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Editorial 7 MIN READ

The professional corporation, a decade in

Where the PC still makes sense in 2025, where the PLLC took over, and where the IRS still has a say

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. Where the PC is still the only option
  2. Where the either-or actually exists
  3. How the IRS sees it
  4. Section 199A and the SSTB fence
  5. Compliance the licensing board cares about
  6. What actually drives the choice
  7. Sources

he professional corporation is the entity licensed professionals end up in when their state will not let them practice through an ordinary LLC. In 2025 the PC still dominates in a handful of states, sits alongside the PLLC in most of the rest, and answers to a stack of authorities (state corporate code, state licensing board, IRS) that rarely agree on vocabulary.

Where the PC is still the only option

California is the largest jurisdiction where licensed professionals cannot practice through an LLC at all. The Moscone-Knox Professional Corporation Act, at California Corporations Code sections 13400 through 13410, is the governing statute. Section 13401(b) defines the form; section 13401.5 lists the categories of licensees who may own shares, and the list is deliberately narrow (a medical corporation can only be owned by licensed physicians and a small set of allied professionals the statute names). California does not offer a PLLC for these professions, so the PC is not a choice, it is the entrance requirement.

The general rule to check in any state: if the LLC statute carves out the practice of a licensed profession, and the professional corporation act is the only fallback the licensing board recognizes, you are forming a PC whether or not you wanted to.

Where the either-or actually exists

New York is the canonical either-or. Business Corporation Law article 15, sections 1503 through 1511, authorizes the professional service corporation. Section 1504 requires every shareholder, director, and officer to be a licensed professional; section 1505(a) preserves each professional's personal liability for their own negligence, which is the point of the form and its limitation. The parallel track is Limited Liability Company Law section 1203, which authorizes the professional service LLC on essentially the same terms: members must be licensed, the entity must be approved by the licensing authority, and the shield does not cover the member's own malpractice.

Florida runs the same parallel architecture under chapter 621 of the Florida Statutes, which authorizes both forms in a single chapter. Texas, Illinois, Virginia, and most other states permit both as well, usually with the PLLC governed by the LLC act and the PC by a standalone professional corporations act that predates it by decades.

Where both are allowed, the PLLC is the default recommendation for most new practices: simpler governance (no bylaws, no board, usually no annual shareholder meeting), flexible federal tax treatment by default (partnership or disregarded entity), and the same malpractice shield the PC offers. The PC still wins in two cases: when the state does not offer a PLLC for that profession, or when the practice wants an S-election and the PC gives a cleaner corporate chassis for payroll, fringe benefits, and accountable-plan reimbursements than a PLLC that has to elect corporate status.

How the IRS sees it

The default federal tax treatment of a professional corporation is as a C corporation. The check-the-box regulations at Treas. Reg. section 301.7701-2(b) list professional corporations among the per-se corporations: they are corporations for federal tax purposes and cannot elect to be taxed as partnerships or disregarded entities by filing Form 8832. The only election a PC can make is the S-corporation election under section 1362 of the Code, filed on Form 2553, generally due by the 15th day of the third month of the taxable year the election is to take effect (section 1362(b)(1)). Relief for late elections is available under the procedures in Rev. Proc. 2013-30 if the PC qualifies.

Section 1361(b)(3) lets an S corporation own a wholly owned domestic subsidiary and elect to treat it as a qualified subchapter S subsidiary (QSub), disregarded for federal tax purposes. Practice groups that operate an S-elected parent PC and want to roll up acquired practices without creating a second return use the QSub election to keep everything on one consolidated filing.

The wage question is where most PCs get into trouble. An owner-employee of an S-elected PC must take reasonable compensation for services rendered, subject to payroll taxes, before distributing the rest as a K-1 distribution. Watson v. Commissioner, 668 F.3d 1008 (8th Cir. 2012), is the case every practitioner cites: a CPA paid himself a $24,000 salary and took roughly $175,000 in distributions; the IRS reclassified a large portion as wages, the Tax Court agreed, and the Eighth Circuit affirmed. In 2025 the IRS continues to examine S-corp reasonable-comp aggressively, and the professional practice with a $40,000 salary and a $400,000 distribution is exactly the fact pattern examiners look for.

Section 199A and the SSTB fence

The qualified business income deduction under section 199A turns on whether the practice is a specified service trade or business (an SSTB). Health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and investing are all SSTBs under section 199A(d)(2) and Treas. Reg. section 1.199A-5, finalized in T.D. 9847, 84 Fed. Reg. 2952 (Feb. 8, 2019).

The practical consequence is the phase-out. For 2025, Rev. Proc. 2024-40 sets the section 199A threshold amounts at $197,300 for single filers and $394,600 for joint filers, with a phase-in range of $50,000 ($100,000 joint) above those thresholds. Below the threshold, the SSTB limitation does not apply and a doctor, lawyer, or CPA can claim the 20% deduction on pass-through income. Above the ceiling ($247,300 single, $494,600 joint), the SSTB receives no section 199A deduction at all. A high-earning solo-practitioner PC electing S status is squarely over the ceiling and gets nothing from section 199A; the planning calculus shifts toward reasonable-comp arbitrage, retirement-plan contributions, and (for group practices) splitting non-SSTB ancillary activity where the final regulations allow.

Compliance the licensing board cares about

Two sets of rules run in parallel to the corporate code and the IRS. The first is the state licensing board's annual filing, which in most states is separate from the secretary of state's annual report and is usually where the malpractice insurance proof lives. California medical corporations renew with the Medical Board of California, New York PCs file a triennial statement with the Department of Education, Texas professional entities file proof of malpractice coverage with their licensing board. Coverage minimums are set by the board, not by the corporate code, and they change; verify the 2025 figure on the board's website before renewal.

The second is the federal beneficial ownership reporting regime under the Corporate Transparency Act, at 31 U.S.C. section 5336. In January 2025 the Supreme Court stayed the nationwide injunction that had paused CTA enforcement (McHenry v. Texas Top Cop Shop, stay granted Jan. 23, 2025), but a separate injunction out of the Eastern District of Texas remains in effect, and FinCEN has said reporting companies are not currently required to file BOI reports while litigation proceeds. The position is unstable; a PC formed in 2025 should track the FinCEN site and be ready to file within the statutory window once enforcement resumes.

What actually drives the choice

Work backwards from three questions. Does the state offer a PLLC for this profession, or is the PC mandatory? If mandatory, focus on the S-election and the licensing board's filings. Will the practice take an S-election? For a PLLC the election converts a simple partnership return into a corporate return, which adds cost; for a PC the election is the default planning move and the structure already supports it. Is the owner's income above the section 199A phase-out for an SSTB? If yes, the QBI deduction is not in play, and the form question reduces to liability shields and payroll mechanics.

A solo physician in California forms a PC because she has no other option, elects S status in year one, pays herself a reasonable salary under Watson-level scrutiny, and watches the section 199A door close as her income crosses $247,300. A two-partner New York law firm with a taste for corporate payroll picks the PC and elects S; one that prefers simpler governance picks the PLLC. A Florida architecture practice taking on a non-licensee investor cannot use either form, because ownership is limited to licensees; it forms a management company LLC alongside the professional entity.

The professional corporation is not the fashionable form in 2025. It is still, often, the correct one.

Sources

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