-CITE-
26 USC Subchapter G - Corporations Used to Avoid Income
Tax on Shareholders 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
-HEAD-
SUBCHAPTER G - CORPORATIONS USED TO AVOID INCOME TAX ON
SHAREHOLDERS
-MISC1-
Part
I. Corporations improperly accumulating surplus.
II. Personal holding companies.
III. Foreign personal holding companies.
IV. Deduction for dividends paid.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 280H of this title.
-End-
-CITE-
26 USC PART I - CORPORATIONS IMPROPERLY ACCUMULATING
SURPLUS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-MISC1-
Sec.
531. Imposition of accumulated earnings tax.
532. Corporations subject to accumulated earnings tax.
533. Evidence of purpose to avoid income tax.
534. Burden of proof.
535. Accumulated taxable income.
536. Income not placed on annual basis.
537. Reasonable needs of the business.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 12 of this title.
-End-
-CITE-
26 USC Sec. 531 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 531. Imposition of accumulated earnings tax
-STATUTE-
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the accumulated taxable
income (as defined in section 535) of each corporation described in
section 532, an accumulated earnings tax equal to 15 percent of the
accumulated taxable income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 100-647, title I,
Sec. 1001(a)(2)(A), Nov. 10, 1988, 102 Stat. 3349; Pub. L. 103-66,
title XIII, Secs. 13201(b)(1), 13202(b), Aug. 10, 1993, 107 Stat.
459, 461; Pub. L. 107-16, title I, Sec. 101(c)(4), June 7, 2001,
115 Stat. 43; Pub. L. 108-27, title III, Sec. 302(e)(5), May 28,
2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-27, Secs. 302(e)(5), 303, temporarily
substituted "equal to 15 percent of the accumulated taxable
income." for "equal to the product of the highest rate of tax under
section 1(c) and the accumulated taxable income." See Effective and
Termination Dates of 2003 Amendment note below.
2001 - Pub. L. 107-16, Secs. 101(c)(4), 901, temporarily
substituted "equal to the product of the highest rate of tax under
section 1(c) and the accumulated taxable income." for "equal to
39.6 percent of the accumulated taxable income." See Effective and
Termination Dates of 2001 Amendment note below.
1993 - Pub. L. 103-66, Sec. 13202(b), substituted "39.6 percent"
for "36 percent".
Pub. L. 103-66, Sec. 13201(b)(1), substituted "36 percent" for
"28 percent".
1988 - Pub. L. 100-647 amended section generally. Prior to
amendment, section read as follows: "In addition to other taxes
imposed by this chapter, there is hereby imposed for each taxable
year on the accumulated taxable income (as defined in section 535)
of every corporation described in section 532, an accumulated
earnings tax equal to the sum of -
"(1) 27 1/2 percent of the accumulated taxable income not in
excess of $100,000, plus
"(2) 38 1/2 percent of the accumulated taxable income in
excess of $100,000."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2000, see section 101(d)(1) of Pub. L. 107-16, set
out as a note under section 1 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see sections 13201(c) and 13202(c) of Pub. L.
103-66, set out as notes under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1001(a)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1987. Such
amendment shall not be treated as a change in a rate of tax for
purposes of section 15 of the 1986 Code."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 12, 26, 30A, 111, 532,
534, 535, 536, 545, 556, 563, 936, 1298, 6601, 7518 of this title;
title 46 App. section 1177.
-End-
-CITE-
26 USC Sec. 532 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 532. Corporations subject to accumulated earnings tax
-STATUTE-
(a) General rule
The accumulated earnings tax imposed by section 531 shall apply
to every corporation (other than those described in subsection (b))
formed or availed of for the purpose of avoiding the income tax
with respect to its shareholders or the shareholders of any other
corporation, by permitting earnings and profits to accumulate
instead of being divided or distributed.
(b) Exceptions
The accumulated earnings tax imposed by section 531 shall not
apply to -
(1) a personal holding company (as defined in section 542),
(2) a foreign personal holding company (as defined in section
552),
(3) a corporation exempt from tax under subchapter F (section
501 and following), or
(4) a passive foreign investment company (as defined in section
1297).
(c) Application determined without regard to number of shareholders
The application of this part to a corporation shall be determined
without regard to the number of shareholders of such corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 98-369, div. A,
title I, Sec. 58(a), July 18, 1984, 98 Stat. 574; Pub. L. 99-514,
title XII, Sec. 1235(f)(1), Oct. 22, 1986, 100 Stat. 2575; Pub. L.
105-34, title XI, Sec. 1122(d)(1), Aug. 5, 1997, 111 Stat. 977.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(4). Pub. L. 105-34 substituted "section 1297"
for "section 1296".
1986 - Subsec. (b)(4). Pub. L. 99-514 added par. (4).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1124 of Pub. L. 105-34 provided that: "The amendments
made by this subtitle [subtitle C (Secs. 1121-1124) of title XI of
Pub. L. 105-34, enacting section 1296 of this title, amending this
section and sections 542, 551, 852, 1291, 1293, 1296 to 1298, and
4982 of this title, redesignating subpart C of part VI of
subchapter P of this chapter as subpart D of part VI of subchapter
P of this chapter, and renumbering sections 1296 and 1297 of this
title as sections 1297 and 1298, respectively, of this title] shall
apply to -
"(1) taxable years of United States persons beginning after
December 31, 1997, and
"(2) taxable years of foreign corporations ending with or
within such taxable years of United States persons."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1235(h) of Pub. L. 99-514, set out as an Effective Date note under
section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 58(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 535 of this
title] shall apply to taxable years beginning after the date of the
enactment of this Act [July 18, 1984]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 531, 533 of this title.
-End-
-CITE-
26 USC Sec. 533 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 533. Evidence of purpose to avoid income tax
-STATUTE-
(a) Unreasonable accumulation determinative of purpose
For purposes of section 532, the fact that the earnings and
profits of a corporation are permitted to accumulate beyond the
reasonable needs of the business shall be determinative of the
purpose to avoid the income tax with respect to shareholders,
unless the corporation by the preponderance of the evidence shall
prove to the contrary.
(b) Holding or investment company
The fact that any corporation is a mere holding or investment
company shall be prima facie evidence of the purpose to avoid the
income tax with respect to shareholders.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179.)
-End-
-CITE-
26 USC Sec. 534 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 534. Burden of proof
-STATUTE-
(a) General rule
In any proceeding before the Tax Court involving a notice of
deficiency based in whole or in part on the allegation that all or
any part of the earnings and profits have been permitted to
accumulate beyond the reasonable needs of the business, the burden
of proof with respect to such allegation shall -
(1) if notification has not been sent in accordance with
subsection (b), be on the Secretary, or
(2) if the taxpayer has submitted the statement described in
subsection (c), be on the Secretary with respect to the grounds
set forth in such statement in accordance with the provisions of
such subsection.
(b) Notification by Secretary
Before mailing the notice of deficiency referred to in subsection
(a), the Secretary may send by certified mail or registered mail a
notification informing the taxpayer that the proposed notice of
deficiency includes an amount with respect to the accumulated
earnings tax imposed by section 531.
(c) Statement by taxpayer
Within such time (but not less than 30 days) after the mailing of
the notification described in subsection (b) as the Secretary may
prescribe by regulations, the taxpayer may submit a statement on
the grounds (together with facts sufficient to show the basis
thereof) on which the taxpayer relies to establish that all or any
part of the earnings and profits have not been permitted to
accumulate beyond the reasonable needs of the business.
(d) Jeopardy assessment
If pursuant to section 6861(a) a jeopardy assessment is made
before the mailing of the notice of deficiency referred to in
subsection (a), for purposes of this section such notice of
deficiency shall, to the extent that it informs the taxpayer that
such deficiency includes the accumulated earnings tax imposed by
section 531, constitute the notification described in subsection
(b), and in that event the statement described in subsection (c)
may be included in the taxpayer's petition to the Tax Court.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Aug. 11, 1955, ch. 805,
Secs. 4, 5, 69 Stat. 690, 691; Pub. L. 85-866, title I, Sec. 89(b),
Sept. 2, 1958, 72 Stat. 1665; Pub. L. 94-455, title XIX, Secs.
1901(a)(73), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(a)(73)(A),
1906(b)(13)(A), struck out "In the case of a notice of deficiency
to which subsection (e)(2) applies and which is mailed on or before
the 30th day after the date of enactment of this sentence, the
notification referred to in the preceding sentence may be mailed at
any time on or before such 30th day" after "section 531", and "or
his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 1901(a)(73)(B), struck out
subsec. (e) relating to application of provisions of section.
1958 - Subsec. (b). Pub. L. 85-866 inserted "certified mail or"
before "registered mail".
1955 - Subsec. (b). Act Aug. 11, 1955, Sec. 5, inserted second
sentence relating to notice of deficiency to which subsec. (e)(2)
applies.
Subsec. (e). Act Aug. 11, 1955, Sec. 4, permitted, in certain
instances, application of this section to cases involving taxable
years to which prior revenue laws apply.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(73) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable only if mailing occurred
after Sept. 2, 1958, see section 89(d) of Pub. L. 85-866, set out
as a note under section 7502 of this title.
-End-
-CITE-
26 USC Sec. 535 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 535. Accumulated taxable income
-STATUTE-
(a) Definition
For purposes of this subtitle, the term "accumulated taxable
income" means the taxable income, adjusted in the manner provided
in subsection (b), minus the sum of the dividends paid deduction
(as defined in section 561) and the accumulated earnings credit (as
defined in subsection (c)).
(b) Adjustments to taxable income
For purposes of subsection (a), taxable income shall be adjusted
as follows:
(1) Taxes
There shall be allowed as a deduction Federal income and excess
profits taxes and income, war profits, and excess profits taxes
of foreign countries and possessions of the United States (to the
extent not allowable as a deduction under section 275(a)(4)),
accrued during the taxable year or deemed to be paid by a
domestic corporation under section 902(a) or 960(a)(1) for the
taxable year, but not including the accumulated earnings tax
imposed by section 531, the personal holding company tax imposed
by section 541, or the taxes imposed by corresponding sections of
a prior income tax law.
