several holders into one individual.
The personal holding company income test
At least 60% of adjusted ordinary gross income must be PHC income. Section 543 categories include:
- Dividends, interest, royalties, and annuities
- Rents, mineral and oil and gas royalties, and copyright royalties
- Produced-film rents and personal-service contract income
- Specified estate or trust income
Adjusted ordinary gross income excludes certain capital and Section 1231 gains and reduces for allocable expenses on rents and mineral royalties.
Several exceptions apply, and each has its own conditions:
- Rents: adjusted rents at least 50% of adjusted ordinary gross income, plus a dividends-paid condition
- Mineral, oil and gas royalties: 50% income, 10% other-PHC-income, and 15% expense tests
- Copyright royalties and produced-film rents: separate tests
Apply the category rules instead of treating all rent or royalty as PHC income.
A decision sequence before you prepare the schedule
- Confirm the entity is taxed as a C corporation filing Form 1120.
- Check Section 542(c) exclusions.
- Test stock ownership, including attribution.
- Classify gross income and apply exceptions.
- Decide whether both tests are met.
- If so, prepare Schedule PH and supporting statements.
Illustration (fictional figures): A corporation has adjusted ordinary gross income of $1,000,000 and PHC income of $700,000. That is 70%, so the income test is met.
Its stock is held by seven unrelated individuals, with the largest five holding 45%. The ownership test fails, so it is not a PHC. Reverse the facts and the result flips.
How to Complete Schedule PH Form 1120 Step by Step
Gather the required records
Collect before starting:
- Current cap table, shareholder and beneficiary details, and ownership agreements
- Income statements, dividend records, interest and rental schedules, royalty records
- Expense allocations and distribution records
- Prior-year tax workpapers
Reconcile everything to the books and Form 1120. Pay special attention to mid-year ownership changes and income from related entities.
Complete the ownership and income analysis
On the current Schedule PH, Part II lists the PHC income categories and totals them at line 25. Under the Schedule PH instructions, the income test divides Part II, line 25 by Part I, line 5. Confirm line references against the version you are filing.
For each item, document why it was included, excluded, or reclassified, and keep the calculation of adjusted ordinary gross income in the workpapers.
Calculate undistributed PHC income
Part I starts with taxable income and applies Section 545 adjustments, including:
- Specified federal and foreign income taxes
- Charitable contributions
- Limits on special deductions
- Net capital gain adjustments
- Certain property expenses
Section 545 treats net operating losses differently: it substitutes a preceding-year NOL deduction rather than the regular Section 172 deduction.
Dividends reduce undistributed PHC income. Under Section 561, count:
- Dividends paid during the year
- Consent dividends under Section 565
- PHC dividend carryover
- Qualifying dividends paid after year-end, up to the 15th day of the fourth month under Section 563
- Deficiency dividends under Section 547, generally paid within 90 days of a determination, with the claim filed within 120 days
The tax is 20% of undistributed PHC income under Section 541. Check timing and qualification for each dividend type.
Finalise, attach, and reconcile
- Tie Schedule PH to Form 1120, including the Schedule J, line 8 entry
- Attach supporting statements and related schedules
- Review officer and preparer details
- Keep a full copy of the filing package
- Recheck the rate, arithmetic, attribution, and income classifications
Filing, Records, Deadlines, and Common Schedule PH Errors
Deadlines and payment for the 2026 cycle
Schedule PH follows the Form 1120 due date: the 15th day of the fourth month after year-end. A calendar-year 2025 corporation files by April 15, 2026. June 30 year-ends use the 15th day of the third month after year-end. Weekend or holiday due dates move to the next business day.
Form 7004 generally gives an automatic six-month extension to file, but not to pay, per the Form 7004 instructions.
Penalties follow return rules: 5% of unpaid tax per month for late filing (capped at 25%), and 0.5% per month for late payment. For returns due in 2026 and more than 60 days late, the minimum late-filing penalty is the smaller of tax due or $525.
Records and mistakes to prevent
Keep these materials with the return file:
- Ownership records and attribution calculations
- Income classification workpapers and dividend support
- Reconciliations and payment confirmations
- Evidence for exclusions
IRS retention periods run 3 years in the ordinary case, 6 if more than 25% of gross income is omitted, and 7 for worthless securities or bad debts.
Common errors:
- Using an outdated schedule or line references
- Assuming passive income automatically means PHC status
- Overlooking constructive ownership
- Confusing Schedule PH with Schedule D or G
- Omitting required statements
- Failing to reconcile figures to Form 1120
When professional review is appropriate
Australian owners of U.S. corporations should get specialist review when:
- Ownership runs through foreign entities or trusts
- Related-party transactions exist
- Passive income is significant
A separate issue is Form 5472, which generally applies to U.S. corporations with a 25% foreign shareholder and reportable related-party transactions. It is distinct from Schedule PH.
VJM Global is an India-based firm with offices in India and the USA. Its CPAs and U.S.-compliant professionals assist with Form 1120 and other federal and state filings following IRS protocols, and support Australian clients remotely. The firm does not have an Australian office.
Conclusion: 2026 Schedule PH Compliance Checklist
The sequence: confirm status, review exclusions, test ownership, classify income, calculate undistributed PHC income, complete the schedule, and reconcile to Form 1120.
Before filing, check:
- Latest IRS form and instructions reviewed
- Ownership chart with attribution documented
- Income workpapers and exceptions supported
- Dividend records and timing confirmed
- Statements attached
- Payment arranged by the original due date
- Filing confirmation saved
Schedule PH is a U.S. federal tax matter. Australian owners should confirm both U.S. obligations and any separate Australian tax consequences with qualified advisers in each country.
Frequently Asked Questions
What is Schedule D on Form 1120?
Schedule D reports capital gains and losses, including specified transactions and carryovers. It is separate from Schedule PH's PHC tax computation.
What is Schedule G on Form 1120?
Schedule G reports information about certain owners of the corporation's voting stock: generally 20% direct ownership or 50% direct or indirect ownership. It serves a disclosure purpose, not a tax computation.
What is Schedule PH on Form 1120?
Schedule PH determines U.S. personal holding company tax for a corporation that meets both the ownership and income requirements.
Who must file Schedule PH with Form 1120?
A corporation meeting both Section 542 tests: at least 60% PHC income, and more than 50% of stock value held by five or fewer individuals during the last half of the year. Check the latest IRS instructions for exclusions.
Does filing Schedule PH always mean the corporation owes PHC tax?
No. Liability depends on undistributed PHC income after Section 545 adjustments and the dividends-paid deduction. Sufficient dividends can reduce the tax to zero.
