enforceable in the courts of this state. A professional service corporation's failure to enforce compliance with this provision shall constitute a ground for forfeiture of its certificate of incorporation and its dissolution.

[Death or Disqualification]

$1510. Death or disqualification of shareholders. A professional service corporation shall purchase or redeem the shares of a shareholder in case of his death or disqualification pursuant to the provisions of section 1509, within six months after the appointment of the executor or administrator or other legal representative of the estate of such deceased shareholder, or within six months after such disqualification, at the book value of such shares as of the end of the month immediately preceding the death or disqualification of the shareholder as determined from the books and records of the corporation in accordance with its regular method of accounting. The certificate of incorporation, the by-laws of the corporation or an agreement among the corporation and all shareholders may modify this section by providing for a dif ferent period of purchase or redemption, or an alternate method of determining the price to be paid for the shares, or both. If the corporation shall fail to purchase or redeem such shares within the required period, a successful plaintiff in an action to recover the purchase price of such shares shall also be awarded reasonable attorneys' fees and costs. Limitations on the purchase or redemption of shares set forth in section five hundred thirteen shall not apply to the purchase or redemption of shares pursuant to this section. Nothing herein contained shall prevent a corporation from paying pension benefits or other deferred compensation to or on behalf of a former or deceased officer, director or employee thereof as otherwise permitted by law.

[Transfers]

§ 1511. Transfer of shares. No shareholder of a professional service corporation may sell or transfer his shares in such corporation except to another individual who is eligible to have shares issued to him by such corporation. Nothing herein contained shall be construed to prohibit the transfer of shares by operation of law or by court decree. No transferee of shares by operation of law or court decree may vote the shares for any purpose whatsoever except with respect to corporate action under section nine hundred nine and section one thousand one. Any sale or transfer, except by operation of law or court decree or except for a corporation having only one shareholder, may be made only after the same shall have been approved by the board of directors, or at a shareholders' meeting specially called for such purpose by such proportion, not less than a 707 CCH-Standard Federal Tax Reports

71,527

majority, of the outstanding shares as may be provided in the certificate of incorporation or in the by-laws of such professional service corporation. At such shareholders' meeting the shares held by the shareholder proposing to sell or transfer his shares may not be voted or counted for any purpose, unless all shareholders consent that such shares be voted or counted. The certificate of incorporation or the bvlaws of the professional service corporation, or the professional service corporation and the shareholders by private agreement, may provide, in lieu of or in addition to the foregoing provisions, for the alienation of shares and may require the redemption or purchase of such shares by such corporation at prices and in a'manner specifically set forth therein. Reference to the restrictions on sale and transfer provided for in this section shall be noted conspicuously on all certificates representing shares issued by a professional service corporation. Any sale or transfer in violation of such restrictions shall be void.

[Corporate Name]

§ 1512. Corporate name. (a) Notwithstanding any other provision of law, the name of a professional service corporation may contain any word which, at the time of incorporation, could be used in the name of a partnership practicing a profession which the corporation is authorized to practice, and may not contain any word which could not be used by such a partnership. Provided, however, the name of a professional service corporation may not contain the name of a deceased person unless

(1) such person's name was part of the corporate name at the time of such person's death; or

(2) such person's name was part of the name of an existing partnership and at least two-thirds of such partnership's partners became shareholders of the corporation.

(b) Such corporate name shall end with the words "Professional Corporation" or the abbreviation "P. C." The provisions of paragraph one of subdivision (a) of section three hundred one shall not apply to a professional service corporation.

[Law Applicable}

§ 1513. Business corporation law applicable. This chapter, except article thirteen, shall be applicable to a professional service corporation except to the extent that the provisions thereof conflict with this article. A professional service corporation may consolidate or merge only with another corporation organized under this article and only if all of the professions practiced by such corporations could be practiced by a single corporation organized under this article.

¶ 6665

7 1,528

[Annual Statement]

§ 1514. Annual statement. Each professional service corporation shall, on or before the first day of July of each year, furnish a statement to the licensing authority listing the name and residence address of each shareholder, director and officer of such corporation and certifying that all such individuals are authorized by law in this state to practice a profession which such corporation is authorized to practice. The statement shall be signed by the president or any vice-president of the corporation and attested to by the secretary or any assistant secretary of the corporation.

