# 26 U.S.C. § 245A: Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 245A(a)(1). ## § 245A(a) In general In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend. ## § 245A(b) Specified 10-percent owned foreign corporation For purposes of this section— **§ 245A(b)(1) In general.** The term “specified 10-percent owned foreign corporation” means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation. **§ 245A(b)(2) Exclusion of passive foreign investment companies.** Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation. ## § 245A(c) Foreign-source portion For purposes of this section— **§ 245A(c)(1) In general.** The foreign-source portion of any dividend from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as— **§ 245A(c)(1)(A)** the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to **§ 245A(c)(1)(B)** the total undistributed earnings of such foreign corporation. **§ 245A(c)(2) Undistributed earnings.** The term “undistributed earnings” means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986)— **§ 245A(c)(2)(A)** as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and **§ 245A(c)(2)(B)** without diminution by reason of dividends distributed during such taxable year. **§ 245A(c)(3) Undistributed foreign earnings.** The term “undistributed foreign earnings” means the portion of the undistributed earnings which is attributable to neither— **§ 245A(c)(3)(A)** income described in subparagraph (A) of section 245(a)(5), nor **§ 245A(c)(3)(B)** dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)). ## § 245A(d) Disallowance of foreign tax credit, etc. **§ 245A(d)(1) In general.** No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section. **§ 245A(d)(2) Denial of deduction.** No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). ## § 245A(e) Special rules for hybrid dividends **§ 245A(e)(1) In general.** Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend. **§ 245A(e)(2) Hybrid dividends of tiered corporations.** If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title— **§ 245A(e)(2)(A)** the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and **§ 245A(e)(2)(B)** the United States shareholder shall include in gross income an amount equal to the shareholder’s pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A). **§ 245A(e)(3) Denial of foreign tax credit, etc..** The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder. **§ 245A(e)(4) Hybrid dividend.** The term “hybrid dividend” means an amount received from a controlled foreign corporation— **§ 245A(e)(4)(A)** for which a deduction would be allowed under subsection (a) but for this subsection, and **§ 245A(e)(4)(B)** for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States. ## § 245A(f) Special rule for purging distributions of passive foreign investment companies Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section. ## § 245A(g) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent [OLRC note: So in original. Probably should be “10-percent”.] owned foreign corporation through a partnership. ## Regulations - [Treas. Reg. § 1.245A-1 - 1.245A-4](/26/reg/1.245A-1 - 1.245A-4.md): §§ 1.245A-1-1.245A-4 [Reserved] (interprets § 245A) - [Treas. Reg. § 1.245A-5](/26/reg/1.245A-5.md): Limitation of section 245A deduction and section 954(c)(6) exception. (interprets § 245A) - [Treas. Reg. § 1.245A-6](/26/reg/1.245A-6.md): Coordination of extraordinary disposition and disqualified basis rules. (interprets § 245A) - [Treas. Reg. § 1.245A-7](/26/reg/1.245A-7.md): Coordination rules for simple cases. (interprets § 245A) - [Treas. Reg. § 1.245A-8](/26/reg/1.245A-8.md): Coordination rules for complex cases. (interprets § 245A) - [Treas. Reg. § 1.245A-9](/26/reg/1.245A-9.md): Other rules and definitions. (interprets § 245A) - [Treas. Reg. § 1.245A-10](/26/reg/1.245A-10.md): Examples. (interprets § 245A) - [Treas. Reg. § 1.245A-11](/26/reg/1.245A-11.md): Applicability dates. (interprets § 245A) - [Treas. Reg. § 1.245A(d)-1](/26/reg/1.245A(d)-1.md): Disallowance of foreign tax credit or deduction. (interprets § 245A(d)) - [Treas. Reg. § 1.245A(e)-1](/26/reg/1.245A(e)-1.md): Special rules for hybrid dividends. (interprets § 245A(e)) ## Final rules - [87 FR 276](https://www.federalregister.gov/documents/2022/01/04/2021-27887/guidance-related-to-the-foreign-tax-credit-clarification-of-foreign-derived-intangible-income) (2022): Guidance Related to the Foreign Tax Credit; Clarification of Foreign-Derived Intangible Income - [85 FR 76960](https://www.federalregister.gov/documents/2020/12/01/2020-26074/coordination-of-extraordinary-disposition-and-disqualified-basis-rules) (2020): Coordination of Extraordinary Disposition and Disqualified Basis Rules - [85 FR 71998](https://www.federalregister.gov/documents/2020/11/12/2020-21819/guidance-related-to-the-allocation-and-apportionment-of-deductions-and-foreign-taxes-foreign-tax) (2020): Guidance Related to the Allocation and Apportionment of Deductions and Foreign Taxes, Foreign Tax Redeterminations, Foreign Tax Credit Disallowance Under Section 965(g), Consolidated Groups, Hybrid Arrangements and Certain Payments Under Section 951A - [85 FR 60358](https://www.federalregister.gov/documents/2020/09/25/C1-2020-18543/limitation-on-deduction-for-dividends-received-from-certain-foreign-corporations-and-amounts) (2020): Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception - [85 FR 53068](https://www.federalregister.gov/documents/2020/08/27/2020-18543/limitation-on-deduction-for-dividends-received-from-certain-foreign-corporations-and-amounts) (2020): Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception - [85 FR 19802](https://www.federalregister.gov/documents/2020/04/08/2020-05924/rules-regarding-certain-hybrid-arrangements) (2020): Rules Regarding Certain Hybrid Arrangements - [84 FR 28398](https://www.federalregister.gov/documents/2019/06/18/2019-12442/limitation-on-deduction-for-dividends-received-from-certain-foreign-corporations-and-amounts) (2019): Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception ## Leading cases - [Varian Medical Systems, Inc. and Subsidiaries v. Commissioner (T.C. 2024)](https://www.courtlistener.com/opinion/10072748/varian-medical-systems-inc-and-subsidiaries/) - [Siemens Medical Solutions USA, Inc. and Consolidated Subsidiaries v. Commissioner (T.C. 2026)](https://www.courtlistener.com/opinion/10931736/siemens-medical-solutions-usa-inc-and-consolidated-subsidiaries/) - [Sysco Corporation v. Commissioner (T.C. 2026)](https://www.courtlistener.com/opinion/10973287/sysco-corporation/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.245A(d)-1](/26/prop/1.245A(d)-1_2024-27227.md): Disallowance of foreign tax credit or deduction. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.245A-5](/26/prop/1.245A-5_2026-17365.md): Limitation of section 245A deduction and section 954(c)(6) exception. (REG-115646-25, proposed 2026-08-26) ## Connections Cites: § 245 Dividends received from certain foreign corporations; § 901 Taxes of foreign countries and of possessions of United States; § 951 Amounts included in gross income of United States shareholders; § 1291 Interest on tax deferral; § 1297 Passive foreign investment company Cited by: § 91 Certain foreign branch losses transferred to specified 10-percent owned foreign corporations; § 246 Rules applying to deductions for dividends received; § 904 Limitation on credit; § 909 Suspension of taxes and credits until related income taken into account; § 961 Adjustments to basis of stock in controlled foreign corporations and of other property; § 964 Miscellaneous provisions; § 1248 Gain from certain sales or exchanges of stock in certain foreign corporations ## Amendments - 2017-12-22: [Pub. L. 115-97](/26/act/115-97.md), 131 Stat. 2189