26 U.S.C. § 965 : US Code - Section 965: Temporary dividends received deduction

Search 26 U.S.C. § 965 : US Code - Section 965: Temporary dividends received deduction

(a) Deduction
(1) In general
In the case of a corporation which is a United States
shareholder and for which the election under this section is in
effect for the taxable year, there shall be allowed as a
deduction an amount equal to 85 percent of the cash dividends
which are received during such taxable year by such shareholder
from controlled foreign corporations.
(2) Dividends paid indirectly from controlled foreign
corporations
If, within the taxable year for which the election under this
section is in effect, a United States shareholder receives a cash
distribution from a controlled foreign corporation which is
excluded from gross income under section 959(a), such
distribution shall be treated for purposes of this section as a
cash dividend to the extent of any amount included in income by
such United States shareholder under section 951(a)(1)(A) as a
result of any cash dividend during such taxable year to -
(A) such controlled foreign corporation from another
controlled foreign corporation that is in a chain of ownership
described in section 958(a), or
(B) any other controlled foreign corporation in such chain of
ownership from another controlled foreign corporation in such
chain of ownership, but only to the extent of cash
distributions described in section 959(b) which are made during
such taxable year to the controlled foreign corporation from
which such United States shareholder received such
distribution.
(b) Limitations
(1) In general
The amount of dividends taken into account under subsection (a)
shall not exceed the greater of -
(A) $500,000,000,
(B) the amount shown on the applicable financial statement as
earnings permanently reinvested outside the United States, or
(C) in the case of an applicable financial statement which
fails to show a specific amount of earnings permanently
reinvested outside the United States and which shows a specific
amount of tax liability attributable to such earnings, the
amount equal to the amount of such liability divided by 0.35.
The amounts described in subparagraphs (B) and (C) shall be
treated as being zero if there is no such statement or such
statement fails to show a specific amount of such earnings or
liability, as the case may be.
(2) Dividends must be extraordinary
The amount of dividends taken into account under subsection (a)
shall not exceed the excess (if any) of -
(A) the cash dividends received during the taxable year by
such shareholder from controlled foreign corporations, over
(B) the annual average for the base period years of -
(i) the dividends received during each base period year by
such shareholder from controlled foreign corporations,
(ii) the amounts includible in such shareholder's gross
income for each base period year under section 951(a)(1)(B)
with respect to controlled foreign corporations, and
(iii) the amounts that would have been included for each
base period year but for section 959(a) with respect to
controlled foreign corporations.
The amount taken into account under clause (iii) for any base
period year shall not include any amount which is not
includible in gross income by reason of an amount described in
clause (ii) with respect to a prior taxable year. Amounts
described in subparagraph (B) for any base period year shall be
such amounts as shown on the most recent return filed for such
year; except that amended returns filed after June 30, 2003,
shall not be taken into account.
(3) Reduction of benefit if increase in related party
indebtedness
The amount of dividends which would (but for this paragraph) be
taken into account under subsection (a) shall be reduced by the
excess (if any) of -
(A) the amount of indebtedness of the controlled foreign
corporation to any related person (as defined in section
954(d)(3)) as of the close of the taxable year for which the
election under this section is in effect, over
(B) the amount of indebtedness of the controlled foreign
corporation to any related person (as so defined) as of the
close of October 3, 2004.
All controlled foreign corporations with respect to which the
taxpayer is a United States shareholder shall be treated as 1
controlled foreign corporation for purposes of this paragraph.
The Secretary may prescribe such regulations as may be necessary
or appropriate to prevent the avoidance of the purposes of this
paragraph, including regulations which provide that cash
dividends shall not be taken into account under subsection (a) to
the extent such dividends are attributable to the direct or
indirect transfer (including through the use of intervening
entities or capital contributions) of cash or other property from
a related person (as so defined) to a controlled foreign
corporation.
(4) Requirement to invest in United States
Subsection (a) shall not apply to any dividend received by a
United States shareholder unless the amount of the dividend is
invested in the United States pursuant to a domestic reinvestment
plan which -
(A) is approved by the taxpayer's president, chief executive
officer, or comparable official before the payment of such
dividend and subsequently approved by the taxpayer's board of
directors, management committee, executive committee, or
similar body, and
(B) provides for the reinvestment of such dividend in the
United States (other than as payment for executive
compensation), including as a source for the funding of worker
hiring and training, infrastructure, research and development,
capital investments, or the financial stabilization of the
corporation for the purposes of job retention or creation.
(c) Definitions and special rules
For purposes of this section -
(1) Applicable financial statement
The term "applicable financial statement" means -
(A) with respect to a United States shareholder which is
required to file a financial statement with the Securities and
Exchange Commission (or which is included in such a statement
so filed by another person), the most recent audited annual
financial statement (including the notes which form an integral
part of such statement) of such shareholder (or which includes
such shareholder) -
(i) which was so filed on or before June 30, 2003, and
(ii) which was certified on or before June 30, 2003, as
being prepared in accordance with generally accepted
accounting principles, and
(B) with respect to any other United States shareholder, the
most recent audited financial statement (including the notes
which form an integral part of such statement) of such
shareholder (or which includes such shareholder) -
(i) which was certified on or before June 30, 2003, as
being prepared in accordance with generally accepted
accounting principles, and
(ii) which is used for the purposes of a statement or
report -
(I) to creditors,
(II) to shareholders, or
(III) for any other substantial nontax purpose.
