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C-Corporation Accounting Question – Active vs. Passive vs. Portfolio Income/Loss Is there a differentiation between them?

San Jose, CA |

Consider a Closely-Held C-Corp (NOT classified as PHC/PSC!) The Corp has 3 sources and types of income. Active (Ordinary Operating Business), Passive (E.g. Rental Income) and Portfolio (E.g. Interest from investments such as Loans and Stock). The Corp employs 3 Managers per each business.
How would the accounting of such Corp look like?
Example Say there is $50K gross income from the Active biz, $100K gross income from the Passive, and another $20K income from the Portfolio biz. Assume each manager paid $50K annual salary. Would it be accurate to sum the entire gross income, deduct the salary cost and the Corp pays tax on the AGI? I.e. total gross Income = $50K + $100K + $20K = $170k deduct the managers salaries ($50K x 3 = $150K) and so the total taxable income is: $170K - $150K = $20K?

Attorney Answers 1


This is an inappropriate question for AVVO. First, it is a speculative question with no potential real world answer. Second, your terms are mixed in that you are intermingling coporate tax retuns wtih individual income tax returns by using terms such as "ag.i" Third, you are asking accounting questions that would be better asked of a tax accountant.

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court.

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Thank you for your Feedback! I’m somewhat new to Avvo, so I’m not sure why it is an inappropriate question. Can you please explain why do you categorize this question as “speculative”?? My intention was to give a specific example so I can emphasize my specific question. I may have used the wrong term “AGI” (sorry for that), but I’m guessing you understood very well, that my intention was to describe the Net operating income i.e. Gross Income less the Mgr. Salary (expenses). Now, as for who would be the best professional to answer such question, I’ve asked already a CPA, but didn’t get a very definite answer, and was actually advised to ask a Tax Lawyer… So, as a Tax Lawyer, perhaps you can help me rephrase the question, so it would be more appropriate to be asked on Avvo? I really do not understand what is so complicated in my question, all I’m trying to understand is if a C-Corp can mix between different sources of income/expenses... Anyhow, appreciate your help! - Thanks

Phillip Monroe Smith

Phillip Monroe Smith


AVVO is not intended for esoteric questions. It is intended for real world problems. This does not appear to be a real real world problem, but s questions based on s numeroous suppositions, which is why it is speculative. Is there a real case here, or are presenting "examples" for your personal education which is not a forum for AVVO?

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