[Regulation]

§ 1515. Regulation of professions. This article shall not repeal, modify or restrict any provision of the education law or the judiciary law regulating the professions referred to therein except to the extent in conflict herewith.

§ 2. Section four hundred ninety-five of the judiciary law is hereby amended by adding thereto a new subdivision, to be subdivision six, to read as follows:

6. This section shall not apply to a corporation organized under article fifteen of the business corporation law.

§ 3. Section two hundred ten of the tax law is herchy amended by adding thereto a new subdivision, to be subdivision one-b, to read as follows:

1-b. The computation specified in clause three of paragraph (a) of subdivision one shall not apply to a corporation organized under article fifteen of the business corporation law.

14. Subparagraph three of paragraph (b) of subdivision three of section two hundred ten of such law, as last amended by chapter four hundred twenty-one of the laws of nineteen hundred sixty-two, is hereby amended to read as follows:

(3) dividing the result so obtained by the total of its investment capital invested during such period in stocks, bonds and other securities (other than obligations of the United States and its instrumentalities and obligations of the state of New York, its political subdivisions and its instrumentalities); provided, however, that in case any investment capital is invested in any stock, bond or other security during only a portion of the period covered by the report, only such portion of such capital shall be taken into account; and provided further, that if a taxpayer's investment allocation percentage is zero, interest received on bank accounts, on obligations of the United States and its instrumentalities and on obligations of the state of New York, its political subdivisions and its instrumentalities shall be multiplied by its business allocation percentage; provided, however, ¶ 6665

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Number 25-64

5-27-70

that with respect to corporations organized under article fifteen of the business corporation law, the investment allocation percentage shall be one hundred percent; and

§ 5. Subsection (b) of section six hundred twelve of such law is hereby amended by adding thereto three new paragraphs, to be paragraphs seven, eight and nine, to read as follows:

(7) In the case of a taxpayer who is a shareholder of a corporation organized under article fifteen of the business corporation law, the amount which is deductible by such corporation under paragraphis one, two or three of subsection (a) of section four hundred four of the internal revenue code for its taxable year ending in or with such taxpayer's taxable year for contributions paid on behalf of such taxpayer minus the maximum amount which would be deductible for federal income tax purposes by such taxpayer under section sixty-two (7) of the internal revenue code or any amendment thereto, if such taxpayer were a selfemployed individual. In the case of a taxpayer on whose behalf contributions are paid under more than one plan to which this paragraph applies or under a plan, contributions to which on his behalf are subject to the limitations provided in section four hundred four (e) of the internal revenue code, this paragraph shall apply with respect to the aggregate of the contributions paid on his behalf under all such plans.

(8) In the case of a taxpayer who is a shareholder of a corporation organized under article fifteen of the business corporation law, the amount which is required to be paid as a tax by such corporation pursuant to section thirty-one hundred eleven (a) of the internal revenue code with respect to the wages of such taxpayer for the calendar year ending in or with such taxpayer's taxable year.

(9) In the case of a taxpayer who is a shareholder of a corporation organized under article fifteen of the business corporation law, the amount which is deductible for federal income tax purposes by such corporation for contributions to purchase life, accident or health or other insurance for such taxpayer for its taxable year ending in or with such taxpayer's taxable year except for the amount includible by such taxpayer in gross income for federal income tax purposes and except for the amount attributable to contributions to purchase insurance to reimburse such taxpayer for expenses incurred by him for medical care, as such term is defined in section two hundred thirteen (e) of the internal revenue code, of such taxpayer, his spouse and his dependents.

§ 6. Subsection (c) of section six hundred twelve of such law, is hereby amended

1970, Commerce Clearing House, Inc.

A taxpayer, engaged in the business of farming, made expenditures for construction of irrigation ditches to bring irrigation water onto his land used in farming from property located outside the farm.

Section 175(a) of the Internal Revenue Code of 1954 provides that a taxpayer engaged in the business of farming may treat as expenses which are not chargeable to capital account, expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming or for the prevention of erosion of land used in farming. The expenditures so treated are allowable as deductions.

