26 U.S.C. § 246 : US Code - Section 246: Rules applying to deductions for dividends received

Search 26 U.S.C. § 246 : US Code - Section 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).