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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle A. Income Taxes |
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Chapter 1. NORMAL TAXES AND SURTAXES |
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SubChapter B. Computation of Taxable Income |
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Part VIII. SPECIAL DEDUCTIONS FOR CORPORATIONS |
§ 246. Rules applying to deductions for dividends received
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(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).
Amendments
2005—Subsec. (c)(3)(B). Pub. L. 109–135 substituted “paragraph (3) of section 1223” for “paragraph (4) of section 1223”.
2004—Subsec. (b)(1). Pub. L. 108–357, § 102(d)(4), inserted “199,” after “172,”.
Subsec. (c)(1)(A). Pub. L. 108–311, § 406(f)(1), substituted “91-day period” for “90-day period”.
Subsec. (c)(2)(B). Pub. L. 108–311, § 406(f)(2), substituted “181-day period” for “180-day period” and “91-day period” for “90-day period”.
Subsec. (c)(4). Pub. L. 108–357, § 888(d), inserted “, other than a qualified covered call option to which section 1092(f) applies” before period at end of concluding provisions.
1997—Subsec. (c)(1)(A). Pub. L. 105–34, § 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, § 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, § 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, § 10221(c)(1)(A), substituted “the percentage determined under paragraph (3)” for “80 percent”.
Subsec. (b)(3). Pub. L. 100–203, § 10221(c)(1)(B), added par. (3).
1986—Subsec. (a)(2)(B). Pub. L. 99–514, § 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, § 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, § 611(a)(3), substituted “80 percent” for “85 percent”.
Subsec. (c)(1)(A). Pub. L. 99–514, § 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, § 1804(b)(1)(B), substituted “determined for purposes of this subsection” for “determined under paragraph (3)”.
Subsec. (e). Pub. L. 99–514, § 1275(a)(2)(B), struck out “or 934(e)(3)” after “936(h)(4)”.
1984—Subsec. (a). Pub. L. 98–369, § 177(b), amended subsec. (a) generally, designating existing provisions as par. (1) and adding par. (2).
Subsec. (b)(1). Pub. L. 98–369, § 801(b)(2)(A), substituted “subsection (a) or (b) of section 245” for “245” in two places.
Pub. L. 98–369, § 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, § 53(b)(1), substituted “45” for “15”.
Subsec. (c)(1)(B). Pub. L. 98–369, § 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, § 53(b)(1), substituted “45” for “15”.
Subsec. (c)(3). Pub. L. 98–369, § 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, § 53(b)(1), substituted “45” for “15”.
Subsec. (c)(4). Pub. L. 98–369, § 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, § 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, § 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, § 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, § 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, § 57(c)(2), substituted “243(a)” for “243” wherever appearing.
Subsec. (c). Pub. L. 85–866, § 18(a), added subsec. (c).
Effective Date Of Amendment
Amendment by Pub. L. 109–135 effective as if included in the provisions of the Energy Policy Act of 2005, Pub. L. 109–58, to which it relates, but not applicable with respect to any transaction ordered in compliance with the Public Utility Holding Company Act of 1935 (15 U.S.C. 79 et seq.) before its repeal, see section 402(m) of Pub. L. 109–135, set out as an Effective and Termination Dates of 2005 Amendments note under section 23 of this title.
Amendment by section 102(d)(4) of Pub. L. 108–357 applicable to taxable years beginning after
Pub. L. 108–357, title VIII, § 888(e),
Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.
Pub. L. 105–34, title X, § 1015(c),
Amendment by Pub. L. 104–188 applicable to taxable years beginning after
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.
Amendment by Pub. L. 100–203 applicable to taxable years beginning after
Pub. L. 99–514, title VI, § 611(b),
Amendment by section 1275(a)(2)(B) of Pub. L. 99–514 applicable to taxable years beginning after
Pub. L. 99–514, title XVIII, § 1804(b)(1)(C),
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.
Amendment by section 53(d)(2) of Pub. L. 98–369 applicable to distributions after
Amendment by section 177(b) of Pub. L. 98–369, effective
Amendment by section 801(b)(2)(A) of Pub. L. 98–369 applicable to transactions after
Amendment by Pub. L. 97–248 applicable to taxable years beginning after
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
Amendment by Pub. L. 92–178 applicable with respect to taxable years ending after
Amendment by section 512(f)(3) of Pub. L. 91–172 applicable with respect to net capital losses sustained in taxable years beginning after
Pub. L. 91–172, title IV, § 434(c),
Amendment by Pub. L. 88–272 applicable to dividends received in taxable years ending after
Pub. L. 85–866, title I, § 18(b),
Amendment by section 57(c)(2) of Pub. L. 85–866 applicable with respect to taxable years beginning after
Miscellaneous
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 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