Legal Definitions - personal-holding-company tax

A personal-holding-company tax is a type of tax that is imposed on a holding company. A holding company is a company that owns other companies' stocks, bonds, or assets. The personal-holding-company tax is imposed on the company's undistributed income, which is the income that the company has earned but has not distributed to its shareholders as dividends.

• ABC Holding Company has earned $100,000 in profits but has not distributed any dividends to its shareholders. The company will be subject to the personal-holding-company tax on the $100,000 of undistributed income.
• XYZ Holding Company has earned $50,000 in profits and has distributed $30,000 as dividends to its shareholders. The company will not be subject to the personal-holding-company tax on the $20,000 of undistributed income.

These examples illustrate how the personal-holding-company tax is imposed on the undistributed income of a holding company. If a holding company retains its earnings to avoid paying income tax, it may be subject to this penalty tax.