26 U.S.C. § 246A — Dividends received deduction reduced

Page 990 TITLE 26—INTERNAL REVENUE CODE § 246A 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 Pub. L. 85–866, title I, § 18(b), Sept. 2, 1958, 72 Stat. 1615, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply with re- spect 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 appli- cable 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. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining li- ability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 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. § 246A. Dividends received deduction reduced where portfolio stock is debt financed (a) General rule In the case of any dividend on debt-financed portfolio stock, there shall be substituted for the percentage which (but for this subsection) would be used in determining the amount of the deduction allowable under section 243 or 245(a) a percentage equal to the product of— (1) 50 percent (65 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2)), and (2) 100 percent minus the average indebted- ness percentage. (b) Section not to apply to dividends for which 100 percent dividends received deduction al- lowable Subsection (a) shall not apply to— (1) qualifying dividends (as defined in section 243(b)), and (2) dividends received by a small business in- vestment company operating under the Small Business Investment Act of 1958. (c) Debt financed portfolio stock For purposes of this section— (1) In general The term ‘‘debt financed portfolio stock’’ means any portfolio stock if at some time dur- ing the base period there is portfolio indebted- ness with respect to such stock. (2) Portfolio stock The term ‘‘portfolio stock’’ means any stock of a corporation unless— (A) as of the beginning of the ex-dividend date, the taxpayer owns stock of such cor- poration— (i) possessing at least 50 percent of the total voting power of the stock of such corporation, and (ii) having a value equal to at least 50 percent of the total value of the stock of such corporation, or (B) as of the beginning of the ex-dividend date— (i) the taxpayer owns stock of such cor- poration which would meet the require- ments of subparagraph (A) if ‘‘20 percent’’ were substituted for ‘‘50 percent’’ each place it appears in such subparagraph, and (ii) stock meeting the requirements of subparagraph (A) is owned by 5 or fewer corporate shareholders. (3) Special rule for stock in a bank or bank holding company (A) In general If, as of the beginning of the ex-dividend date, the taxpayer owns stock of any bank or bank holding company having a value equal to at least 80 percent of the total value of the stock of such bank or bank holding company, for purposes of paragraph (2)(A)(i), the taxpayer shall be treated as owning any stock of such bank or bank holding company which the taxpayer has an option to acquire. (B) Definitions For purposes of subparagraph (A)— (i) Bank The term ‘‘bank’’ has the meaning given such term by section 581. (ii) Bank holding company The term ‘‘bank holding company’’ means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). (4) Treatment of certain preferred stock For purposes of determining whether the re- quirements of subparagraph (A) or (B) of para- graph (2) or of subparagraph (A) of paragraph (3) are met, stock described in section 1504(a)(4) shall not be taken into account. (d) Average indebtedness percentage For purposes of this section— (1) In general Except as provided in paragraph (2), the term ‘‘average indebtedness percentage’’ means the percentage obtained by dividing— (A) the average amount (determined under regulations prescribed by the Secretary) of the portfolio indebtedness with respect to the stock during the base period, by (B) the average amount (determined under regulations prescribed by the Secretary) of the adjusted basis of the stock during the base period. (2) Special rule where stock not held through- out base period In the case of any stock which was not held by the taxpayer throughout the base period, Page 991 TITLE 26—INTERNAL REVENUE CODE § 246A paragraph (1) shall be applied as if the base pe- riod consisted only of that portion of the base period during which the stock was held by the taxpayer. (3) Portfolio indebtedness (A) In general The term ‘‘portfolio indebtedness’’ means any indebtedness directly attributable to in- vestment in the portfolio stock. (B) Certain amounts received from short sale treated as indebtedness For purposes of subparagraph (A), any amount received from a short sale shall be treated as indebtedness for the period begin- ning on the day on which such amount is re- ceived and ending on the day the short sale is closed. (4) Base period The term ‘‘base period’’ means, with respect to any dividend, the shorter of— (A) the period beginning on the ex-divi- dend date for the most recent previous divi- dend on the stock and ending on the day be- fore the ex-dividend date for the dividend in- volved, or (B) the 1-year period ending on the day be- fore the ex-dividend date for the dividend in- volved. (e) Reduction in dividends received deduction not to exceed allocable interest Under regulations prescribed by the Secretary, any reduction under this section in the amount allowable as a deduction under section 243 or 245 with respect to any dividend shall not exceed the amount of any interest deduction (including any deductible short sale expense) allocable to such dividend. (f) Regulations The regulations prescribed for purposes of this section under section 7701(f) shall include regu- lations providing for the disallowance of inter- est deductions or other appropriate treatment (in lieu of reducing the dividend received deduc- tion) where the obligor of the indebtedness is a person other than the person receiving the divi- dend. (Added Pub. L. 98–369, div. A, title I, § 51(a), July 18, 1984, 98 Stat. 562; amended Pub. L. 99–514, title VI, § 611(a)(4), title XVIII, § 1804(a), Oct. 22, 1986, 100 Stat. 2249, 2798; Pub. L. 100–203, title X, § 10221(d)(2), Dec. 22, 1987, 101 Stat. 1330–409; Pub. L. 100–647, title I, § 1012(l)(1), Nov. 10, 1988, 102 Stat. 3513; Pub. L. 108–311, title IV, § 408(a)(9), Oct. 4, 2004, 118 Stat. 1191; Pub. L. 113–295, div. A, title II, § 221(a)(41)(F), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 115–97, title I, § 13002(d), Dec. 22, 2017, 131 Stat. 2100; Pub. L. 115–141, div. U, title IV, § 401(b)(17), Mar. 23, 2018, 132 Stat. 1202.) Editorial Notes REFERENCES IN TEXT The Small Business Investment Act of 1958, referred to in subsec. (b)(2), is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. For com- plete classification of this Act to the Code, see Short Title note set out under section 661 of Title 15 and Ta- bles. Section 2(a) of the Bank Holding Company Act of 1956, referred to in subsec. (c)(3)(B)(ii), is classified to section 1841(a) of Title 12, Banks and Banking. AMENDMENTS 2018—Subsec. (b)(1). Pub. L. 115–141 struck out ‘‘with- out regard to section 243(d)(4)’’ after ‘‘section 243(b)’’. 