Internal Revenue Code:Sec. 246. Rules applying to deductions for dividends received
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
(Redirected from Sec. 246. Rules applying to deductions for dividends received)
Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
Statute
Sec. 246. Rules applying to deductions for dividends received
(a) Deduction not allowed for dividends from certain corporations
(1) In general
The deductions allowed by sections 243, 244, and 245 shall not
apply to any dividend from a corporation which, for the taxable
year of the corporation in which the distribution is made, or for
the next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (relating to
certain charitable, etc., organizations) or section 521 (relating
to farmers' cooperative associations).
(2) Subsection not to apply to certain dividends of Federal Home
Loan Banks
(A) Dividends out of current earnings and profits
In the case of any dividend paid by any FHLB out of earnings
and profits of the FHLB for the taxable year in which such
dividend was paid, paragraph (1) shall not apply to that
portion of such dividend which bears the same ratio to the
total dividend as -
(i) the dividends received by the FHLB from the FHLMC
during such taxable year, bears to
(ii) the total earnings and profits of the FHLB for such
taxable year.
(B) Dividends out of accumulated earnings and profits
In the case of any dividend which is paid out of any
accumulated earnings and profits of any FHLB, paragraph (1)
shall not apply to that portion of the dividend which bears the
same ratio to the total dividend as -
(i) the amount of dividends received by such FHLB from the
FHLMC which are out of earnings and profits of the FHLMC -
(I) for taxable years ending after December 31, 1984, and
(II) which were not previously treated as distributed
under subparagraph (A) or this subparagraph, bears to
(ii) the total accumulated earnings and profits of the FHLB
as of the time such dividend is paid.
For purposes of clause (ii), the accumulated earnings and
profits of the FHLB as of January 1, 1985, shall be treated as
equal to its retained earnings as of such date.
(C) Coordination with section 243
To the extent that paragraph (1) does not apply to any
dividend by reason of subparagraph (A) or (B) of this
paragraph, the requirement contained in section 243(a) that the
corporation paying the dividend be subject to taxation under
this chapter shall not apply.
(D) Definitions
For purposes of this paragraph -
(i) FHLB
The term ''FHLB'' means any Federal Home Loan Bank.
(ii) FHLMC
The term ''FHLMC'' means the Federal Home Loan Mortgage
Corporation.
(iii) Taxable year of FHLB
The taxable year of an FHLB shall, except as provided in
regulations prescribed by the Secretary, be treated as the
calendar year.
(iv) Earnings and profits
The earnings and profits of any FHLB for any taxable year
shall be treated as equal to the sum of -
(I) any dividends received by the FHLB from the FHLMC
during such taxable year, and
(II) the total earnings and profits (determined without
regard to dividends described in subclause (I)) of the FHLB
as reported in its annual financial statement prepared in
accordance with section 20 of the Federal Home Loan Bank
Act (12 U.S.C. 1440).
(b) Limitation on aggregate amount of deductions
(1) General rule
Except as provided in paragraph (2), the aggregate amount of
the deductions allowed by sections 243(a)(1), 244(a), and
subsection (a) or (b) of section 245 shall not exceed the
percentage determined under paragraph (3) of the taxable income
computed without regard to the deductions allowed by sections
172, 199, 243(a)(1), 244(a), subsection (a) or (b) of section 245, and
247, without regard to any adjustment under section 1059, and
without regard to any capital loss carryback to the taxable year
under section 1212(a)(1).
(2) Effect of net operating loss
Paragraph (1) shall not apply for any taxable year for which
there is a net operating loss (as determined under section 172).
(3) Special rules
The provisions of paragraph (1) shall be applied -
(A) first separately with respect to dividends from
20-percent owned corporations (as defined in section 243(c)(2))
and the percentage determined under this paragraph shall be 80
percent, and
(B) then separately with respect to dividends not from
20-percent owned corporations and the percentage determined
under this paragraph shall be 70 percent and the taxable income
shall be reduced by the aggregate amount of dividends from
20-percent owned corporations (as so defined).
(c) Exclusion of certain dividends
(1) In general
No deduction shall be allowed under section 243, 244, or 245,
in respect of any dividend on any share of stock -
(A) which is held by the taxpayer for 45 days or less during
the 91-day period beginning on the date which is 45 days before
the date on which such share becomes ex-dividend with respect
to such dividend, or
(B) to the extent that the taxpayer is under an obligation
(whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or
related property.
