26 U.S.C. § 562 — Rules applicable in determining dividends

Page 1771 TITLE 26—INTERNAL REVENUE CODE § 562 Section 558, added Pub. L. 85–866, title I, § 33(d)(1), Sept. 2, 1958, 72 Stat. 1632, related to returns of officers, directors, and shareholders of foreign personal holding companies. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to taxable years of foreign corpora- tions beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see sec- tion 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. PART IV—DEDUCTION FOR DIVIDENDS PAID Sec. 561. Definition of deduction for dividends paid. 562. Rules applicable in determining dividends eli- gible for dividends paid deduction. 563. Rules relating to dividends paid after close of taxable year. 564. Dividend carryover. 565. Consent dividends. § 561. Definition of deduction for dividends paid (a) General rule The deduction for dividends paid shall be the sum of— (1) the dividends paid during the taxable year, (2) the consent dividends for the taxable year (determined under section 565), and (3) in the case of a personal holding com- pany, the dividend carryover described in sec- tion 564. (b) Special rules applicable In determining the deduction for dividends paid, the rules provided in section 562 (relating to rules applicable in determining dividends eli- gible for dividends paid deduction) and section 563 (relating to dividends paid after the close of the taxable year) shall be applicable. (Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 87–403, § 3(f), Feb. 2, 1962, 76 Stat. 8; Pub. L. 94–455, title XIX, § 1901(b)(32)(H), Oct. 4, 1976, 90 Stat. 1800.) Editorial Notes AMENDMENTS 1976—Subsec. (b). Pub. L. 94–455 redesignated existing provisions of par. (1) as subsec. (b) and struck out par. (2) relating to special adjustment on disposition of antitrust stock as a dividend. 1962—Subsec. (b). Pub. L. 87–403 designated existing provisions as par. (1) and added par. (2). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see sec- tion 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by Pub. L. 87–403 applicable only with re- spect to distributions made after Feb. 2, 1962, see sec- tion 3(g) of Pub. L. 87–403, set out as a note under sec- tion 312 of this title. § 562. Rules applicable in determining dividends eligible for dividends paid deduction (a) General rule For purposes of this part, the term ‘‘dividend’’ shall, except as otherwise provided in this sec- tion, include only dividends described in section 316 (relating to definition of dividends for pur- poses of corporate distributions). (b) Distributions in liquidation (1) Except in the case of a personal holding company described in section 542— (A) in the case of amounts distributed in liquidation, the part of such distribution which is properly chargeable to earnings and profits accumulated after February 28, 1913, shall be treated as a dividend for purposes of computing the dividends paid deduction, and (B) in the case of a complete liquidation occurring within 24 months after the adop- tion of a plan of liquidation, any distribu- tion within such period pursuant to such plan shall, to the extent of the earnings and profits (computed without regard to capital losses) of the corporation for the taxable year in which such distribution is made, be treated as a dividend for purposes of com- puting the dividends paid deduction. For purposes of subparagraph (A), a liquida- tion includes a redemption of stock to which section 302 applies. Except to the extent pro- vided in regulations, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regu- lated investment company. (2) In the case of a complete liquidation of a personal holding company, occurring within 24 months after the adoption of a plan of liquida- tion, the amount of any distribution within such period pursuant to such plan shall be treated as a dividend for purposes of com- puting the dividends paid deduction, to the ex- tent that such amount is distributed to cor- porate distributees and represents such cor- porate distributees’ allocable share of the un- distributed personal holding company income for the taxable year of such distribution com- puted without regard to this paragraph and without regard to subparagraph (B) of section 316(b)(2). (c) Preferential dividends (1) In general Except in the case of a publicly offered regu- lated investment company (as defined in sec- tion 67(c)(2)(B)) or a publicly offered REIT, the amount of any distribution shall not be con- sidered as a dividend for purposes of com- puting the dividends paid deduction, unless such distribution is pro rata, with no pref- erence to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that the former is entitled (without reference to waivers of their rights by shareholders) to such preference. In the case of a distribution by a regulated investment company (other than a publicly offered regulated investment company (as so defined)) to a shareholder who Page 1772 TITLE 26—INTERNAL REVENUE CODE § 562 made an initial investment of at least $10,000,000 in such company, such distribution shall not be treated as not being pro rata or as being preferential solely by reason of an in- crease in the distribution by reason of reduc- tions in administrative expenses of the com- pany. (2) Publicly offered REIT For purposes of this subsection, the term ‘‘publicly offered REIT’’ means a real estate investment trust which is required to file