(2) Charitable contributions
The deduction for charitable contributions provided under
section 170 shall be allowed without regard to section 170(b)(2).
(3) Special deductions disallowed
The special deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and following,
relating to the deduction for dividends received by corporations,
etc.) shall not be allowed.
(4) Net operating loss
The net operating loss deduction provided in section 172 shall
not be allowed.
(5) Capital losses
(A) In general
Except as provided in subparagraph (B), there shall be
allowed as a deduction an amount equal to the net capital loss
for the taxable year (determined without regard to paragraph
(7)(A)).
(B) Recapture of previous deductions for capital gains
The aggregate amount allowable as a deduction under
subparagraph (A) for any taxable year shall be reduced by the
lesser of -
(i) the nonrecaptured capital gains deductions, or
(ii) the amount of the accumulated earnings and profits of
the corporation as of the close of the preceding taxable
year.
(C) Nonrecaptured capital gains deductions
For purposes of subparagraph (B), the term "nonrecaptured
capital gains deductions" means the excess of -
(i) the aggregate amount allowable as a deduction under
paragraph (6) for preceding taxable years beginning after
July 18, 1984, over
(ii) the aggregate of the reductions under subparagraph (B)
for preceding taxable years.
(6) Net capital gains
(A) In general
There shall be allowed as a deduction -
(i) the net capital gain for the taxable year (determined
with the application of paragraph (7)), reduced by
(ii) the taxes attributable to such net capital gain.
(B) Attributable taxes
For purposes of subparagraph (A), the taxes attributable to
the net capital gain shall be an amount equal to the difference
between -
(i) the taxes imposed by this subtitle (except the tax
imposed by this part) for the taxable year, and
(ii) such taxes computed for such year without including in
taxable income the net capital gain for the taxable year
(determined without the application of paragraph (7)).
(7) Capital loss carryovers
(A) Unlimited carryforward
The net capital loss for any taxable year shall be treated as
a short-term capital loss in the next taxable year.
(B) Section 1212 inapplicable
No allowance shall be made for the capital loss carryback or
carryforward provided in section 1212.
(8) Special rules for mere holding or investment companies
In the case of a mere holding or investment company -
(A) Capital loss deduction, etc., not allowed
Paragraphs (5) and (7)(A) shall not apply.
(B) Deduction for certain offsets
There shall be allowed as a deduction the net short-term
capital gain for the taxable year to the extent such gain does
not exceed the amount of any capital loss carryover to such
taxable year under section 1212 (determined without regard to
paragraph (7)(B)).
(C) Earnings and profits
For purposes of subchapter C, the accumulated earnings and
profits at any time shall not be less than they would be if
this subsection had applied to the computation of earnings and
profits for all taxable years beginning after July 18, 1984.
(9) Special rule for capital gains and losses of foreign
corporations
In the case of a foreign corporation, paragraph (6) shall be
applied by taking into account only gains and losses which are
effectively connected with the conduct of a trade or business
within the United States and are not exempt from tax under
treaty.
(c) Accumulated earnings credit
(1) General rule
For purposes of subsection (a), in the case of a corporation
other than a mere holding or investment company the accumulated
earnings credit is (A) an amount equal to such part of the
earnings and profits for the taxable year as are retained for the
reasonable needs of the business, minus (B) the deduction allowed
by subsection (b)(6). For purposes of this paragraph, the amount
of the earnings and profits for the taxable year which are
retained is the amount by which the earnings and profits for the
taxable year exceed the dividends paid deduction (as defined in
section 561) for such year.
(2) Minimum credit
(A) In general
The credit allowable under paragraph (1) shall in no case be
less than the amount by which $250,000 exceeds the accumulated
earnings and profits of the corporation at the close of the
preceding taxable year.
(B) Certain service corporations
In the case of a corporation the principal function of which
is the performance of services in the field of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting, subparagraph (A) shall be
applied by substituting "$150,000" for "$250,000".
(3) Holding and investment companies
In the case of a corporation which is a mere holding or
investment company, the accumulated earnings credit is the amount
(if any) by which $250,000 exceeds the accumulated earnings and
profits of the corporation at the close of the preceding taxable
year.
(4) Accumulated earnings and profits
For purposes of paragraphs (2) and (3), the accumulated
earnings and profits at the close of the preceding taxable year
shall be reduced by the dividends which under section 563(a)
(relating to dividends paid after the close of the taxable year)
are considered as paid during such taxable year.
(5) Cross reference
For denial of credit provided in paragraph (2) or (3) where
multiple corporations are formed to avoid tax, see section
1551, and for limitation on such credit in the case of certain
controlled corporations, see section 1561.
(d) Income distributed to United States-owned foreign corporation
retains United States connection
(1) In general
For purposes of this part, if 10 percent or more of the
earnings and profits of any foreign corporation for any taxable
year -
(A) is derived from sources within the United States, or
(B) is effectively connected with the conduct of a trade or
business within the United States,
any distribution out of such earnings and profits (and any
interest payment) received (directly or through 1 or more other
entities) by a United States-owned foreign corporation shall be
treated as derived by such corporation from sources within the
United States.
(2) United States-owned foreign corporation
The term "United States-owned foreign corporation" has the
meaning given to such term by section 904(g)(6).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Pub. L. 85-866, title I,
Sec. 31, title II, Sec. 205(a), Sept. 2, 1958, 72 Stat. 1631, 1680;
Pub. L. 87-403, Sec. 3(b), Feb. 2, 1962, 76 Stat. 6; Pub. L.
87-834, Sec. 9(d)(2), Oct. 16, 1962, 76 Stat. 1001; Pub. L. 88-272,
title II, Sec. 207(b)(4), Feb. 26, 1964, 78 Stat. 42; Pub. L.
91-172, title IV, Sec. 401(b)(2)(C), title V, Sec. 512(f)(5), (6),
Dec. 30, 1969, 83 Stat. 602, 641; Pub. L. 94-12, title III, Sec.
304(a), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title X, Sec.
1033(b)(3), title XIX, Secs. 1901(a)(74), (b)(20)(A), (32)(C),
(33)(D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797,
1800, 1801, 1834; Pub. L. 97-34, title II, Sec. 232(a), (b)(1),
Aug. 13, 1981, 95 Stat. 250; Pub. L. 98-369, div. A, title I, Secs.
58(b), 125(a), July 18, 1984, 98 Stat. 575, 647; Pub. L. 99-514,
title XII, Sec. 1225(a), title XVIII, Sec. 1899A(17), Oct. 22,
1986, 100 Stat. 2558, 2959; Pub. L. 101-508, title XI, Sec.
11801(c)(18), Nov. 5, 1990, 104 Stat. 1388-528.)
-MISC1-
AMENDMENTS
1990 - Subsec. (c)(5). Pub. L. 101-508 substituted "section 1561"
for "sections 1561 and 1564".
1986 - Subsec. (b)(5)(C)(i), (8)(C). Pub. L. 99-514, Sec.
1899A(17), substituted "July 18, 1984" for "the date of the
enactment of the Tax Reform Act of 1984".
Subsec. (b)(9). Pub. L. 99-514, Sec. 1225(a), added par. (9).
1984 - Subsec. (b)(5). Pub. L. 98-369, Sec. 58(b), designated
existing provisions as subpar. (A), substituted "Except as provided
in subparagraph (B), there shall be allowed as a deduction an
amount equal to the net capital loss for the taxable year
(determined without regard to paragraph (7)(A)" for "There shall be
allowed as deductions losses from sales or exchanges of capital
assets during the taxable year which are disallowed as deductions
under section 1211(a) in subpar. (A) as so redesignated, and added
subpars. (B) and (C).
Subsec. (b)(6). Pub. L. 98-369, Sec. 58(b), divided existing par.
(6) into subpars. (A) and (B) and substituted references to the
application of paragraph (7) for references to capital loss
carryback and carryover provided in section 1212.
Subsec. (b)(7). Pub. L. 98-369, Sec. 58(b), substituted "Capital
loss carryovers" for "Capital loss" in heading, redesignated
existing provisions as subpar. (B), and added subpar. (A).
Subsec. (b)(8). Pub. L. 98-369, Sec. 58(b), added par. (8).
Subsec. (d). Pub. L. 98-369, Sec. 125(a), added subsec. (d).
1981 - Subsec. (c)(2). Pub. L. 97-34, Sec. 232(a), designated
existing provisions as subpar. (A), substituted "$250,000" for
"$150,000", and added subpar. (B).
Subsec. (c)(3). Pub. L. 97-34, Sec. 232(b)(1), substituted
"$250,000" for "$150,000".
1976 - Subsec. (b)(1). Pub. L. 94-455, Secs. 1033(b)(3),
1901(a)(74), struck out "(other than the excess profits tax imposed
by subchapter E of chapter 2 of the Internal Revenue Code of 1939
for taxable years beginning after December 31, 1940)" after "income
and excess profits taxes", and substituted "section 902(a) or
960(a)(1)" for "section 902(a)(1) or 960(a)(1)(C)" after "domestic
corporation under".
Subsec. (b)(6). Pub. L. 94-455, Sec. 1901(b)(33)(D), substituted
"Net" for "Long-term" after "(6)".
Subsec. (b)(8). Pub. L. 94-455, Sec. 1901(b)(20)(A), struck out
par. (8) relating to allowance of deduction by bank affiliates.
Subsec. (b)(9), (10). Pub. L. 94-455, Sec. 1901(b)(32)(C), struck
out par. (9) relating to allowance of deduction for distributions
of divested stock, and struck out par. (10) relating to special
adjustment on disposition of antitrust stock received as a
dividend.
1975 - Subsec. (c)(2), (3). Pub. L. 94-12 substituted "$150,000"
for "$100,000".
1969 - Subsec. (b)(6). Pub. L. 91-172, Sec. 512(f)(5),
substituted "capital loss carryback or carryover" for "capital loss
carryover" and "capital loss carryback and carryover" for "capital
loss carryover" in subpar. (B).
