(a) General rule For purposes of this part, the term “dividend” shall, except as otherwise provided in this section, include only dividends described in section 316 (relating to definition of dividends for purposes of corporate distributions).
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(b) Distributions in liquidation
Amended 1964
- 1964 Pub. L. 88-272 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).
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(1) Except in the case of a personal holding company described in section 542—
Amended 1982, 1986, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 struck out “or a foreign personal holding company described in section 552” after “section 542” in introductory provisions.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(d)(1), inserted at end “Except to the extent provided in regulations, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regulated investment company.”
- 1982 Pub. L. 97-248 Pub. L. 97–248 inserted sentence at end providing that, for purposes of subpar. (A), a liquidation includes a redemption of stock to which section 302 applies.
(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
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(B) in the case of a complete liquidation occurring within 24 months after the adoption of a plan of liquidation, any distribution 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 computing the dividends paid deduction.
For purposes of subparagraph (A), a liquidation includes a redemption of stock to which section 302 applies. Except to the extent provided in regulations, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regulated 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 liquidation, the amount of any distribution within such period pursuant to such plan shall be treated as a dividend for purposes of computing the dividends paid deduction, to the extent that such amount is distributed to corporate distributees and represents such corporate distributees’ allocable share of the undistributed personal holding company income for the taxable year of such distribution computed without regard to this paragraph and without regard to subparagraph (B) of section 316(b)(2).
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(c) Preferential dividends
Amended 1986, 2010, 2015
- 2015 Pub. L. 114-113 Pub. L. 114–113, § 314(a), (b), designated existing provisions as par. (1), inserted heading and “or a publicly offered REIT” after “a publicly offered regulated investment company (as defined in section 67(c)(2)(B))” in text, and added par. (2).
- 2010 Pub. L. 111-325 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 inserted “(other than a publicly offered regulated investment company (as so defined))” after “regulated investment company” in second sentence.
- 1986 Pub. L. 99-514 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 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 increase in the distribution by reason of reductions in administrative expenses of the company.”
Cases: Henry Schwartz Corp. v. Commissioner, 60 T.C. 728 (1973); Estate of Lucas v. Commissioner, 71 T.C. 838 (1979)
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(1) In general Except in the case of a publicly offered regulated investment company (as defined in section 67(c)(2)(B)) or a publicly offered REIT, the amount of any distribution shall not be considered as a dividend for purposes of computing the dividends paid deduction, unless such distribution is pro rata, with no preference 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 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 increase in the distribution by reason of reductions in administrative expenses of the company.
(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 annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
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(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 taxable year, a distribution by such corporation to another member of the affiliated group shall be considered as a dividend for purposes of computing the dividends paid deduction if such distribution would constitute a dividend under the other provisions of this section to a recipient which is not a member of an affiliated group.
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(e) Special rules for real estate investment trusts
Amended 1983, 2015
- 2015 Pub. L. 114-113 Pub. L. 114–113, § 315(a), designated existing provisions as par. (1), inserted heading, and added par. (2).
- 1983 Pub. L. 97-448 Pub. L. 97–448 added subsec. (e).
(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 dividends paid deduction—
Amended 2015
- 2015 Pub. L. 114-113 Pub. L. 114–113, § 320(b), substituted “deduction—” for “deduction, the earnings and profits of such trust for any taxable year beginning after December 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 subpars. (A) and (B).
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(A) the earnings and profits of such trust for any taxable year (but not its accumulated earnings) shall be increased by the amount of gain (if any) on the sale or exchange 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 without 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 Secretary 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
“Reasonable” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
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(B) such failure is of a type of failure which the Secretary has identified for purposes of this paragraph as being described in subparagraph (A).