Amended 1971, 1982, 1986, 1996, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 struck out subsec. (e). Prior to amendment, text read as follows: “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).”
- 1996 Pub. L. 104-188 Pub. L. 104–188 struck out subsec. (f) which provided a cross reference to section 596 of this title for special rule relating to mutual savings banks, etc., to which section 593 applies.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1275(a)(2)(B), struck out “or 934(e)(3)” after “936(h)(4)”.
- 1982 Pub. L. 97-248 Pub. L. 97–248 added subsec. (e) and redesignated former subsec. (e) as (f).
- 1971 Pub. L. 92-178 Pub. L. 92–178 added subsec. (d) and redesignated former subsec. (d) as (e).
Cases: Lastarmco, Inc. v. Commissioner, 79 T.C. 810 (1982)
Final rules 1
(a) Deduction not allowed for dividends from certain corporations
Amended 1976, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 177(b), amended subsec. (a) generally, designating existing provisions as par. (1) and adding par. (2).
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1051(f)(3), struck out references to dividends from corporations organized under the China Trade Act, 1922, and corporations to which section 931 (relating to income from sources within possessions of the United States) applies.
(1) In general The deductions allowed by sections 243 [OLRC note: So in original. Probably should be followed by a comma.] 245, and 245A 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).
Amended 2014, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14101(c)(1), substituted “245, and 245A” for “and 245”.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(E)(i), struck out “, 244,” after “sections 243”.
Research 1
Cited by 3
(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—
Research 1
Cited by 2
(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—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(d)(1)(A), substituted “In” for “For purposes of subparagraph (A), in” in introductory provisions and substituted cl. (i)(II) for former cl. (i)(II) which read as follows: “which were not taken into account under subparagraph (A), bears to”.
Cited by 1
(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.
Cited by 1
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.
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(d)(1)(B), (C), added subpar. (C), redesignated former subpar. (C) as (D), and added cl. (iv) to subpar. (D).
(D) Definitions For purposes of this paragraph—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(d)(1)(B), (C), added subpar. (C), redesignated former subpar. (C) as (D), and added cl. (iv) to subpar. (D).
(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—
(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
Amended 1964
- 1964 Pub. L. 88-272 Pub. L. 88–272 substituted “243(a)(1), 244(a)” for “243(a), 244” wherever appearing.
Research 1
Cited by 11
(1) General rule Except as provided in paragraph (2), the aggregate amount of the deductions allowed by section 243(a)(1), subsection [OLRC note: So in original.] (a) and (b) of section 245, and section 250 shall not exceed the percentage determined under paragraph (3) of the taxable income computed without regard to the deductions allowed by sections 172, 199A, 243(a)(1), subsection (a) and (b) of section 245, and 250, 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).
Amended 1958, 1969, 1984, 1986, 1987, 2004, 2014, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14202(b)(2)(B), which directed amendment of par. (1) by substituting “subsection (a) and (b) of section 245, and 250” for “and subsection (a) and (b) of section 245” the second place appearing, was executed by making the substitution for “and subsection (a) or (b) of section 245”, to reflect the probable intent of Congress.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14202(b)(2)(A), which directed amendment of par. (1) by substituting “, subsection (a) and (b) of section 245, and section 250” for “and subsection (a) and (b) of section 245” the first place appearing, was executed by making the substitution for “and subsection (a) or (b) of section 245”, to reflect the probable intent of Congress.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13305(b)(1), struck out “199,” after “sections 172,”.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 11011(d)(2), which directed insertion of “199A,” before “243(a)(1)”, was executed by making the insertion before “243(a)(1)” the second place appearing, to reflect the probable intent of Congress.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(E)(ii), substituted “section 243(a)(1)” for “sections 243(a)(1), 244(a),” and “and subsection (a) or (b) of section 245,” for “244(a), subsection (a) or (b) of section 245, and 247,”.
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 102(d)(4), inserted “199,” after “172,”.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10221(c)(1)(A), substituted “the percentage determined under paragraph (3)” for “80 percent”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 611(a)(3), substituted “80 percent” for “85 percent”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 801(b)(2)(A), substituted “subsection (a) or (b) of section 245” for “245” in two places.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(d)(2), substituted “without regard to any adjustment under section 1059, and without regard” for “and without regard”.
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 512(f)(3), substituted “and 247, and without regard to any capital loss carryback to the taxable year under section 1212(a)(1)” for “and 247”.
- 1958 Pub. L. 85-866 Pub. L. 85–866, § 57(c)(2), substituted “243(a)” for “243” wherever appearing.
Research 1
Cited by 3
(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).
Research 1
Cited by 2
(3) Special rules The provisions of paragraph (1) shall be applied—
Amended 1987
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10221(c)(1)(B), added par. (3).
Research 1
Cited by 1
(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 65 percent, and
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13002(c)(1), substituted “65 percent” for “80 percent”.