Subsec. (b)(7). Pub. L. 91-172, Sec. 512(f)(6), substituted
"Capital loss" for "Capital loss carryover" in heading and "capital
loss carryback or carryover" for "capital loss carryover" in text.
Subsec. (c)(5). Pub. L. 91-172, Sec. 401(b)(2)(C), substituted
"section 1551, and for limitation on such credit in the case of
certain controlled corporations, see sections 1561 and 1564" for
"section 1551".
1964 - Subsec. (b)(1). Pub. L. 88-272 substituted "section
275(a)(4)" for "section 164(b)(6)".
1962 - Subsec. (b)(1). Pub. L. 87-834 substituted "accrued during
the taxable year or deemed to be paid by a domestic corporation
under section 902(a)(1) or 960(a)(1)(C) for the taxable year" for
"accrued during the taxable year".
Subsec. (b)(9), (10). Pub. L. 87-403 added pars. (9) and (10).
1958 - Subsec. (b)(2). Pub. L. 85-866, Sec. 31(a), struck out
"the limitation in" after "without regard to".
Subsec. (b)(6)(B). Pub. L. 85-866, Sec. 31(a), substituted "in
taxable income the excess of the net long-term capital gain for the
taxable year over the net short-term capital loss for such year
(determined without regard to the capital loss carryover provided
in section 1212)" for "such excess in taxable income".
Subsec. (c)(2), (3). Pub. L. 85-866, Sec. 205(a), substituted
"$100,000" for "$60,000".
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1225(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(k), Nov. 10, 1988, 102 Stat. 3513, provided
that: "The amendments made by this section [amending this section
and section 545 of this title] shall apply to gains and losses
realized on or after January 1, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 58(b) of Pub. L. 98-369 applicable to
taxable years beginning after July 18, 1984, see section 58(c) of
Pub. L. 98-369, set out as a note under section 532 of this title.
Section 125(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to distributions and interest payments received by a United
States-owned foreign corporation (within the meaning of section
535(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954])
on or after May 23, 1983, in taxable years ending on or after such
date.
"(2) Corporations in existence on may 23, 1983. - In the case of
a United States-owned foreign corporation (as so defined) in
existence on May 23, 1983, the amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 232(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 243, 1551,
and 1561 of this title] shall apply to taxable years beginning
after December 31, 1981."
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1033(b)(3) of Pub. L.
94-455, see section 1033(c) of Pub. L. 94-455, set out as a note
under section 902 of this title.
Amendment by section 1901(a)(74), (b)(20)(A), (32)(C), (33)(D) of
Pub. L. 94-455 applicable with respect to taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 305(c) of Pub. L. 94-12 provided that: "The amendments
made by section 304 [amending this section and sections 243, 1551,
and 1561 of this title] apply to taxable years beginning after
December 31, 1974."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 401(b)(2)(C) of Pub. L. 91-172 applicable
with respect to taxable years beginning after Dec. 31, 1969, see
section 401(h)(2) of Pub. L. 91-172, set out as a note under
section 1561 of this title.
Amendment by section 512(f)(5), (6) of Pub. L. 91-172 applicable
with respect to net capital losses sustained in taxable years
beginning after Dec. 31, 1969, see section 512(g) of Pub. L.
91-172, set out as a note under section 1212 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 207(c) of Pub. L. 88-272, set out
as a note under section 164 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 31 of Pub. L. 85-866 applicable to taxable
years beginning after Dec. 31, 1953, and ending after Aug. 16,
1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 205(b) of Pub. L. 85-866 provided that: "The amendments
made by subsection (a) [amending this section and section 1551 of
this title] shall apply with respect to taxable years beginning
after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 531, 631, 1551, 1561 of
this title.
-End-
-CITE-
26 USC Sec. 536 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 536. Income not placed on annual basis
-STATUTE-
Section 443(b) (relating to computation of tax on change of
annual accounting period) shall not apply in the computation of the
accumulated earnings tax imposed by section 531.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 443, 512 of this title.
-End-
-CITE-
26 USC Sec. 537 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 537. Reasonable needs of the business
-STATUTE-
(a) General rule
For purposes of this part, the term "reasonable needs of the
business" includes -
(1) the reasonably anticipated needs of the business,
(2) the section 303 redemption needs of the business, and
(3) the excess business holdings redemption needs of the
business.
(b) Special rules
For purposes of subsection (a) -
(1) Section 303 redemption needs
The term "section 303 redemption needs" means, with respect to
the taxable year of the corporation in which a shareholder of the
corporation died or any taxable year thereafter, the amount
needed (or reasonably anticipated to be needed) to make a
redemption of stock included in the gross estate of the decedent
(but not in excess of the maximum amount of stock to which
section 303(a) may apply).
(2) Excess business holdings redemption needs
The term "excess business holdings redemption needs" means the
amount needed (or reasonably anticipated to be needed) to redeem
from a private foundation stock which -
(A) such foundation held on May 26, 1969 (or which was
received by such foundation pursuant to a will or irrevocable
trust to which section 4943(c)(5) applies), and
(B) constituted excess business holdings on May 26, 1969, or
would have constituted excess business holdings as of such date
if there were taken into account (i) stock received pursuant to
a will or trust described in subparagraph (A), and (ii) the
reduction in the total outstanding stock of the corporation
which would have resulted solely from the redemption of stock
held by the private foundation.
(3) Obligations incurred to make redemptions
In applying paragraphs (1) and (2), the discharge of any
obligation incurred to make a redemption described in such
paragraphs shall be treated as the making of such redemption.
(4) Product liability loss reserves
The accumulation of reasonable amounts for the payment of
reasonably anticipated product liability losses (as defined in
section 172(f)), as determined under regulations prescribed by
the Secretary, shall be treated as accumulated for the reasonably
anticipated needs of the business.
(5) No inference as to prior taxable years
The application of this part to any taxable year before the
first taxable year specified in paragraph (1) shall be made
without regard to the fact that distributions in redemption
coming within the terms of such paragraphs were subsequently
made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91-172, title IX,
Sec. 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94-455, title
XIX, Sec. 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95-600,
title III, Sec. 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L.
104-188, title I, Sec. 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889.)
-MISC1-
AMENDMENTS
1996 - Subsec. (b)(4). Pub. L. 104-188 substituted "section
172(f)" for "section 172(i)".
1978 - Subsec. (b)(4), (5). Pub. L. 95-600 added par. (4) and
redesignated former par. (4) as (5).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(75)(A),
struck out "with respect to taxable years of the corporation ending
after May 26, 1969" after " 'redemption needs' means".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1901(a)(75)(B), struck out
"or (2)" after "paragraph (1)".
1969 - Pub. L. 91-172 designated existing provisions as subsec.
(a)(1) and added subsecs. (a)(2), (3) and (b).
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to taxable
years beginning after Sept. 30, 1979, see section 371(d) of Pub. L.
95-600, set out as a note under section 172 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 906(b) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to the tax imposed under section 531 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] with respect to taxable years
ending after May 26, 1969."
-End-
-CITE-
26 USC PART II - PERSONAL HOLDING COMPANIES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
PART II - PERSONAL HOLDING COMPANIES
-MISC1-
Sec.
541. Imposition of personal holding company tax.
542. Definition of personal holding company.
543. Personal holding company income.
544. Rules for determining stock ownership.
545. Undistributed personal holding company income.
546. Income not placed on annual basis.
547. Deduction for deficiency dividends.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 12, 856 of this title.
-End-
-CITE-
26 USC Sec. 541 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 541. Imposition of personal holding company tax
-STATUTE-
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the undistributed personal
holding company income (as defined in section 545) of every
personal holding company (as defined in section 542) a personal
holding company tax equal to 15 percent of the undistributed
personal holding company income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 88-272, title II,
Sec. 225(a), Feb. 26, 1964, 78 Stat. 79; Pub. L. 97-34, title I,
Sec. 101(d)(2), Aug. 13, 1981, 95 Stat. 184; Pub. L. 99-514, title
I, Sec. 104(b)(8), Oct. 22, 1986, 100 Stat. 2105; Pub. L. 101-508,
title XI, Sec. 11802(f)(1), Nov. 5, 1990, 104 Stat. 1388-530; Pub.
L. 103-66, title XIII, Secs. 13201(b)(2), 13202(b), Aug. 10, 1993,
107 Stat. 459, 461; Pub. L. 107-16, title I, Sec. 101(c)(5), June
7, 2001, 115 Stat. 43; Pub. L. 108-27, title III, Sec. 302(e)(6),
May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-27, Secs. 302(e)(6), 303, temporarily
substituted "equal to 15 percent of the undistributed personal
holding company income." for "equal to the product of the highest
rate of tax under section 1(c) and the undistributed personal
holding company income." See Effective and Termination Dates of
2003 Amendment note below.
2001 - Pub. L. 107-16, Secs. 101(c)(5), 901, temporarily
substituted "equal to the product of the highest rate of tax under
section 1(c) and the undistributed personal holding company
income." for "equal to 39.6 percent of the undistributed personal
holding company income." See Effective and Termination Dates of
2001 Amendment note below.
1993 - Pub. L. 103-66, Sec. 13202(b), substituted "39.6 percent"
for "36 percent".
Pub. L. 103-66, Sec. 13201(b)(2), substituted "36 percent" for
"28 percent".
1990 - Pub. L. 101-508 struck out "(38.5 percent in the case of
taxable years beginning in 1987)" after "28 percent".
1986 - Pub. L. 99-514 substituted "28 percent (38.5 percent in
the case of taxable years beginning in 1987)" for "50 percent".
1981 - Pub. L. 97-34 substituted "50 percent" for "70 percent".
1964 - Pub. L. 88-272 reduced the tax from 75 percent of
undistributed income not in excess of $2,000, and 85 percent when
in excess of $2,000, to 70 percent.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to payments made in
taxable years beginning after Dec. 31, 2000, see section 431(d) of
Pub. L. 107-16, set out as a note under section 62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see sections 13201(c) and 13202(c) of Pub. L.
