Jen and Saachi are the owners of J&S Legal Services, P.C., an incorporated law firm treated as a C corporation for tax purposes. Jen and Saachi work full-time in the firm, performing all of the legal services. This year, J&S generates taxable income of $100,000 from the active business operations, and also reports investment interest income of $22,000 and losses of $28,000 from a passive
activity. As a result, J&S Legal Services, P.C. reports taxable income of
A) $122,000.
B) $100,000.
C) $94,000.
D) $97,000.
A) $122,000.
The legal services corporation is both a personal service corporation and a closely held corporation. A PSC cannot offset its active business income or portfolio income with losses from its passive activities.
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