(2) 90-day rule in the case of certain preference dividends
In the case of stock having preference in dividends, if the
taxpayer receives dividends with respect to such stock which are
attributable to a period or periods aggregating in excess of 366
days, paragraph (1)(A) shall be applied -
(A) by substituting ''90 days'' for ''45 days'' each place it
appears, and
(B) by substituting ''181-day period'' for ''91-day period''.
(3) Determination of holding periods
For purposes of this subsection, in determining the period for
which the taxpayer has held any share of stock -
(A) the day of disposition, but not the day of acquisition,
shall be taken into account, and
(B) paragraph (3) of section 1223 shall not apply.
(4) Holding period reduced for periods where risk of loss
diminished
The holding periods determined for purposes of this subsection
shall be appropriately reduced (in the manner provided in
regulations prescribed by the Secretary) for any period (during
such periods) in which -
(A) the taxpayer has an option to sell, is under a
contractual obligation to sell, or has made (and not closed) a
short sale of, substantially identical stock or securities,
(B) the taxpayer is the grantor of an option to buy
substantially identical stock or securities, or
(C) under regulations prescribed by the Secretary, a taxpayer
has diminished his risk of loss by holding 1 or more other
positions with respect to substantially similar or related
property.
The preceding sentence shall not apply in the case of any
qualified covered call (as defined in section 1092(c)(4) but
without regard to the requirement that gain or loss with respect
to the option not be ordinary income or loss) other than a
qualified covered call option to which section 1092(f) applies.
(d) Dividends from a DISC or former DISC
No deduction shall be allowed under section 243 in respect of a
dividend from a corporation which is a DISC or former DISC (as
defined in section 992(a)) to the extent such dividend is paid out
of the corporation's accumulated DISC income or previously taxed
income, or is a deemed distribution pursuant to section 995(b)(1).
(e) Certain distributions to satisfy requirements
No deduction shall be allowed under section 243(a) with respect
to a dividend received pursuant to a distribution described in
section 936(h)(4).
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 74; Pub. L. 85-866, title I,
Sec. 18(a), 57(c)(2), Sept. 2, 1958, 72 Stat. 1614, 1646; Pub. L.
88-272, title II, Sec. 214(b)(2), Feb. 26, 1964, 78 Stat. 55; Pub.
L. 91-172, title IV, Sec. 434(b)(1), title V, Sec. 512(f)(3), Dec.
30, 1969, 83 Stat. 625, 641; Pub. L. 92-178, title V, Sec. 502(a),
Dec. 10, 1971, 85 Stat. 549; Pub. L. 94-455, title X, Sec.
1051(f)(3), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1646, 1834; Pub. L. 97-248, title II, Sec. 213(c), Sept. 3, 1982,
96 Stat. 465; Pub. L. 98-369, div. A, title I, Sec. 53(b), (d)(2),
177(b), title VIII, Sec. 801(b)(2)(A), July 18, 1984, 98 Stat. 567,
568, 709, 995; Pub. L. 99-514, title VI, Sec. 611(a)(3), title XII,
Sec. 1275(a)(2)(B), title XVIII, Sec. 1804(b)(1)(A), (B),
1812(d)(1), Oct. 22, 1986, 100 Stat. 2249, 2598, 2798, 2835; Pub.
L. 100-203, title X, Sec. 10221(c)(1), Dec. 22, 1987, 101 Stat.
1330-409; Pub. L. 100-647, title I, Sec. 1018(u)(10), Nov. 10,
1988, 102 Stat. 3590; Pub. L. 104-188, title I, Sec. 1616(b)(4),
Aug. 20, 1996, 110 Stat. 1856; Pub. L. 105-34, title X, Sec.
1015(a), (b), Aug. 5, 1997, 111 Stat. 921, 922.)
Miscellaneous
AMENDMENTS
2004 - Subsec.888(d),Pub.L.108-357, the last sentence of section
246(c) is amended by inserting: ", other than a qualified
covered call option to which section 1092(f) applies" before the
period at the end.
2004 - Subsec.406(f)(2),Pub.L.108-311, amended Sec.246(c)(2)(B)
by striking "180-day period" and inserting "181-day period" and
striking "90-day period" and inserting "91-day period".
2004 - Subsec.406(f)(1),Pub.L.108-311, amended Sec.246(c)(1)(A)
by striking "90-day period" and inserting "91-day period".
1997 - Subsec. (c)(1)(A). Pub. L. 105-34, Sec. 1015(a), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''which is held by the taxpayer for 45 days or less, or''.
Subsec. (c)(2). Pub. L. 105-34, Sec. 1015(b)(1), amended heading
and text of par. (2) generally. Prior to amendment, text read as
follows: ''In the case of any stock having preference in dividends,
the holding period specified in paragraph (1)(A) shall be 90 days
in lieu of 45 days if the taxpayer receives dividends with respect
to such stock which are attributable to a period or periods
aggregating in excess of 366 days.''