Section 1.175-2(a) of the Income Tax Regulations provides, in part, that a farmer may deduct expenditures made for these purposes which are for (i) the treatment or moving of earth, (ii) the construction, control, and protection of diversion channels, drainage ditches, irrigation ditches, earthen dams, watercourses, outlets, and ponds, (iii) the eradication of brush, and (iv) the planting of windbreaks.

Held, the taxpayer may deduct the expenses he incurred in bringing irrigation water onto his land used in farming from a source located outside the farm as soil and water conservation expenditures described in section 175 of the Code.

Advice has been requested concerning the effect on the taxpayer's earnings and profits accounts of gains on the sale of certain properties under the circumstances described below.

The taxpayer is a state chartered "domestic building and loan association" as that term is defined in section 7701(a)(19) of the Internal Revenue Code of 1954. The taxpayer uses the reserve method of computing bad debts for Federal income tax purposes in accordance with section 593 of the Code.

Since 1963 the taxpayer has acquired numerous parcels of real estate by foreclosure of real property loans. Many of these parcels of foreclosed property are subsequently sold at a gain

Section 595(a) of the Code provides for the nonrecognition of gain or loss as a result of foreclosure by organizations such as the taxpayer on property securing loans. This section states that ho debt shall be considered as becoming worthless or partially worthless as a result of the organization bidding in at foreclosure, or otherwise ¶ 6668

2364.21.

reducing to ownership or possession prop erty which was security for the payment of any indebtedness. Section 595(b) of the Code provides that any such property acquired shall be considered as property having the same characteristics as the indebtedness for which such property was security, and any amount realized with respect to such property shall be treated as a payment on account of such indebtedness, and any loss with respect thereto shall be treated as a bad debt.

With respect to the sale by an organization such as the taxpayer of property acquired by foreclosure, section 1.595-1(e) (6)(i) of the Income Tax Regulations provides that "any amount realized shall be applied against and reduce the adjusted basis of the acquired property, and to the extent that such amount exceeds the adjusted basis, it shall, in the case of a creditor using the reserve method of accounting for bad debts, be credited to the appropriate bad debt reserve (that is, the reserve for losses on qualifying real property loans or the reserve for losses on nonqualifying loans)."

1970, Commerce Clearing House, Inc.

71,634

Number 32-140 7-15-70

AN ACT relating to professional corporations; providing for the inclusion of certain existing entities within the provisions of the act; and making repeals,

The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:

Section 1. Short Title.-This act shall be known and may be cited as the "Professional Corporation Law."

Sec. 2. Definitions.-The following words and terms shall have the following meanings, unless the context clearly indicates otherwise:

(1) "Business corporation" means a business corporation as defined in the Business Corporation Law.

(2) "Disqualified person" means a licensed person who for any reason is or becomes legally disqualified (temporarily or permanently) to render the same professional services which the particular professional corporation of which he is an officer, director, shareholder or employe is or was rendering.

(3) "Licensed person" means any natural person who is duly licensed or admitted to practice his profession by a court, department, board, commission or other agency to render a professional service which is or will be rendered by the professional corporation of which he is, or intends to become, an officer, director, shareholder, employe or agent.

(4) "Profession" includes the performance of any type of personal service to the public which requires as a condition precedent to the performance of such service the obtaining of a license or admission to practice or other legal authorization, including all personal services which prior to the enactment of this act could not lawfully be rendered by means of a corporation. By way of example, and without limiting the generality of the foregoing, such term inIcludes for the purposes of this act personal services rendered as an architect, chiropractor, dentist, funeral director, osteopath, podiatrist, physician, professional engineer, veterinarian, certified public accountant or surgeon and, except as otherwise provided by the rules of the Supreme Court, as attorney at law. The definition specified in this clause shall be applicable to this act only and shall not affect the interpretation of any other statute or any local zoning ordi¶ 6791

nance or other official document heretofore or hereafter enacted or promulgated.

(5) "Professional corporation" means a corporation for profit which is included within the scope of this act by section 4 of this act.