2017—Subsec. (a)(1). Pub. L. 115–97 substituted ‘‘50 per- cent’’ for ‘‘70 percent’’ and ‘‘65 percent’’ for ‘‘80 per- cent’’. 2014—Subsecs. (a), (e). Pub. L. 113–295 struck out ‘‘, 244,’’ after ‘‘section 243’’. 2004—Subsec. (b)(1). Pub. L. 108–311 substituted ‘‘sec- tion 243(d)(4)’’ for ‘‘section 243(c)(4)’’. 1988—Subsec. (a). Pub. L. 100–647 struck out at end ‘‘The preceding sentence shall be applied before any de- termination of a ratio under paragraph (1) or (2) of sec- tion 245(a).’’ 1987—Subsec. (a)(1). Pub. L. 100–203 substituted ‘‘70 percent (80 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2))’’ for ‘‘80 percent’’. 1986—Subsec. (a). Pub. L. 99–514, § 1804(a), substituted ‘‘or 245(a)’’ for ‘‘or 245’’ and inserted ‘‘The preceding sentence shall be applied before any determination of a ratio under paragraph (1) or (2) of section 245(a).’’ Subsec. (a)(1). Pub. L. 99–514, § 611(a)(4), substituted ‘‘80 percent’’ for ‘‘85 percent’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13002(f) of Pub. L. 115–97, set out as a note under section 243 of this title. EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 not applicable to pre- ferred stock issued before Oct. 1, 1942 (determined in the same manner as under section 247 of this title as in effect before its repeal by Pub. L. 113–295), see section 221(a)(41)(K) of Pub. L. 113–295, set out as a note under section 172 of this title. Except as otherwise provided in section 221(a) of Pub. L. 113–295, amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 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 dividends received or accrued after Dec. 31, 1987, in taxable years ending after such date, see section 10221(e)(1) of Pub. L. 100–203, set out as a note under section 243 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 611(a)(4) of Pub. L. 99–514 ap- plicable to dividends received or accrued after Dec. 31, 1986, in taxable years ending after such date, see sec- tion 611(b) of Pub. L. 99–514, set out as a note under sec- tion 246 of this title. Amendment by section 1804(a) of Pub. L. 99–514 effec- tive, 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 Pub. L. 98–369, div. A, title I, § 51(c), July 18, 1984, 98 Stat. 564, provided that: ‘‘The amendments made by Page 992 TITLE 26—INTERNAL REVENUE CODE § 247 this section [enacting this section] shall apply with re- spect to stock the holding period for which begins after the date of the enactment of this Act [July 18, 1984] in taxable years ending after such date.’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining li- ability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 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. § 247. Contributions to Alaska Native Settlement Trusts (a) In general In the case of a Native Corporation, there shall be allowed a deduction for any contribu- tions made by such Native Corporation to a Set- tlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e). (b) Amount of deduction The amount of the deduction under subsection (a) shall be equal to— (1) in the case of a cash contribution (regard- less of the method of payment, including cur- rency, coins, money order, or check), the amount of such contribution, or (2) in the case of a contribution not de- scribed in paragraph (1), the lesser of— (A) the Native Corporation’s adjusted basis in the property contributed, or (B) the fair market value of the property contributed. (c) Limitation and carryover (1) In general Subject to paragraph (2), the deduction al- lowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made. (2) Carryover If the aggregate amount of contributions de- scribed in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time. (d) Definitions For purposes of this section, the terms ‘‘Na- tive Corporation’’ and ‘‘Settlement Trust’’ have the same meaning given such terms under sec- tion 646(h). (e) Manner of making election (1) In general For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplement to the return of the Native Corporation, with such election to have effect solely for such taxable year. (2) Revocation Any election made by a Native Corporation pursuant to this subsection may be revoked pursuant to a timely filed amendment or sup- plement to the income tax return of such Na- tive Corporation. (f) Additional rules (1) Earnings and profits Notwithstanding section 646(d)(2), in the case of a Native Corporation which claims a deduction under this section for any taxable year, the earnings and profits of such Native Corporation for such taxable year shall be re- duced by the amount of such deduction. (2) Gain or loss No gain or loss shall be recognized by the Native Corporation with respect to a contribu- tion of property for which a deduction is al- lowed under this section. (3) Income Subject to subsection (g), a Settlement Trust shall include in income the amount of any deduction allowed under this section in the taxable year in which the Settlement Trust actually receives such contribution. (4) Period The holding period under section 1223 of the Settlement Trust shall include the period the property was held by the Native Corporation. (5) Basis The basis that a Settlement Trust has for which a deduction is allowed under this sec- tion shall be equal to the lesser of— (A) the adjusted basis of the Native Cor- poration in such property immediately be- fore such contribution, or (B) the fair market value of the property immediately before such contribution. (6) Prohibition No deduction shall be allowed under this sec- tion with respect to any contributions made to a Settlement Trust which are in violation of subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act (43 U.S.C. 1629e). (g) Election by Settlement Trust to defer income recognition (1) In general In the case of a contribution which consists of property other than cash, a Settlement Trust may elect to defer recognition of any in- come related to such property until the sale or exchange of such property, in whole or in part, by the Settlement Trust. (2) Treatment In the case of property described in para- graph (1), any income or gain realized on the