103-66, set out as notes under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 101(f)(1) of Pub. L. 97-34, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272 set out
as a note under section 316 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 30A, 111, 535, 542,
545, 546, 547, 556, 563, 882, 936, 992, 6683 of this title.
-End-
-CITE-
26 USC Sec. 542 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 542. Definition of personal holding company
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "personal holding
company" means any corporation (other than a corporation described
in subsection (c)) if -
(1) Adjusted ordinary gross income requirement
At least 60 percent of its adjusted ordinary gross income (as
defined in section 543(b)(2)) for the taxable year is personal
holding company income (as defined in section 543(a)), and
(2) Stock ownership requirement
At any time during the last half of the taxable year more than
50 percent in value of its outstanding stock is owned, directly
or indirectly, by or for not more than 5 individuals. For
purposes of this paragraph, an organization described in section
401(a), 501(c)(17), or 509(a) or a portion of a trust permanently
set aside or to be used exclusively for the purposes described in
section 642(c) or a corresponding provision of a prior income tax
law shall be considered an individual.
(b) Corporations filing consolidated returns
(1) General rule
In the case of an affiliated group of corporations filing or
required to file a consolidated return under section 1501 for any
taxable year, the adjusted ordinary gross income requirement of
subsection (a)(1) of this section shall, except as provided in
paragraphs (2) and (3), be applied for such year with respect to
the consolidated adjusted ordinary gross income and the
consolidated personal holding company income of the affiliated
group. No member of such an affiliated group shall be considered
to meet such adjusted ordinary gross income requirement unless
the affiliated group meets such requirement.
(2) Ineligible affiliated group
Paragraph (1) shall not apply to an affiliated group of
corporations if -
(A) any member of the affiliated group of corporations
(including the common parent corporation) derived 10 percent or
more of its adjusted ordinary gross income for the taxable year
from sources outside the affiliated group, and
(B) 80 percent or more of the amount described in
subparagraph (A) consists of personal holding company income
(as defined in section 543).
For purposes of this paragraph, section 543 shall be applied as
if the amount described in subparagraph (A) were the adjusted
ordinary gross income of the corporation.
(3) Excluded corporations
Paragraph (1) shall not apply to an affiliated group of
corporations if any member of the affiliated group (including the
common parent corporation) is a corporation excluded from the
definition of personal holding company under subsection (c).
(4) Certain dividend income received by a common parent
In applying paragraph (2) (A) and (B), personal holding company
income and adjusted ordinary gross income shall not include
dividends received by a common parent corporation from another
corporation if -
(A) the common parent corporation owns, directly or
indirectly, more than 50 percent of the outstanding voting
stock of such other corporation, and
(B) such other corporation is not a personal holding company
for the taxable year in which the dividends are paid.
(5) Certain dividend income received from a nonincludible life
insurance company
In the case of an affiliated group of corporations filing or
required to file a consolidated return under section 1501 for any
taxable year, there shall be excluded from consolidated personal
holding company income and consolidated adjusted ordinary gross
income for purposes of this part dividends received by a member
of the affiliated group from a life insurance company taxable
under section 801 that is not a member of the affiliated group
solely by reason of the application of paragraph (2) of
subsection (b) of section 1504.
(c) Exceptions
The term "personal holding company" as defined in subsection (a)
does not include -
(1) a corporation exempt from tax under subchapter F (sec. 501
and following);
(2) a bank as defined in section 581, or a domestic building
and loan association within the meaning of section 7701(a)(19);
(3) a life insurance company;
(4) a surety company;
(5) a foreign personal holding company as defined in section
552;
(6) a lending or finance company if -
(A) 60 percent or more of its ordinary gross income (as
defined in section 543(b)(1)) is derived directly from the
active and regular conduct of a lending or finance business;
(B) the personal holding company income for the taxable year
(computed without regard to income described in subsection
(d)(3) and income derived directly from the active and regular
conduct of a lending or finance business, and computed by
including as personal holding company income the entire amount
of the gross income from rents, royalties, produced film rents,
and compensation for use of corporate property by shareholders)
is not more than 20 percent of the ordinary gross income;
(C) the sum of the deductions which are directly allocable to
the active and regular conduct of its lending or finance
business equals or exceeds the sum of -
(i) 15 percent of so much of the ordinary gross income
derived therefrom as does not exceed $500,000, plus
(ii) 5 percent of so much of the ordinary gross income
derived therefrom as exceeds $500,000; and
(D) the loans to a person who is a shareholder in such
company during the taxable year by or for whom 10 percent or
more in value of its outstanding stock is owned directly or
indirectly (including, in the case of an individual, stock
owned by members of his family as defined in section
544(a)(2)), outstanding at any time during such year do not
exceed $5,000 in principal amount;
(7) a foreign corporation (other than a corporation which has
income to which section 543(a)(7) applies for the taxable year),
if all of its stock outstanding during the last half of the
taxable year is owned by nonresident alien individuals, whether
directly or indirectly through foreign estates, foreign trusts,
foreign partnerships, or other foreign corporations;
(8) A (!1) small business investment company which is licensed
by the Small Business Administration and operating under the
Small Business Investment Act of 1958 (15 U.S.C. 661 and
following) and which is actively engaged in the business of
providing funds to small business concerns under that Act. This
paragraph shall not apply if any shareholder of the small
business investment company owns at any time during the taxable
year directly or indirectly (including, in the case of an
individual, ownership by the members of his family as defined in
section 544(a)(2)) a 5 per centum or more proprietary interest in
a small business concern to which funds are provided by the
investment company or 5 per centum or more in value of the
outstanding stock of such concern;
(9) a corporation which is subject to the jurisdiction of the
court in a title 11 or similar case (within the meaning of
section 368(a)(3)(A)) unless a major purpose of instituting or
continuing such case is the avoidance of the tax imposed by
section 541; and
(10) a passive foreign investment company (as defined in
section 1297).
(d) Special rules for applying subsection (c)(6)
(1) Lending or finance business defined
(A) In general
Except as provided in subparagraph (B), for purposes of
subsection (c)(6), the term "lending or finance business" means
a business of -
(i) making loans,
(ii) purchasing or discounting accounts receivable, notes,
or installment obligations,
(iii) rendering services or making facilities available in
connection with activities described in clauses (i) and (ii)
carried on by the corporation rendering services or making
facilities available, or
(iv) rendering services or making facilities available to
another corporation which is engaged in the lending or
finance business (within the meaning of this paragraph), if
such services or facilities are related to the lending or
finance business (within such meaning) of such other
corporation and such other corporation and the corporation
rendering services or making facilities available are members
of the same affiliated group (as defined in section 1504).
(B) Exceptions
For purposes of subparagraph (A), the term "lending or
finance business" does not include the business of -
(i) making loans, or purchasing or discounting accounts
receivable, notes, or installment obligations, if (at the
time of the loan, purchase, or discount) the remaining
maturity exceeds 144 months; unless -
(I) the loans, notes, or installment obligations are
evidenced or secured by contracts of conditional sale,
chattel mortgages, or chattel lease agreements arising out
of the sale of goods or services in the course of the
borrower's or transferor's trade or business, or
(II) the loans, notes, or installment obligations are
made or acquired by the taxpayer and meet the requirements
of subparagraph (C), or
(ii) making loans evidenced by, or purchasing, certificates
of indebtedness issued in a series, under a trust indenture,
and in registered form or with interest coupons attached.
For purposes of clause (i), the remaining maturity shall be
treated as including any period for which there may be a
renewal or extension under the terms of an option exercisable
by the borrower.
(C) Indefinite maturity credit transactions
For purposes of subparagraph (B)(i), a loan, note, or
installment obligation meets the requirements of this
subparagraph if it is made under an agreement -
(i) under which the creditor agrees to make loans or
advances (not in excess of an agreed upon maximum amount)
from time to time to or for the account of the debtor upon
request, and
(ii) under which the debtor may repay the loan or advance
in full or in installments.
(2) Business deductions
For purposes of subsection (c)(6)(C), the deductions which may
be taken into account shall include only -
(A) deductions which are allowable only by reason of section
162 or section 404, except there shall not be included any such
deduction in respect of compensation for personal services
rendered by shareholders (including members of the
shareholder's family as described in section 544(a)(2)), and
(B) deductions allowable under section 167, and deductions
allowable under section 164 for real property taxes, but in
either case only to the extent that the property with respect
to which such deductions are allowable is used directly in the
active and regular conduct of the lending or finance business.
(3) Income received from certain affiliated corporations
For purposes of subsection (c)(6)(B), in the case of a lending
or finance company which meets the requirements of subsection
(c)(6)(A), there shall not be treated as personal holding company
income the lawful income received from a corporation which meets
the requirements of subsection (c)(6) and which is a member of
the same affiliated group (as defined in section 1504) of which
such company is a member.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; ch. 871, Sec. 3, Aug. 12,
1955, 69 Stat. 718; Pub. L. 86-376, Sec. 3(a), Sept. 23, 1959, 73
Stat. 700; Pub. L. 87-768, Sec. 1, Oct. 9, 1962, 76 Stat. 766; Pub.
L. 88-272, title II, Sec. 225(b), (c), (k)(1), Feb. 26, 1964, 78
Stat. 79, 93; Pub. L. 89-809, title I, Sec. 104(h)(1), Nov. 13,
1966, 80 Stat. 1559; Pub. L. 91-172, title I, Sec. 101(j)(16), Dec.
30, 1969, 83 Stat. 528; Pub. L. 93-480, Sec. 3(a), Oct. 26, 1974,
88 Stat. 1454; Pub. L. 94-455, title XIX, Sec. 1901(a)(76), Oct. 4,
1976, 90 Stat. 1777; Pub. L. 96-589, Sec. 5(a), Dec. 24, 1980, 94
Stat. 3405; Pub. L. 97-248, title II, Sec. 293(a)-(c), Sept. 3,
1982, 96 Stat. 575; Pub. L. 98-369, div. A, title II, Sec.