an- nual and periodic reports with the Securities and Exchange Commission under the Securi- ties Exchange Act of 1934. (d) Distributions by a member of an affiliated group In the case where a corporation which is a member of an affiliated group of corporations filing or required to file a consolidated return for a taxable year is required to file a separate personal holding company schedule for such tax- able year, a distribution by such corporation to another member of the affiliated group shall be considered as a dividend for purposes of com- puting the dividends paid deduction if such dis- tribution would constitute a dividend under the other provisions of this section to a recipient which is not a member of an affiliated group. (e) Special rules for real estate investment trusts (1) Determination of earnings and profits for purposes of dividends paid deduction In the case of a real estate investment trust, in determining the amount of dividends under section 316 for purposes of computing the divi- dends paid deduction— (A) the earnings and profits of such trust for any taxable year (but not its accumu- lated earnings) shall be increased by the amount of gain (if any) on the sale or ex- change of real property which is taken into account in determining the taxable income of such trust for such taxable year (and not otherwise taken into account in determining such earnings and profits), and (B) section 857(d)(1) shall be applied with- out regard to subparagraph (B) thereof. (2) Authority to provide alternative remedies for certain failures In the case of a failure of a distribution by a real estate investment trust to comply with the requirements of subsection (c), the Sec- retary may provide an appropriate remedy to cure such failure in lieu of not considering the distribution to be a dividend for purposes of computing the dividends paid deduction if— (A) the Secretary determines that such failure is inadvertent or is due to reasonable cause and not due to willful neglect, or (B) such failure is of a type of failure which the Secretary has identified for pur- poses of this paragraph as being described in subparagraph (A). (Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 88–272, title II, § 225(f)(3), Feb. 26, 1964, 78 Stat. 88; Pub. L. 97–248, title II, § 222(e)(7), Sept. 3, 1982, 96 Stat. 480; Pub. L. 97–448, title I, § 102(c)(2), Jan. 12, 1983, 96 Stat. 2370; Pub. L. 99–514, title VI, § 657(a), title XVIII, § 1804(d)(1), Oct. 22, 1986, 100 Stat. 2299, 2800; Pub. L. 108–357, title IV, § 413(c)(9), Oct. 22, 2004, 118 Stat. 1507; Pub. L. 111–325, title III, § 307(a), (b), Dec. 22, 2010, 124 Stat. 3550; Pub. L. 114–113, div. Q, title III, §§ 314(a), (b), 315(a), 320(b), Dec. 18, 2015, 129 Stat. 3093, 3097.) Editorial Notes REFERENCES IN TEXT The Securities Exchange Act of 1934, referred to in subsec. (c)(2), is act June 6, 1934, ch. 404, 48 Stat. 881, which is classified principally to chapter 2B (§ 78a et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78a of Title 15 and Tables. AMENDMENTS 2015—Subsec. (c). Pub. L. 114–113, § 314(a), (b), des- ignated existing provisions as par. (1), inserted heading and ‘‘or a publicly offered REIT’’ after ‘‘a publicly of- fered regulated investment company (as defined in sec- tion 67(c)(2)(B))’’ in text, and added par. (2). Subsec. (e). Pub. L. 114–113, § 315(a), designated exist- ing provisions as par. (1), inserted heading, and added par. (2). Subsec. (e)(1). Pub. L. 114–113, § 320(b), substituted ‘‘deduction—’’ for ‘‘deduction, the earnings and profits of such trust for any taxable year beginning after De- cember 31, 1980, shall be increased by the total amount of gain (if any) on the sale or exchange of real property by such trust during such taxable year.’’ and added sub- pars. (A) and (B). 2010—Subsec. (c). Pub. L. 111–325 substituted ‘‘Except in the case of a publicly offered regulated investment company (as defined in section 67(c)(2)(B)), the amount’’ for ‘‘The amount’’ in first sentence and in- serted ‘‘(other than a publicly offered regulated invest- ment company (as so defined))’’ after ‘‘regulated in- vestment company’’ in second sentence. 2004—Subsec. (b)(1). Pub. L. 108–357 struck out ‘‘or a foreign personal holding company described in section 552’’ after ‘‘section 542’’ in introductory provisions. 1986—Subsec. (b)(1). Pub. L. 99–514, § 1804(d)(1), in- serted at end ‘‘Except to the extent provided in regula- tions, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regulated investment company.’’ Subsec. (c). Pub. L. 99–514, § 657(a), inserted at end ‘‘In the case of a distribution by a regulated investment company to a shareholder who made an initial invest- ment of at least $10,000,000 in such company, such dis- tribution shall not be treated as not being pro rata or as being preferential solely by reason of an increase in the distribution by reason of reductions in administra- tive expenses of the company.’’ 1983—Subsec. (e). Pub. L. 97–448 added subsec. (e). 1982—Subsec. (b)(1). Pub. L. 97–248 inserted sentence at end providing that, for purposes of subpar. (A), a liq- uidation includes a redemption of stock to which sec- tion 302 applies. 1964—Subsec. (b). Pub. L. 88–272 designated existing provisions as subpars. (A) and (B) of par. (1), excepted personal holding companies in section 542, and foreign personal holding companies in section 552 therefrom, and added par. (2). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2015 AMENDMENT Pub. L. 114–113, div. Q, title III, § 314(c), Dec. 18, 2015, 129 Stat. 3093, provided that: ‘‘The amendments made by this section [amending this section] shall apply to distributions in taxable years beginning after Decem- ber 31, 2014.’’ Pub. L. 114–113, div. Q, title III, § 315(b), Dec. 18, 2015, 129 Stat. 3093, provided that: ‘‘The amendments made by this section [amending this section] shall apply to Page 1773 TITLE 26—INTERNAL REVENUE CODE § 563 distributions in taxable years beginning after Decem- ber 31, 2015.’’ Pub. L. 114–113, div. Q, title III, § 320(c), Dec. 18, 2015, 129 Stat. 3097, provided that: ‘‘The amendments made by this section [amending this section and section 857 of this title] shall apply to taxable years beginning after December 31, 2015.’’ EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–325, title III, § 307(c), Dec. 22, 2010, 124 Stat. 3550, provided that: ‘‘The amendments made by this section [amending this section] shall apply to dis- tributions in taxable years beginning after the date of the enactment of this Act [Dec. 22, 2010].’’ EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title VI, § 657(b), Oct. 22, 1986, 100 Stat. 2299, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to dis- tributions after the date of the enactment of this Act [Oct. 22, 1986].’’ Pub. L. 99–514, title XVIII, § 1804(d)(2), Oct. 22, 1986, 100 Stat. 2800, provided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply to distributions after September 27, 1985.’’ EFFECTIVE DATE OF 1983 AMENDMENT Amendment by Pub. L. 97–448 effective, except as oth- erwise provided, as if it had been included in the provi- sion of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1982 AMENDMENT Amendment by Pub. L. 97–248 applicable to distribu- tions after Aug. 31, 1982, with exceptions for certain partial liquidations, see section 222(f) of Pub. L. 97–248, set out as a note under section 302 of this title. EFFECTIVE DATE OF 1964 AMENDMENT Amendment Pub. L. 88–272 applicable to distributions made in any taxable year of the distributing corpora- tion beginning after Dec. 31, 1963, see section 225(l) of Pub. L. 88–272, set out as a note under section 316 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 [§§ 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 Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 563. Rules relating to dividends paid after close of taxable year (a) Accumulated earnings tax In the determination of the dividends paid de- duction for purposes of the accumulated earn- ings tax imposed by section 531, a dividend paid after the close of any taxable year and on or be- fore the 15th day of the fourth month following the close of such taxable year shall be consid- ered as paid during such taxable year. (b) Personal holding company tax In the determination of the dividends paid de- duction for purposes of the personal holding company tax imposed by section 541, a dividend paid after the close of any taxable year and on or before the 15th day of the fourth month fol- lowing the close of such taxable year shall, to the extent the taxpayer elects in its return for the taxable year, be considered as paid during such taxable year. The amount allowed as a div- idend by reason of the application of this sub- section with respect to any taxable year shall not exceed either— (1) The undistributed personal holding com- pany income of the corporation for the taxable year, computed without regard to this sub- section, or (2) 20 percent of the sum of the dividends paid during the taxable year, computed with- out regard to this subsection. (c) Dividends considered as paid on last day of taxable year For the purpose of applying section 562(a), with respect to distributions under subsection (a) or (b) of this section, a distribution made after the close of a taxable year and on or before the 15th day of the fourth month following the close of the taxable year shall be considered as made on the last day of such taxable year. (Aug. 16, 1954, ch. 736, 68A Stat. 199; Pub. L. 91–172, title IX, § 914(a), Dec. 30, 1969, 83 Stat. 723; Pub. L. 101–239, title VII, § 7401(b), Dec. 19, 1989, 103 Stat. 2356; Pub. L. 108–357, title IV, § 413(c)(10), Oct. 22, 2004, 118 Stat. 1507; Pub. L. 114–41, title II, § 2006(a)(2)(B), July 31, 2015, 129 Stat. 457.) Editorial Notes AMENDMENTS 2015—Pub. L. 114–41 substituted ‘‘fourth month’’ for ‘‘third month’’ wherever appearing. 2004—Subsecs. (c), (d). Pub. L. 108–357 redesignated subsec. (d) as (c), substituted ‘‘subsection (a) or (b)’’ for ‘‘subsection (a), (b), or (c)’’, and struck out former sub- sec. (c) which related to foreign personal holding com- pany tax. 1989—Subsec. (c). Pub. L. 101–239, § 7401(b)(1), added subsec. (c). Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 101–239, § 7401(b)(2), substituted ‘‘subsection (a), (b), or (c)’’ for ‘‘subsection (a) or (b)’’. Pub. L. 101–239, § 7401(b)(1), redesignated former sub- sec. (c) as (d). 1969—Subsec. (b)(2). Pub. L. 91–172 substituted ‘‘20 per- cent’’ for ‘‘10 percent’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2015 AMENDMENT Amendment by Pub. L. 114–41 applicable to returns for taxable years beginning after Dec. 31, 2015, with spe- cial rule for certain C corporations, see section 2006(a)(3) of Pub. L. 114–41, set out as a note under sec- tion 170 of this title. EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title.