(B) then separately with respect to dividends not from 20-percent owned corporations and the percentage determined under this paragraph shall be 50 percent and the taxable income shall be reduced by the aggregate amount of dividends from 20-percent owned corporations (as so defined).
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13002(c)(2), substituted “50 percent” for “70 percent”.
(c) Exclusion of certain dividends
(1) In general No deduction shall be allowed under section 243 1 245, or 245A, 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
Amended 1984, 1986, 1988, 1997, 2004
- 2004 Pub. L. 108-311 Pub. L. 108–311, § 406(f)(1), substituted “91-day period” for “90-day period”.
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1015(a), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is held by the taxpayer for 45 days or less, or”.
- 1988 Pub. L. 100-647 Pub. L. 100–647 substituted “which” for “Which”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(b)(1)(A), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is sold or otherwise disposed of in any case in which the taxpayer has held such share for 45 days or less, or”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(1), substituted “45” for “15”.
Research 1
Cited by 4
(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. needs Reg. § 1.246-5 Gate Wizard 🧙
“Substantially similar or related property”: facts and circumstances, Reg. § 1.246-5(b)(1).
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(3), substituted “to make related payments with respect to positions in substantially similar or related property” for “to make corresponding payments with respect to substantially identical stock or securities”.
Research 1
Amended 2014, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14101(b)(1), substituted “245, or 245A” for “or 245” in introductory provisions.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(E)(iii), struck out “, 244,” after “section 243” in introductory provisions.
Cited by 3
(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—
Amended 1984, 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1015(b)(1), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “In the case of any stock having preference in dividends, the holding period specified in paragraph (1)(A) shall be 90 days in lieu of 45 days if the taxpayer receives dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days.”
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(1), substituted “45” for “15”.
Research 1
Cited by 3
(A) by substituting “90 days” for “45 days” each place it appears, and
(B) by substituting “181-day period” for “91-day period”.
Amended 2004
- 2004 Pub. L. 108-311 Pub. L. 108–311, § 406(f)(2), substituted “181-day period” for “180-day period” and “91-day period” for “90-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—
Amended 1976, 1984, 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1015(b)(2), inserted “and” at end of subpar. (A), redesignated subpar. (C) as (B), and struck out former subpar. (B) which read as follows: “there shall not be taken into account any day which is more than 45 days (or 90 days in the case of stock to which paragraph (2) applies) after the date on which such share becomes ex-dividend, and”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(4), struck out last sentence which directed that the holding periods determined under the preceding provisions of this paragraph be appropriately reduced (in the manner provided in regulations prescribed by the Secretary) for any period (during such holding periods) in which the taxpayer had an option to sell, was under a contractual obligation to sell, or had made (and not closed) a short sale of, substantially identical stock or securities.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Research 1
Cases: Progressive Corp. v. United States, 970 F.2d 188 (6th Cir. 1992)
Cited by 11
(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.
Amended 1984, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135 substituted “paragraph (3) of section 1223” for “paragraph (4) of section 1223”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(1), substituted “45” for “15”.
Cited by 1
(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—
“In regulations prescribed by the Secretary” leaves this to Treasury. Cited by Reg. § 1.865-2(d)(3)
Qualified covered call: § 1092(c)(4)(B), without its clause (v); a call to which § 1092(f) applies is not excepted
(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,
“Substantially identical stock or securities”: facts and circumstances, Reg. § 1.246-3(c)(2).
Research 1
(B) the taxpayer is the grantor of an option to buy substantially identical stock or securities, or
“Substantially identical stock or securities”: facts and circumstances, Reg. § 1.246-3(c)(2).
(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. needs Reg. § 1.246-5(a) Gate Wizard 🧙
“Substantially similar or related property”: facts and circumstances, Reg. § 1.246-5(b)(1).
Research 1
Cited by 2
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.
Amended 1984, 1986, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(d), inserted “, other than a qualified covered call option to which section 1092(f) applies” before period at end of concluding provisions.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(b)(1)(B), substituted “determined for purposes of this subsection” for “determined under paragraph (3)”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 53(b)(2), added par. (4).
Research 1
Cited by 8
(5) Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations
(A) 1-year holding period requirement For purposes of section 245A—
(i) paragraph (1)(A) shall be applied—
(I) by substituting “365 days” for “45 days” each place it appears, and
(II) by substituting “731-day period” for “91-day period”, and
(ii) paragraph (2) shall not apply.
(B) Status must be maintained during holding period For purposes of applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if—
(i) the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation at all times during such period, and
(ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation at all times during such period.
(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).
Amended 1969, 1971
- 1971 Pub. L. 92-178 Pub. L. 92–178 added subsec. (d) and redesignated former subsec. (d) as (e).
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 434(b)(1), added subsec. (d).
Research 1
Cases: CWT Farms, Inc. v. Commissioner, 79 T.C. 86 (1982)