211(b)(7), July 18, 1984, 98 Stat. 755; Pub. L. 99-514, title XII,
Sec. 1235(f)(2), Oct. 22, 1986, 100 Stat. 2575; Pub. L. 105-34,
title XI, Sec. 1122(d)(1), Aug. 5, 1997, 111 Stat. 977.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in subsec.
(c)(8), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended,
which is classified principally to chapter 14B (Sec. 661 et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to this Code, see Short Title note set out under section
661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(10). Pub. L. 105-34 substituted "section 1297"
for "section 1296".
1986 - Subsec. (c)(10). Pub. L. 99-514 added par. (10).
1984 - Subsec. (b)(5). Pub. L. 98-369 substituted "section 801"
for "section 802".
1982 - Subsec. (c)(6)(C)(ii). Pub. L. 97-248, Sec. 293(a), struck
out "but not $1,000,000" after "exceeds $500,000".
Subsec. (d)(1)(B)(i). Pub. L. 97-248, Sec. 293(b), substituted
"144 months" for "60 months" after "remaining maturity exceeds",
designated existing provisions from "the loans" through
"transferor's trade or business, or" as subcl. (I), and added
subcl. (II).
Subsec. (d)(1)(C). Pub. L. 97-248, Sec. 293(c), added subpar.
(C).
1980 - Subsec. (c)(9). Pub. L. 96-589, added par. (9).
1976 - Subsec. (a)(2). Pub. L. 94-455, Sec. 1901(a)(76)(A),
struck out last sentence providing that the preceding sentence
shall not apply in the case of an organization or trust organized
or created before July 1, 1950, if at all times on or after July 1,
1950, and before the close of the taxable year such organization or
trust has owned all of the common stock and at least 80 percent of
the total number of shares of all other classes of stock of the
corporation.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(76)(B), struck out
"other than an affiliated group of railroad corporations the common
parent of which would be eligible to file a consolidated return
under section 141 of the Internal Revenue Act of 1942" after "group
of corporations".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(a)(76)(C), struck out
"without regard to subparagraphs (D) and (E) thereof" after
"meaning of section 7701(a)(19)".
Subsec. (c)(8). Pub. L. 94-455, Sec. 1901(a)(76)(D), inserted
"(15 U.S.C. 661 and following)" after "Small Business Investment
Act of 1958".
1974 - Subsec. (b)(5). Pub. L. 93-480 added par. (5).
1969 - Subsec. (a)(2). Pub. L. 91-172 substituted "section
401(a), 501(c)(17), or 509(a)" for "section 503(b)" in the list of
sections that contain the description of organizations that may be
considered as individuals for the purpose of establishing stock
ownership, and struck out provisions which would have kept an
organization or trust created before July 1, 1950, from being so
designated if it had been denied exemption under section 504 or an
unlimited charitable deduction under section 681(c) of this title.
1966 - Subsec. (c)(7). Pub. L. 89-809 substituted requirement
that the foreign corporation be other than a corporation which has
income to which section 543(a)(7) applies for the taxable year for
requirement that the foreign corporation's gross income from
sources within the United States for the period specified in
section 861(a)(2)(B) be less than 50 percent of its total gross
income from all sources, and expanded the devices included in
methods of indirect ownership to encompass foreign estates, foreign
trusts, and foreign partnerships.
1964 - Subsec. (a)(1). Pub. L. 88-272, Sec. 225(b), substituted
"60 percent of its adjusted ordinary gross income (as defined in
section 543(b)(2)) for the taxable year is personal holding company
income (as defined in section 543(a))" for "80 percent of its gross
income for the taxable year is personal holding company income as
defined in section 543".
Subsec. (b). Pub. L. 88-272, Sec. 225(k)(1), substituted
"adjusted ordinary gross income" for "gross income", wherever
appearing.
Subsec. (c)(2), (6) to (11). Pub. L. 88-272, Sec. 225(c)(1), (2),
inserted among the exceptions, domestic building and loan
associations within section 7701(a)(19) without regard to subpars.
(D) and (E) thereof, added par. (6), redesignated former pars. (10)
and (11) as (7) and (8), respectively, and omitted former pars. (6)
to (9) which related to licensed personal finance companies,
lending companies, loan or investment corporations, and finance
companies, respectively.
Subsec. (d). Pub. L. 88-272, Sec. 225(c)(3), added subsec. (d).
1962 - Subsec. (c)(7). Pub. L. 87-768 substituted "authorized to
engage in and actively and regularly engaged in the small loan
business (consumer finance business)" for "authorized to engage in
the small loan business", inserted provisions excepting from the
definition of "personal holding company" a lending company that
received 80 percent or more of its gross income from lawful income
from domestic subsidiary corporations (of which stock possessing at
least 80 percent of the voting power of all classes of stock and of
which at least 80 percent of each class of the nonvoting stock is
owned directly by such lending company), which are themselves
excepted under pars. (6), (7), (8), or (9) of this subsection,
increased the maximum amount of the loan where no limit is
prescribed from $500 to $1,500, and eliminated provisions which
required loans to mature in not more than 36 months, and which
limited interest, discount and other charges to not more than an
amount equal to simple interest at 3 percent per month payable in
advance and computed only on unpaid balances.
1959 - Subsec. (c)(11). Pub. L. 86-376 added par. (11).
1955 - Subsec. (a)(2). Act Aug. 12, 1955, Sec. 3, inserted
sentence at end excepting from consideration as "individuals"
certain charitable foundations created before July 1, 1950.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1235(h) of Pub. L. 99-514, set out as an Effective Date note under
section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 293(d) of Pub. L. 97-248 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 1981.
"(2) Subsections (b) and (c). - The amendments made by
subsections (b) and (c) [amending this section] shall apply to
taxable years beginning after December 31, 1980."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commenced after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or judicial proceedings commenced after Sept. 30, 1979,
see section 7(d)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 3(b) of Pub. L. 93-480 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1973."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as a note under section 4940 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 with respect to taxable years
beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 225(b), (c)(2), (3), (k)(1) of Pub. L.
88-272 applicable to taxable years beginning after Dec. 31, 1963,
and amendment by section 225(c)(1) of Pub. L. 88-272 applicable to
taxable years beginning after Oct. 16, 1962, see section 225(l) of
Pub. L. 88-272, set out as a note under section 316 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Section 2 of Pub. L. 87-768 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
with respect to taxable years beginning after December 31, 1961."
EFFECTIVE DATE OF 1959 AMENDMENT
Section 3(b) of Pub. L. 86-376 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1958."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 4 of act Aug. 12, 1955, provided that: "The amendment
made by section 3 of this Act [amending this section] shall apply
only with respect to taxable years beginning after December 31,
1954."
STOCK OWNERSHIP REQUIREMENT; ORGANIZATION OR TRUST ORGANIZED OR
CREATED BEFORE JULY 1, 1950
Pub. L. 95-600, title VII, Sec. 701(o), Nov. 6, 1978, 92 Stat.
2907, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(1) In general. - The last sentence of section 542(a)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
stock ownership requirement) shall not apply in the case of an
organization or trust organized or created before July 1, 1950, if
at all times on or after July 1, 1950, and before the close of the
taxable year such organization or trust has owned all of the common
stock and at least 80 percent of the total number of shares of all
other classes of stock of the corporation.
"(2) Effective date. - The provisions of paragraph (1) shall
apply with respect to taxable years beginning after December 31,
1976."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 41, 56, 170, 316, 447,
465, 532, 541, 544, 562, 852, 856, 992, 1362, 1504, 2057, 6662 of
this title; title 43 section 1620.
-FOOTNOTE-
(!1) So in original. Probably should not be capitalized.
-End-
-CITE-
26 USC Sec. 543 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 543. Personal holding company income
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "personal holding company
income" means the portion of the adjusted ordinary gross income
which consists of:
(1) Dividends, etc.
Dividends, interest, royalties (other than mineral, oil, or gas
royalties or copyright royalties), and annuities. This paragraph
shall not apply to -
(A) interest constituting rent (as defined in subsection
(b)(3)),
(B) interest on amounts set aside in a reserve fund under
section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C.
App. 1161 or 1177),
(C) active business computer software royalties (within the
meaning of subsection (d)), and
(D) interest received by a broker or dealer (within the
meaning of section 3(a)(4) or (5) of the Securities and
Exchange Act of 1934) in connection with -
(i) any securities or money market instruments held as
property described in section 1221(a)(1),
(ii) margin accounts, or
(iii) any financing for a customer secured by securities or
money market instruments.
(2) Rents
The adjusted income from rents; except that such adjusted
income shall not be included if -
(A) such adjusted income constitutes 50 percent or more of
the adjusted ordinary gross income, and
(B) the sum of -
(i) the dividends paid during the taxable year (determined
under section 562),
(ii) the dividends considered as paid on the last day of
the taxable year under section 563(d) (as limited by the
second sentence of section 563(b)), and
(iii) the consent dividends for the taxable year
(determined under section 565),
equals or exceeds the amount, if any, by which the personal
holding company income for the taxable year (computed without
regard to this paragraph and paragraph (6), and computed by
including as personal holding company income copyright royalties
and the adjusted income from mineral, oil, and gas royalties)
exceeds 10 percent of the ordinary gross income.
(3) Mineral, oil, and gas royalties
The adjusted income from mineral, oil, and gas royalties;
except that such adjusted income shall not be included if -
(A) such adjusted income constitutes 50 percent or more of
the adjusted ordinary gross income,
(B) the personal holding company income for the taxable year
(computed without regard to this paragraph, and computed by
including as personal holding company income copyright
royalties and the adjusted income from rents) is not more than
10 percent of the ordinary gross income, and
(C) the sum of the deductions which are allowable under
section 162 (relating to trade or business expenses) other than
-
(i) deductions for compensation for personal services
rendered by the shareholders, and
(ii) deductions which are specifically allowable under
sections other than section 162,
equals or exceeds 15 percent of the adjusted ordinary gross
income.