(6) "Professional services" means any type of services which may be rendered by the member of any profession within the purview of his profession.

Sec. 3. Legislative Intent.—It is the intent of the General Assembly to authorize by this act licensed persons to render professional services by means of a professional corporation in all cases. This act shall not affect the existence of any entity existing on the effective date of this act which is brought within the scope of this act by section 4 of this act.

Sec. 4. Scope of Act-(a) Except as provided in section 5 of this act, the provi. sions of this act shall apply to:

(1) Every business corporation which is incorporated under this act.

(2) Every professional association heretofore or hereafter organized under the act of August 7, 1961 (P. L. 941), known as the "Professional Association Act," which elects to accept the provisions of this act in the manner set forth in subsection (b) of this

section.

(3) Every professional partnership association which on the effective date of this act is subject to the act of June 2, 1874 (P. L. 271), entitled "An act authorizing the formation of partnership associations, in which the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances."

(b) The acceptance provided for in clause (2) of subsection (a) of this section shall be effected by the filing in the Department of State of a certificate which shall be executed by all of the associates of the professional association and shall set forth:

(1) The name and address of the professional association;

(2) The name of the county in the office of the prothonotary of which the initial articles of association of the association were filed; and

(3) A statement that the associates of the professional association have elected to accept the provisions of this act for the government and regulation of the affairs of the association.

1970, Commerce Clearing House, Inc.

This act shall become applicable to the association upon the filing of such certificate in the Department of State.

(c) A professional association organized under the act of August 7, 1961 (P. L. 941), known as the "Professional Association Act," shall be deemed to be incorporated on the date such association becomes subject to this act.

(d) Every entity which is brought within the scope of this act by or pursuant to this section which desires to file any document in the Department of State under any provision of the Business Corporation Law or which desires to secure from the department any certificate to the effect that the corporation is a corporation duly incorporated and existing under the laws of this commonwealth or a certified copy of the articles of the corporation shall file in the department a certificate of summary of record, which shall be executed under the scal of the corporation by two duly authorized officers thereof and shall set forth:

(1) The name and location of the registered office of the corporation, including street and number, if any.

(2) The statute by or under which the corporation was formed.

(3) The name under which, the manner in which and the date on which the corporation was originally formed, including the date when and the place where the original statement, articles of association or other organic documents were recorded or filed.

(4) The place or places, including volume and page numbers or their equivalent, where the documents constituting the currently effective organic documents are recorded or filed, and the date or dates of each such recording or filing.

(5) Each name by which the corporation was known, if any, other than its original name and its current name, and the date or dates on which each change of name of the corporation became effective.

(6) Amended and restated articles of incorporation of the corporation, which shall include all of the information required to be set forth in restated articles of a professional corporation.

A corporation shall be required to make only one filing under this subsection.

Sec. 5. Prior Rights Unaffected.-(a) Except as provided in subsection (b) of this section, this act shall not apply to any business corporation now in existence or hereafter incorporated which was not incorporated hereunder and which may lawfully render professional services other than pursuant to this act, nor shall anything herein contained alter or affect any right or privilege existing under any statute heretofore or hereafter enacted (1) not prohibiting, or (2) in terms permitting performance of professional services in corporate form. 707 CCH-Standard Federal Tax Reports

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(b) A business corporation excluded from the scope of this act may become subject to this act by filing in the Department of State a certificate of acceptance of this act which shall be executed under the seal of the corporation, shall be signed by two duly au thorized officers of the corporation, and shall set forth:

(1) The name and location of the regis tered office of the corporation;

(2) The act of Assembly by or under which the corporation was incorporated and the date of incorporation;

(3) The changes in the articles of incorporation of the corporation necessary so as to render them consistent with all of the provisions of this act and any other changes in the articles, including a restatement of the articles, which are deemed desirable; and

(4) A statement that the acceptance of this act and the resolution or petition containing the proposed amendments to the articles of the corporation were adopted by the unanimous vote of all shareholders of the corporation regardless of any limitations stated in the articles on the voting rights of any class.

This act shall become applicable to the corporation and the amendments to the articles of incorporation shall become effective upon the filing of such certificate in the Department of State.