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Understanding Your CP224 Notice

CP224 is an information notice to alert you to a potential issue that may affect your tax return. This is not a proposal to increase your tax liability. If your corporation qualifies as a personal service corporation, your corporation is taxed at a flat rate of 35%.


What you must do

  • Determine if your corporation qualifies as a personal service corporation.
  • If the return is correct, no further action is needed.
  • If it is not correct, use Form 1120X, Amended U.S. Corporation Income Tax Return (.pdf), to correct your tax.
  • If you had a practitioner or other third party prepare your return, you may want to contact them to assist you.

You may want to

Review Form 1120 instructions (.pdf) to see if you meet both tests to qualify as a personal service corporation.


Answers to common Questions

What determines if the corporation qualifies as a personal service corporation?

A corporation is a qualified personal service corporation if it meets both of the following tests:

  • Substantially all of the corporation's activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting and
  • At least 95 percent of the corporation's stock, by value, is owned directly or indirectly by:
    • employees performing the services,
    • retired employees who had performed the services listed above,
    • any estate of the employee or retiree described above, or
    • any person who acquired the stock of the corporation as a result of the death of an employee (but only for the 2-year period beginning on the date of the employee or retiree's death.)

Tips for next year

Page Last Reviewed or Updated: 27-Feb-2017

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