26 USC 246 - Dividends received deduction reduced where portfolio stock is debt financed

View all text of Part VIII [§ 241 - § 250]

§ 246A. Dividends received deduction reduced where portfolio stock is debt financed

(a) General ruleIn 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 indebtedness percentage.

(b) Section not to apply to dividends for which 100 percent dividends received deduction allowableSubsection (a) shall not apply to—

(1) qualifying dividends (as defined in section 243(b)), and

(2) dividends received by a small business investment company operating under the Small Business Investment Act of 1958.

(1) In general

(2) Portfolio stock

(A) as of the beginning of the ex-dividend date, the taxpayer owns stock of such corporation—

(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 corporation which would meet the requirements 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

(B) DefinitionsFor purposes of subparagraph (A)—

(i) Bank

(ii) Bank holding company

(4) Treatment of certain preferred stock

(d) Average indebtedness percentageFor purposes of this section—

(1) In generalExcept 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 throughout base period

(3) Portfolio indebtedness

(A) In general

(B) Certain amounts received from short sale treated as indebtedness

(4) Base periodThe term “base period” means, with respect to any dividend, the shorter of—

(A) the period beginning on the ex-dividend date for the most recent previous dividend on the stock and ending on the day before the ex-dividend date for the dividend involved, or

(B) the 1-year period ending on the day before the ex-dividend date for the dividend involved.

(e) Reduction in dividends received deduction not to exceed allocable interest

(f) Regulations

(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.)