Subsec. (c)(3). Pub. L. 105-34, Sec. 1015(b)(2), inserted ''and''
at end of subpar. (A), redesignated subpar. (C) as (B), and struck
out former subpar. (B) which read as follows: ''there shall not be
taken into account any day which is more than 45 days (or 90 days
in the case of stock to which paragraph (2) applies) after the date
on which such share becomes ex-dividend, and''.
1996 - Subsec. (f). Pub. L. 104-188 struck out subsec. (f) which
provided a cross reference to section 596 of this title for special
rule relating to mutual savings banks, etc., to which section 593
applies.
1988 - Subsec. (c)(1)(A). Pub. L. 100-647 substituted ''which''
for ''Which''.
1987 - Subsec. (b)(1). Pub. L. 100-203, Sec. 10221(c)(1)(A),
substituted ''the percentage determined under paragraph (3)'' for
''80 percent''.
Subsec. (b)(3). Pub. L. 100-203, Sec. 10221(c)(1)(B), added par.
(3).
1986 - Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1812(d)(1)(A),
substituted ''In'' for ''For purposes of subparagraph (A), in'' in
introductory provisions and substituted cl. (i)(II) for former cl.
(i)(II) which read as follows: ''which were not taken into account
under subparagraph (A), bears to''.
Subsec. (a)(2)(C), (D). Pub. L. 99-514, Sec. 1812(d)(1)(B), (C),
added subpar. (C), redesignated former subpar. (C) as (D), and
added cl. (iv) to subpar. (D).
Subsec. (b)(1). Pub. L. 99-514, Sec. 611(a)(3), substituted ''80
percent'' for ''85 percent''.
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1804(b)(1)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''which is sold or otherwise disposed of in any case in
which the taxpayer has held such share for 45 days or less, or''.
Subsec. (c)(4). Pub. L. 99-514, Sec. 1804(b)(1)(B), substituted
''determined for purposes of this subsection'' for ''determined
under paragraph (3)''.
Subsec. (e). Pub. L. 99-514, Sec. 1275(a)(2)(B), struck out ''or
934(e)(3)'' after ''936(h)(4)''.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 177(b), amended subsec.
(a) generally, designating existing provisions as par. (1) and
adding par. (2).
Subsec. (b)(1). Pub. L. 98-369, Sec. 801(b)(2)(A), substituted
''subsection (a) or (b) of section 245'' for ''245'' in two places.
Pub. L. 98-369, Sec. 53(d)(2), substituted ''without regard to
any adjustment under section 1059, and without regard'' for ''and
without regard''.
Subsec. (c)(1)(A). Pub. L. 98-369, Sec. 53(b)(1), substituted
''45'' for ''15''.
Subsec. (c)(1)(B). Pub. L. 98-369, Sec. 53(b)(3), substituted
''to make related payments with respect to positions in
substantially similar or related property'' for ''to make
corresponding payments with respect to substantially identical
stock or securities''.
Subsec. (c)(2). Pub. L. 98-369, Sec. 53(b)(1), substituted ''45''
for ''15''.
Subsec. (c)(3). Pub. L. 98-369, Sec. 53(b)(4), struck out last
sentence which directed that the holding periods determined under
the preceding provisions of this paragraph be appropriately reduced
(in the manner provided in regulations prescribed by the Secretary)
for any period (during such holding periods) in which the taxpayer
had an option to sell, was under a contractual obligation to sell,
or had made (and not closed) a short sale of, substantially
identical stock or securities.
Subsec. (c)(3)(B). Pub. L. 98-369, Sec. 53(b)(1), substituted
''45'' for ''15''.
Subsec. (c)(4). Pub. L. 98-369, Sec. 53(b)(2), added par. (4).
1982 - Subsecs. (e), (f). Pub. L. 97-248 added subsec. (e) and
redesignated former subsec. (e) as (f).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1051(f)(3), struck out
references to dividends from corporations organized under the China
Trade Act, 1922, and corporations to which section 931 (relating to
income from sources within possessions of the United States)
applies.
Subsec. (c)(3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
''or his delegate'' after ''Secretary''.
1971 - Subsecs. (d), (e). Pub. L. 92-178 added subsec. (d) and
redesignated former subsec. (d) as (e).
1969 - Subsec. (b)(1). Pub. L. 91-172, Sec. 512(f)(3),
substituted ''and 247, and without regard to any capital loss
carryback to the taxable year under section 1212(a)(1)'' for ''and
247''.