(4) Copyright royalties
Copyright royalties; except that copyright royalties shall not
be included if -
(A) such royalties (exclusive of royalties received for the
use of, or right to use, copyrights or interests in copyrights
on works created in whole, or in part, by any shareholder)
constitute 50 percent or more of the ordinary gross income,
(B) the personal holding company income for the taxable year
computed -
(i) without regard to copyright royalties, other than
royalties received for the use of, or right to use,
copyrights or interests in copyrights in works created in
whole, or in part, by any shareholder owning more than 10
percent of the total outstanding capital stock of the
corporation,
(ii) without regard to dividends from any corporation in
which the taxpayer owns at least 50 percent of all classes of
stock entitled to vote and at least 50 percent of the total
value of all classes of stock and which corporation meets the
requirements of this subparagraph and subparagraphs (A) and
(C), and
(iii) by including as personal holding company income the
adjusted income from rents and the adjusted income from
mineral, oil, and gas royalties,
is not more than 10 percent of the ordinary gross income, and
(C) the sum of the deductions which are properly allocable to
such royalties and which are allowable under section 162, other
than -
(i) deductions for compensation for personal services
rendered by the shareholders,
(ii) deductions for royalties paid or accrued, and
(iii) deductions which are specifically allowable under
sections other than section 162,
equals or exceeds 25 percent of the amount by which the
ordinary gross income exceeds the sum of the royalties paid or
accrued and the amounts allowable as deductions under section
167 (relating to depreciation) with respect to copyright
royalties.
For purposes of this subsection, the term "copyright royalties"
means compensation, however designated, for the use of, or the
right to use, copyrights in works protected by copyright issued
under title 17 of the United States Code and to which copyright
protection is also extended by the laws of any country other than
the United States of America by virtue of any international
treaty, convention, or agreement, or interests in any such
copyrighted works, and includes payments from any person for
performing rights in any such copyrighted work and payments
(other than produced film rents as defined in paragraph (5)(B))
received for the use of, or right to use, films. For purposes of
this paragraph, the term "shareholder" shall include any person
who owns stock within the meaning of section 544. This paragraph
shall not apply to active business computer software royalties.
(5) Produced film rents
(A) Produced film rents; except that such rents shall not be
included if such rents constitute 50 percent or more of the
ordinary gross income.
(B) For purposes of this section, the term "produced film
rents" means payments received with respect to an interest in a
film for the use of, or right to use, such film, but only to
the extent that such interest was acquired before substantial
completion of production of such film. In the case of a
producer who actively participates in the production of the
film, such term includes an interest in the proceeds or profits
from the film, but only to the extent such interest is
attributable to such active participation.
(6) Use of corporate property by shareholder
(A) Amounts received as compensation (however designated and
from whomever received) for the use of, or the right to use,
tangible property of the corporation in any case where, at any
time during the taxable year, 25 percent or more in value of
the outstanding stock of the corporation is owned, directly or
indirectly, by or for an individual entitled to the use of the
property (whether such right is obtained directly from the
corporation or by means of a sublease or other arrangement).
(B) Subparagraph (A) shall apply only to a corporation which
has personal holding company income in excess of 10 percent of
its ordinary gross income.
(C) For purposes of the limitation in subparagraph (B),
personal holding company income shall be computed -
(i) without regard to subparagraph (A) or paragraph (2),
(ii) by excluding amounts received as compensation for the
use of (or right to use) intangible property (other than
mineral, oil, or gas royalties or copyright royalties) if a
substantial part of the tangible property used in connection
with such intangible property is owned by the corporation and
all such tangible and intangible property is used in the
active conduct of a trade or business by an individual or
individuals described in subparagraph (A), and
(iii) by including copyright royalties and adjusted income
from mineral, oil, and gas royalties.
(7) Personal service contracts
(A) Amounts received under a contract under which the
corporation is to furnish personal services; if some person
other than the corporation has the right to designate (by name
or by description) the individual who is to perform the
services, or if the individual who is to perform the services
is designated (by name or by description) in the contract; and
(B) amounts received from the sale or other disposition of
such a contract.
This paragraph shall apply with respect to amounts received for
services under a particular contract only if at some time during
the taxable year 25 percent or more in value of the outstanding
stock of the corporation is owned, directly or indirectly, by or
for the individual who has performed, is to perform, or may be
designated (by name or by description) as the one to perform,
such services.
(8) Estates and trusts
Amounts includible in computing the taxable income of the
corporation under part I of subchapter J (sec. 641 and following,
relating to estates, trusts, and beneficiaries).
(b) Definitions
For purposes of this part -
(1) Ordinary gross income
The term "ordinary gross income" means the gross income
determined by excluding -
(A) all gains from the sale or other disposition of capital
assets,
(B) all gains (other than those referred to in subparagraph
(A)) from the sale or other disposition of property described
in section 1231(b), and
(C) in the case of a foreign corporation all of the
outstanding stock of which during the last half of the taxable
year is owned by nonresident alien individuals (whether
directly or indirectly through foreign estates, foreign trusts,
foreign partnerships, or other foreign corporations), all items
of income which would, but for this subparagraph, constitute
personal holding company income under any paragraph of
subsection (a) other than paragraph (7) thereof: (!1)
(2) Adjusted ordinary gross income
The term "adjusted ordinary gross income" means the ordinary
gross income adjusted as follows:
(A) Rents
From the gross income from rents (as defined in the second
sentence of paragraph (3) of this subsection) subtract the
amount allowable as deductions for -
(i) exhaustion, wear and tear, obsolescence, and
amortization of property other than tangible personal
property which is not customarily retained by any one lessee
for more than three years,
(ii) property taxes,
(iii) interest, and
(iv) rent,
to the extent allocable, under regulations prescribed by the
Secretary, to such gross income from rents. The amount
subtracted under this subparagraph shall not exceed such gross
income from rents.
(B) Mineral royalties, etc.
From the gross income from mineral, oil, and gas royalties
described in paragraph (4), and from the gross income from
working interests in an oil or gas well, subtract the amount
allowable as deductions for -
(i) exhaustion, wear and tear, obsolescence, amortization,
and depletion,
(ii) property and severance taxes,
(iii) interest, and
(iv) rent,
to the extent allocable, under regulations prescribed by the
Secretary, to such gross income from royalties or such gross
income from working interests in oil or gas wells. The amount
subtracted under this subparagraph with respect to royalties
shall not exceed the gross income from such royalties, and the
amount subtracted under this subparagraph with respect to
working interests shall not exceed the gross income from such
working interests.
(C) Interest
There shall be excluded -
(i) interest received on a direct obligation of the United
States held for sale to customers in the ordinary course of
trade or business by a regular dealer who is making a primary
market in such obligations, and
(ii) interest on a condemnation award, a judgment, and a
tax refund.
(D) Certain excluded rents
From the gross income consisting of compensation described in
subparagraph (D) of paragraph (3) subtract the amount allowable
as deductions for the items described in clauses (i), (ii),
(iii), and (iv) of subparagraph (A) to the extent allocable,
under regulations prescribed by the Secretary, to such gross
income. The amount subtracted under this subparagraph shall not
exceed such gross income.
(3) Adjusted income from rents
The term "adjusted income from rents" means the gross income
from rents, reduced by the amount subtracted under paragraph
(2)(A) of this subsection. For purposes of the preceding
sentence, the term "rents" means compensation, however
designated, for the use of, or right to use, property, and the
interest on debts owed to the corporation, to the extent such
debts represent the price for which real property held primarily
for sale to customers in the ordinary course of its trade or
business was sold or exchanged by the corporation; but such term
does not include -
(A) amounts constituting personal holding company income
under subsection (a)(6),
(B) copyright royalties (as defined in subsection (a)(4)),
(C) produced film rents (as defined in subsection (a)(5)(B)),
(D) compensation, however designated, for the use of, or the
right to use, any tangible personal property manufactured or
produced by the taxpayer, if during the taxable year the
taxpayer is engaged in substantial manufacturing or production
of tangible personal property of the same type, or
(E) active business computer software royalties (as defined
in subsection (d)).
(4) Adjusted income from mineral, oil, and gas royalties
The term "adjusted income from mineral, oil, and gas royalties"
means the gross income from mineral, oil, and gas royalties
(including production payments and overriding royalties), reduced
by the amount subtracted under paragraph (2)(B) of this
subsection in respect of such royalties.
(c) Gross income of insurance companies other than life insurance
companies
In the case of an insurance company other than a life insurance
company, the term "gross income" as used in this part means the
gross income, as defined in section 832(b)(1), increased by the
amount of losses incurred, as defined in section 832(b)(5), and the
amount of expenses incurred, as defined in section 832(b)(6), and
decreased by the amount deductible under section 832(c)(7)
(relating to tax-free interest).
(d) Active business computer software royalties
(1) In general
For purposes of this section, the term "active business
computer software royalties" means any royalties -
(A) received by any corporation during the taxable year in
connection with the licensing of computer software, and
(B) with respect to which the requirements of paragraphs (2),
(3), (4), and (5) are met.
(2) Royalties must be received by corporation actively engaged in
computer software business
The requirements of this paragraph are met if the royalties
described in paragraph (1) -
(A) are received by a corporation engaged in the active
conduct of the trade or business of developing, manufacturing,
or producing computer software, and
(B) are attributable to computer software which -
(i) is developed, manufactured, or produced by such
corporation (or its predecessor) in connection with the trade
or business described in subparagraph (A), or
(ii) is directly related to such trade or business.
(3) Royalties must constitute at least 50 percent of income
The requirements of this paragraph are met if the royalties
described in paragraph (1) constitute at least 50 percent of the
ordinary gross income of the corporation for the taxable year.
(4) Deductions under sections 162 and 174 relating to royalties
must equal or exceed 25 percent of ordinary gross income
(A) In general
The requirements of this paragraph are met if -
(i) the sum of the deductions allowable to the corporation
under sections 162, 174, and 195 for the taxable year which
are properly allocable to the trade or business described in
paragraph (2) equals or exceeds 25 percent of the ordinary
gross income of such corporation for such taxable year, or
(ii) the average of such deductions for the 5-taxable year
period ending with such taxable year equals or exceeds 25
percent of the average ordinary gross income of such
corporation for such period.