(2) Base period years
(A) In general
The base period years are the 3 taxable years -
(i) which are among the 5 most recent taxable years ending
on or before June 30, 2003, and
(ii) which are determined by disregarding -
(I) 1 taxable year for which the sum of the amounts
described in clauses (i), (ii), and (iii) of subsection
(b)(2)(B) is the largest, and
(II) 1 taxable year for which such sum is the smallest.
(B) Shorter period
If the taxpayer has fewer than 5 taxable years ending on or
before June 30, 2003, then in lieu of applying subparagraph
(A), the base period years shall include all the taxable years
of the taxpayer ending on or before June 30, 2003.
(C) Mergers, acquisitions, etc.
(i) In general
Rules similar to the rules of subparagraphs (A) and (B) of
section 41(f)(3) shall apply for purposes of this paragraph.
(ii) Spin-offs, etc.
If there is a distribution to which section 355 (or so much
of section 356 as relates to section 355) applies during the
5-year period referred to in subparagraph (A)(i) and the
controlled corporation (within the meaning of section 355) is
a United States shareholder -
(I) the controlled corporation shall be treated as being
in existence during the period that the distributing
corporation (within the meaning of section 355) is in
existence, and
(II) for purposes of applying subsection (b)(2) to the
controlled corporation and the distributing corporation,
amounts described in subsection (b)(2)(B) which are
received or includible by the distributing corporation or
controlled corporation (as the case may be) before the
distribution referred to in subclause (I) from a controlled
foreign corporation shall be allocated between such
corporations in proportion to their respective interests as
United States shareholders of such controlled foreign
corporation immediately after such distribution.
Subclause (II) shall not apply if neither the controlled
corporation nor the distributing corporation is a United
States shareholder of such controlled foreign corporation
immediately after such distribution.
(3) Dividend
The term "dividend" shall not include amounts includible in
gross income as a dividend under section 78, 367, or 1248. In the
case of a liquidation under section 332 to which section 367(b)
applies, the preceding sentence shall not apply to the extent the
United States shareholder actually receives cash as part of the
liquidation.
(4) Coordination with dividends received deduction
No deduction shall be allowed under section 243 or 245 for any
dividend for which a deduction is allowed under this section.
(5) Controlled groups
(A) In general
All United States shareholders which are members of an
affiliated group filing a consolidated return under section
1501 shall be treated as one United States shareholder.
(B) Application of $500,000,000 limit
All corporations which are treated as a single employer under
section 52(a) shall be limited to one $500,000,000 amount in
subsection (b)(1)(A), and such amount shall be divided among
such corporations under regulations prescribed by the
Secretary.
(C) Permanently reinvested earnings
If a financial statement is an applicable financial statement
for more than 1 United States shareholder, the amount
applicable under subparagraph (B) or (C) of subsection (b)(1)
shall be divided among such shareholders under regulations
prescribed by the Secretary.
(d) Denial of foreign tax credit; denial of certain expenses
(1) Foreign tax credit
No credit shall be allowed under section 901 for any taxes paid
or accrued (or treated as paid or accrued) with respect to the
deductible portion of -
(A) any dividend, or
(B) any amount described in subsection (a)(2) which is
included in income under section 951(a)(1)(A).
No deduction shall be allowed under this chapter for any tax for
which credit is not allowable by reason of the preceding
sentence.
(2) Expenses
No deduction shall be allowed for expenses directly allocable
to the deductible portion described in paragraph (1).
(3) Deductible portion
For purposes of paragraph (1), unless the taxpayer otherwise
specifies, the deductible portion of any dividend or other amount
is the amount which bears the same ratio to the amount of such
dividend or other amount as the amount allowed as a deduction
under subsection (a) for the taxable year bears to the amount
described in subsection (b)(2)(A) for such year.
(4) Coordination with section 78
Section 78 shall not apply to any tax which is not allowable as
a credit under section 901 by reason of this subsection.
(e) Increase in tax on included amounts not reduced by credits,
etc.
(1) In general
Any tax under this chapter by reason of nondeductible CFC
dividends shall not be treated as tax imposed by this chapter for
purposes of determining -
(A) the amount of any credit allowable under this chapter, or
(B) the amount of the tax imposed by section 55.
Subparagraph (A) shall not apply to the credit under section 53
or to the credit under section 27(a) with respect to taxes which
are imposed by foreign countries and possessions of the United
States and are attributable to such dividends.
(2) Limitation on reduction in taxable income, etc.
(A) In general
The taxable income of any United States shareholder for any
taxable year shall in no event be less than the amount of
nondeductible CFC dividends received during such year.
(B) Coordination with section 172
The nondeductible CFC dividends for any taxable year shall
not be taken into account -
(i) in determining under section 172 the amount of any net
operating loss for such taxable year, and
(ii) in determining taxable income for such taxable year
for purposes of the 2nd sentence of section 172(b)(2).
(3) Nondeductible CFC dividends
For purposes of this subsection, the term "nondeductible CFC
dividends" means the excess of the amount of dividends taken into
account under subsection (a) over the deduction allowed under
subsection (a) for such dividends.
(f) Election
The taxpayer may elect to apply this section to -
(1) the taxpayer's last taxable year which begins before the
date of the enactment of this section, or
(2) the taxpayer's first taxable year which begins during the 1-
year period beginning on such date.
Such election may be made for a taxable year only if made on or
before the due date (including extensions) for filing the return of
tax for such taxable year.