Subsec. (d). Pub. L. 91-172, Sec. 434(b)(1), added subsec. (d).
1964 - Subsec. (b). Pub. L. 88-272 substituted ''243(a)(1),
244(a)'' for ''243(a), 244'' wherever appearing.
1958 - Subsec. (b)(1). Pub. L. 85-866, Sec. 57(c)(2), substituted
''243(a)'' for ''243'' wherever appearing.
Subsec. (c). Pub. L. 85-866, Sec. 18(a), added subsec. (c).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub.L.108-357,Sec.888(d): shall apply to positions
established on or after the date of the enactment of this Act.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1015(c) of Pub. L. 105-34 provided that:
''(1) In general. - The amendments made by this section (amending
this section) shall apply to dividends received or accrued after
the 30th day after the date of the enactment of this Act (Aug. 5,
1997).
''(2) Transitional rule. - The amendments made by this section
shall not apply to dividends received or accrued during the 2-year
period beginning on the date of the enactment of this Act if -
''(A) the dividend is paid with respect to stock held by the
taxpayer on June 8, 1997, and all times thereafter until the
dividend is received,
''(B) such stock is continuously subject to a position
described in section 246(c)(4) of the Internal Revenue Code of
1986 on June 8, 1997, and all times thereafter until the dividend
is received, and
''(C) such stock and position are clearly identified in the
taxpayer's records within 30 days after the date of the enactment
of this Act.
Stock shall not be treated as meeting the requirement of
subparagraph (B) if the position is sold, closed, or otherwise
terminated and reestablished.''
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L.
104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10221(e)(2) of Pub. L.
100-203, as amended, set out as a note under section 243 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 611(b) of Pub. L. 99-514 provided that:
''(1) In general. - The amendments made by subsection (a)
(amending this section and sections 243, 244, 246A, and 805 of this
title) shall apply to dividends received or accrued after December
31, 1986, in taxable years ending after such date.
''(2) Amendment relating to limitation on deductions. - The
amendment made by subsection (a) to section 246(b) of the Internal
Revenue Code of 1986 shall apply to taxable years beginning after
December 31, 1986.''
Amendment by section 1275(a)(2)(B) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Section 1804(b)(1)(C) of Pub. L. 99-514 provided that: ''The
amendments made by this paragraph (amending this section) shall
apply to stock acquired after March 1, 1986.''
Amendment by section 1812(d)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 53(d)(2) of Pub. L. 98-369 applicable to
distributions after Mar. 1, 1984, in taxable years ending after
such date, and amendment of subsec. (c) of this section by section
53(b) of Pub. L. 98-369, applicable to stock acquired after July
18, 1984, in taxable years ending after such date, see section
53(e)(1), (2) of Pub. L. 98-369, set out as an Effective Date note
under section 1059 of this title.
Amendment by section 177(b) of Pub. L. 98-369, effective Jan. 1,
1985, see section 177(d) of Pub. L. 98-369, set out as a note under
section 172 of this title.
Amendment by section 801(b)(2)(A) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 213(e)(1) of Pub. L. 97-248, set
out as a note under section 936 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1051(f)(3) of Pub. L.
94-455, see section 1051(i) of Pub. L. 94-455, set out as a note
under section 27 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94-455 effective
Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94-455, set out as
a note under section 6013 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable with respect to taxable
years ending after Dec. 31, 1971, except that a corporation may not
be a DISC for any taxable year beginning before Jan. 1, 1972, see
section 507 of Pub. L. 92-178, set out as an Effective Date note
under section 991 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 512(f)(3) of Pub. L. 91-172 applicable with
respect to net capital losses sustained in taxable years beginning
after Dec. 31, 1969, see section 512(g) of Pub. L. 91-172, set out
as a note under section 1212 of this title.
Section 434(c) of Pub. L. 91-172 provided that: ''The amendments
made by this section (enacting section 596 of this title and
amending this section) shall apply to taxable years beginning after
July 11, 1969.''
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dividends received in
taxable years ending after Dec. 31, 1963, see section 214(c) of
Pub. L. 88-272, set out as a note under section 243 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 18(b) of Pub. L. 85-866 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply with
respect to taxable years ending after December 31, 1957, but only
with respect to shares of stock acquired or short sales made after
December 31, 1957.''
Amendment by section 57(c)(2) of Pub. L. 85-866 applicable with
respect to taxable years beginning after Sept. 2, 1958, see section
57(d) of Pub. L. 85-866, set out as a note under section 243 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 163, 172, 805, 810, 834,
852, 854, 857, 901, 1059, 1092, 1259 of this title.