If a corporation has not been in existence during the 5-taxable
year period described in clause (ii), then the period of
existence of such corporation shall be substituted for such
5-taxable year period.
(B) Deductions allowable under section 162
For purposes of subparagraph (A), a deduction shall not be
treated as allowable under section 162 if it is specifically
allowable under another section.
(C) Limitation on allowable deductions
For purposes of subparagraph (A), no deduction shall be taken
into account with respect to compensation for personal services
rendered by the 5 individual shareholders holding the largest
percentage (by value) of the outstanding stock of the
corporation. For purposes of the preceding sentence -
(i) individuals holding less than 5 percent (by value) of
the stock of such corporation shall not be taken into
account, and
(ii) stock deemed to be owned by a shareholder solely by
attribution from a partner under section 544(a)(2) shall be
disregarded.
(5) Dividends must equal or exceed excess of personal holding
company income over 10 percent of ordinary gross income
(A) In general
The requirements of this paragraph are met if the sum of -
(i) the dividends paid during the taxable year (determined
under section 562),
(ii) the dividends considered as paid on the last day of
the taxable year under section 563(d) (as limited by the
second sentence of section 563(b)), and
(iii) the consent dividends for the taxable year
(determined under section 565),
equals or exceeds the amount, if any, by which the personal
holding company income for the taxable year exceeds 10 percent
of the ordinary gross income of such corporation for such
taxable year.
(B) Computation of personal holding company income
For purposes of this paragraph, personal holding company
income shall be computed -
(i) without regard to amounts described in subsection
(a)(1)(C),
(ii) without regard to interest income during any taxable
year -
(I) which is in the 5-taxable year period beginning with
the later of the 1st taxable year of the corporation or the
1st taxable year in which the corporation conducted the
trade or business described in paragraph (2)(A), and
(II) during which the corporation meets the requirements
of paragraphs (2), (3), and (4), and
(iii) by including adjusted income from rents and adjusted
income from mineral, oil, and gas royalties (within the
meaning of paragraphs (2) and (3) of subsection (a)).
(6) Special rules for affiliated group members
(A) In general
In any case in which -
(i) the taxpayer receives royalties in connection with the
licensing of computer software, and
(ii) another corporation which is a member of the same
affiliated group as the taxpayer meets the requirements of
paragraphs (2), (3), (4), and (5) with respect to such
computer software,
the taxpayer shall be treated as having met such requirements.
(B) Affiliated group
For purposes of this paragraph, the term "affiliated group"
has the meaning given such term by section 1504(a).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 186; Pub. L. 86-435, Sec. 1(a),
(b), Apr. 22, 1960, 74 Stat. 77; Pub. L. 87-403, Sec. 3(c), Feb. 2,
1962, 76 Stat. 6; Pub. L. 88-272, title II, Sec. 225(d), (k)(2),
Feb. 26, 1964, 78 Stat. 81, 93; Pub. L. 88-484, Sec. 3(a), Aug. 22,
1964, 78 Stat. 598; Pub. L. 89-809, title I, Sec. 104(h)(2), title
II, Sec. 206(a), (b), Nov. 13, 1966, 80 Stat. 1559, 1578, 1579;
Pub. L. 94-455, title II, Sec. 211(a), title XIX, Secs.
1901(b)(32)(D), 1906(b)(13)(A), title XXI, Sec. 2106(a), Oct. 4,
1976, 90 Stat. 1544, 1800, 1834, 1902; Pub. L. 94-553, Sec. 105(d),
Oct. 19, 1976, 90 Stat. 2599; Pub. L. 97-248, title II, Sec.
222(e)(6), Sept. 3, 1982, 96 Stat. 480; Pub. L. 98-369, div. A,
title VII, Sec. 712(i)(3), July 18, 1984, 98 Stat. 948; Pub. L.
99-514, title VI, Sec. 645(a)(1), (2), (4), title XVIII, Sec.
1899A(18), Oct. 22, 1986, 100 Stat. 2289, 2291, 2959; Pub. L.
100-647, title I, Sec. 1010(f)(5), title VI, Sec. 6279(a), Nov. 10,
1988, 102 Stat. 3454, 3754; Pub. L. 104-188, title I, Sec.
1704(t)(6), Aug. 20, 1996, 110 Stat. 1887; Pub. L. 105-206, title
VI, Sec. 6023(9), July 22, 1998, 112 Stat. 825; Pub. L. 106-170,
title V, Sec. 532(c)(2)(E), Dec. 17, 1999, 113 Stat. 1930.)
-REFTEXT-
REFERENCES IN TEXT
Section 3(a)(4) and (5) of the Securities and Exchange Act of
1934, referred to in subsec. (a)(1)(D), is classified to section
78c(a)(4) and (5) of Title 15, Commerce and Trade.
-MISC1-
AMENDMENTS
1999 - Subsec. (a)(1)(D)(i). Pub. L. 106-170 substituted
"1221(a)(1)" for "1221(1)".
1998 - Subsec. (d)(5)(A)(ii). Pub. L. 105-206 substituted
"section 563(d)" for "section 563(c)".
1996 - Subsec. (a)(2)(B)(ii). Pub. L. 104-188 substituted
"563(d)" for "563(c)".
1988 - Subsec. (a)(1)(D). Pub. L. 100-647, Sec. 6279(a), added
subpar. (D).
Subsec. (c). Pub. L. 100-647, Sec. 1010(f)(5), substituted "other
than life insurance companies" for "other than life or mutual" in
heading and "other than a life insurance company" for "other than
life or mutual" in text.
1986 - Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1899A(18),
substituted "46 U.S.C. App." for "46 U.S.C.".
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 645(a)(1), added subpar.
(C).
Subsec. (a)(4). Pub. L. 99-514, Sec. 645(a)(4)(A), inserted "This
paragraph shall not apply to active business computer software
royalties."
Subsec. (b)(3)(E). Pub. L. 99-514, Sec. 645(a)(4)(B), added
subpar. (E).
Subsec. (d). Pub. L. 99-514, Sec. 645(a)(2), added subsec. (d).
1984 - Subsec. (a)(1)(C). Pub. L. 98-369 struck out subpar. (C)
providing for nonapplication of par. (1) to dividends to which
section 302(b)(4) would apply if the corporation were an
individual.
1982 - (a)(1)(C). Pub. L. 97-248 added subpar. (C).
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(32)(D),
inserted in subpar. (B) "(46 U.S.C. 1161 or 1177)" after "Merchant
Marine Act, 1936", and struck out subpar. (C) relating to a
dividend distribution of divested stock.
Subsec. (a)(4). Pub. L. 94-553 struck out "(other than by reason
of section 2 or 6 thereof)" after "title 17 of the United States
Code".
Subsec. (a)(5)(B). Pub. L. 94-455, Sec. 211(a), inserted "In the
case of a producer who actually participates in the production of
the film, such term includes an interest in the proceeds or profits
from the film, but only to the extent such interest is attributable
to such active participation".
Subsec. (a)(6). Pub. L. 94-455, Sec. 2106(a), redesignated
existing provisions as subpars. (a), (B), and (C) and, as
redesignated, inserted in subpar. (A) "tangible" after "right to
use" and in subpar. (C) inserted exclusions from income embodied in
cl. (ii).
Subsec. (b)(2)(A), (B), (D). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1966 - Subsec. (a)(2). Pub. L. 89-809, Sec. 206(b)(1), struck out
provision that royalties received for the use of, or for the
privilege of using, a patent, invention, model, or design, secret
formula, process, or other similar property right be treated as
rent if such property right is also used by the corporation
receiving such royalties in the manufacture or production of
tangible personal property held for lease to customers and if the
amount constituting rent from such leases to customers meets the
requirement of subparagraph (A).
Subsec. (b)(1)(C). Pub. L. 89-809, Sec. 104(h)(2), added subpar.
(C).
Subsec. (b)(2)(D). Pub. L. 89-809, Sec. 206(b)(2), added subpar.
(D).
Subsec. (b)(3). Pub. L. 89-809, Sec. 206(a), struck out "amounts
constituting personal holding company income under subsection
(a)(6), nor copyright royalties (as defined in subsection (a)(4)),
nor produced film rents (as defined in subsection (a)(5)(B))."
after "but does not include", and added subpars. (A) to (D).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 225(d), amended subsec.
(a) generally, and among other changes, substituted "adjusted
ordinary gross income" for "gross income", provided, relative to
rental income, that in addition to the 50-percent test of par.
(2)(A), now applied on the basis of adjusted income from rents and
adjusted ordinary gross income, a second test for exclusion shall
be whether the sum on the dividends paid during the taxable year,
the dividends paid on the last day of the year, and the consent
dividends for the taxable year, equals or exceeds the amount by
which the personal holding company income for the year exceeds 10
percent of the ordinary gross income, relative to mineral, oil, and
gas royalties, that in addition to the 50-percent test of par.
(3)(A), now applied on the basis of adjusted ordinary gross income,
and the 15-percent test of par. (3)(C), from which test have been
excluded deductions "specifically allowable under sections other
than section 162" and is also now applied on the basis of adjusted
gross income, the royalties shall be excluded if the personal
holding company income for the taxable year is not more than 10
percent of the ordinary gross income, relative to copyright
royalties, retained the 50-percent test as in par. (4)(A), making
it applicable to ordinary gross income, included in the computation
of the income for the taxable year the adjusted income from rents
and the adjusted income from mineral, oil, and gas royalties,
excluded from the sum of deductions allocable to royalties,
deductions specifically allowable under sections other than 162,
and changed the requirement that deductions constitute 50 percent
or more of gross income to provide that they must equal 25 percent
of ordinary gross income reduced by royalties paid and by
depreciation deductions with respect to copyrights, relative to
produced film rents, that they be treated on their own basis and
not as rentals, and defined "produced film rents", relative to use
of corporation property by shareholders, that personal holding
company income includes copyright royalties and the adjusted income
from mineral, oil, and gas royalties, eliminated gains from the
sale or other disposition of any interest in an estate or trust,
from the sale or exchange of stock or securities, and from futures
transactions in any commodity, and also definition of "rents". See
subsec. (b)(3).
