A Personal Service Corporation or PSC is a tax classification which may be imposed on certain Professional Corporations by the IRS.  The IRS has a testing period at the end of which the activities of the Corporation are analyzed and a determination is made.  Generally, the testing period for any tax year is the prior tax year.

According to IRS laws, a Corporation may be classified as a Personal Service Corporation if it meets all of the following requirements.

• Its principal activity during the testing period is performing specific Personal Services performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.
  
  
• Its employee-owners substantially perform the Services. This requirement is met if more than 20% of the Corporation's compensation cost for its activities of performing Personal Services during the testing period is for Personal Services performed by employee-owners.
  
  
• Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period.

If the IRS determines that a Professional Corporation is a Personal Service Corporation it is taxed differently from normal C Corporations.   The income tax rate for a Professional Corporation determined to be a Personal Service Corporation is a flat 35%. This is a generally less favorable rate than the graduated tax rates applied to a normal C Corporation.