Legal Definitions - AOGI

Definition: AOGI stands for adjusted ordinary gross income. It refers to a corporation's gross income minus capital gains and certain expenses. The IRS uses this calculation to determine whether a corporation is a personal holding company. If 60% or more of a corporation's AOGI consists of certain passive investment income, the company has met the test for personal-holding-company classification.

Example: Let's say a corporation has a gross income of $1,000,000. After deducting capital gains and certain expenses, the AOGI is calculated to be $800,000. If more than 60% of this AOGI comes from passive investment income, the corporation will be classified as a personal holding company.

Explanation: This definition explains what AOGI means and how it is calculated. The example illustrates how a corporation's AOGI is calculated and how it can affect the company's classification. This definition is written in simple language that a high school student can understand.