Subsec. (a)(2). Pub. L. 88-484 inserted sentence requiring
royalties received for the use of, or for the privilege of using, a
patent, invention, model, or design (whether or not patented),
secret formula or process, or any other similar property right to
be treated as rent, if such property right is also used by the
corporation receiving such royalties in the manufacture or
production of tangible personal property held for lease to
customers, and if the amount (computed without regard to this
sentence) constituting rent from such leases to customers meets the
requirements of subparagraph (A).
Subsec. (b). Pub. L. 88-272, Sec. 225(d), added subsec. (b).
Former subsec. (b), which provided that gross income and personal
holding company income determined with respect to transactions
relating to gains from stock and security transactions, and with
respect to transactions relating to gains from commodity
transactions, should include only the excess of gains over losses
from such transactions, was struck out.
Subsec. (d). Pub. L. 88-272, Sec. 225(k)(2), struck out subsec.
(d) which related to special adjustment on disposition of antitrust
stock received as a dividend.
1962 - Subsec. (a)(1). Pub. L. 87-403 prescribed conditions
making inapplicable the provisions of the paragraph to dividend
distribution of divested stock.
Subsec. (d). Pub. L. 87-403 added subsec. (d).
1960 - Subsec. (a)(1). Pub. L. 86-435, Sec. 1(b)(1), excluded
copyright royalties.
Subsec. (a)(6). Pub. L. 86-435, Sec. 1(b)(2), inserted sentence
providing that copyright royalties constitute personal holding
company income.
Subsec. (a)(9). Pub. L. 86-435, Sec. 1(a), added par. (9).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1010(f)(5) of 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.
Section 6279(b) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section] shall apply to
interest received after the date of the enactment of this Act [Nov.
10, 1988], in taxable years ending after such date."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 645(e) of Pub. L. 99-514 provided that: "The amendments
made by subsection (a) [amending this section and section 553 of
this title] shall apply to royalties received before, on, and after
December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by Pub. L. 94-553 effective Jan. 1, 1978, see section
102 of Pub. L. 94-553, set out as an Effective Date note preceding
section 101 of Title 17, Copyrights.
Section 211(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending on or after December 31, 1975."
Amendment by section 1901(b)(32)(D) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Section 2106(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by section 104(h)(2) of Pub. L. 89-809 applicable with
respect to taxable years beginning after Dec. 31, 1966, see section
104(n) of Pub. L. 89-809, set out as a note under section 11 of
this title.
Section 206(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Nov. 13, 1966]. Such amendments shall also apply, at the
election of the taxpayer (made at such time and in such manner as
the Secretary or his delegate may prescribe), to taxable years
beginning on or before such date and ending after December 31,
1965."
EFFECTIVE DATE OF 1964 AMENDMENTS
Section 3(b) of Pub. L. 88-484 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1963."
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out
as a note under section 316 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 2 of Pub. L. 86-435 provided that: "The amendments made
by the first section of this Act [amending this section and
sections 544 and 553 of this title] shall apply only with respect
to taxable years beginning after December 31, 1959."
TREATMENT OF CERTAIN BANK HOLDING COMPANIES
Section 6280 of Pub. L. 100-647 provided that:
"(a) General Rule. - For purposes of subtitle A of the 1986 Code,
the term 'personal holding company income' shall not include any
dividend received by a qualified bank holding company from a
25-percent owned bank during any taxable year ending in 1989 or
1990.
"(b) $3,000,000 Limitation. - The aggregate amount excluded from
the personal holding company income of any qualified bank holding
company under subsection (a) for the taxable year shall not exceed
$3,000,000.
"(c) Qualified Bank Holding Company. - For purposes of this
section, the term 'qualified bank holding company' means any bank
holding company (as defined in section 2(a) of the Bank Holding
Company Act of 1956 [12 U.S.C. 1841(a)]) if 80 percent or more (by
value) of the assets of such company at all times during the
taxable year consist of stock in 1 or more 25-percent owned banks.
"(d) 25-Percent Owned Bank. - For purposes of this section, the
term '25-percent owned bank' means any bank (as defined in section
581 of the 1986 Code) if at least 25 percent of the stock of such
bank (by vote and value) is owned by the bank holding company."
SPECIAL RULES FOR BROKER-DEALERS, ROYALTIES RECEIVED BY QUALIFIED
TAXPAYER, AND TREATMENT OF ACTIVE BUSINESS COMPUTER ROYALTIES FOR S
CORPORATION PURPOSES
Section 645(b)-(d) of Pub. L. 99-514 provided that:
"(b) Special Rules for Broker-Dealers. - In the case of a
broker-dealer which is part of an affiliated group which files a
consolidated Federal income tax return, the common parent of which
was incorporated in Nevada on January 27, 1972, the personal
holding company income (within the meaning of section 543 of the
Internal Revenue Code of 1986) of such broker-dealer, shall not
include any interest received after the date of the enactment of
this Act [Oct. 22, 1986] with respect to -
"(1) any securities or money market instruments held as
inventory,
"(2) margin accounts, or
"(3) any financing for a customer secured by securities or
money market instruments.
"(c) Special Rule for Royalties Received by Qualified Taxpayer. -
"(1) In general. - Any qualified royalty received or accrued in
taxable years beginning after December 31, 1981, by a qualified
taxpayer shall be treated in the same manner as a royalty with
respect to software is treated under the amendments made by this
section [amending this section and section 553 of this title].
"(2) Qualified taxpayer. - For purposes of this subsection, a
qualified taxpayer is any taxpayer incorporated on September 7,
1978, which is engaged in the trade or business of manufacturing
dolls and accessories.
"(3) Qualified royalty. - For purposes of this subsection, the
term 'qualified royalty' means any royalty arising from an
agreement entered into in 1982 which permits the licensee to
manufacture and sell dolls and accessories.
"(d) Special Rule for Treatment of Active Business Computer
Royalties for S Corporation Purposes. - In the case of a taxpayer
which was incorporated on May 3, 1977, in California and which
elected to be taxed as an S corporation for its taxable year ending
on December 31, 1985, any active business computer royalties
(within the meaning of section 543(d) of the Internal Revenue Code
of 1986 as added by this Act) which are received by the taxpayer in
taxable years beginning after December 31, 1984, shall not be
treated as passive investment income (within the meaning of section
1362(d)(3)(D)) for purposes of subchapter S of chapter 1 of such
Code."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 542, 544, 545, 553, 864,
992, 1202, 2057, 6501 of this title.
-FOOTNOTE-
(!1) So in original. The colon probably should be a period.
-End-
-CITE-
26 USC Sec. 544 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 544. Rules for determining stock ownership
-STATUTE-
(a) Constructive ownership
For purposes of determining whether a corporation is a personal
holding company, insofar as such determination is based on stock
ownership under section 542(a)(2), section 543(a)(7), section
543(a)(6), or section 543(a)(4) -
(1) Stock not owned by individual
Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned
proportionately by its shareholders, partners, or beneficiaries.
(2) Family and partnership ownership
An individual shall be considered as owning the stock owned,
directly or indirectly, by or for his family or by or for his
partner. For purposes of this paragraph, the family of an
individual includes only his brothers and sisters (whether by the
whole or half blood), spouse, ancestors, and lineal descendants.
(3) Options
If any person has an option to acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option, and each one of a
series of such options, shall be considered as an option to
acquire such stock.
(4) Application of family-partnership and option rules
Paragraphs (2) and (3) shall be applied -
(A) for purposes of the stock ownership requirement provided
in section 542(a)(2), if, but only if, the effect is to make
the corporation a personal holding company;
(B) for purposes of section 543(a)(7) (relating to personal
service contracts), of section 543(a)(6) (relating to use of
property by shareholders), or of section 543(a)(4) (relating to
copyright royalties), if, but only if, the effect is to make
the amounts therein referred to includible under such paragraph
as personal holding company income.
(5) Constructive ownership as actual ownership
Stock constructively owned by a person by reason of the
application of paragraph (1) or (3), shall, for purposes of
applying paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by an individual by
reason of the application of paragraph (2) shall not be treated
as owned by him for purposes of again applying such paragraph in
order to make another the constructive owner of such stock.
(6) Option rule in lieu of family and partnership rule
If stock may be considered as owned by an individual under
either paragraph (2) or (3) it shall be considered as owned by
him under paragraph (3).
(b) Convertible securities
Outstanding securities convertible into stock (whether or not
convertible during the taxable year) shall be considered as
outstanding stock -
(1) for purposes of the stock ownership requirement provided in
section 542(a)(2), but only if the effect of the inclusion of all
such securities is to make the corporation a personal holding
company;
(2) for purposes of section 543(a)(7) (relating to personal
service contracts), but only if the effect of the inclusion of
all such securities is to make the amounts therein referred to
includible under such paragraph as personal holding company
income;
(3) for purposes of section 543(a)(6) (relating to the use of
property by shareholders), but only if the effect of the
inclusion of all such securities is to make the amounts therein
referred to includible under such paragraphs as personal holding
company income; and
(4) for purposes of section 543(a)(4) (relating to copyright
royalties), but only if the effect of the inclusion of all such
securities is to make the amounts therein referred to includible
under such paragraph as personal holding company income.
The requirement in paragraphs (1), (2), (3), and (4) that all
convertible securities must be included if any are to be included
shall be subject to the exception that, where some of the
outstanding securities are convertible only after a later date than
in the case of others, the class having the earlier conversion date
may be included although the others are not included, but no
convertible securities shall be included unless all outstanding
securities having a prior conversion date are also included.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86-435, Sec. 1(c),
(d), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88-272, title II, Sec.
225(k)(3), Feb. 26, 1964, 78 Stat. 93.)
-MISC1-
AMENDMENTS
1964 - Pub. L. 88-272 substituted "section 543(a)(7)" for
"section 543(a)(5)", and "section 543(a)(4)" for "section
543(a)(9)," wherever appearing.
1960 - Subsec. (a). Pub. L. 86-435, Sec. 1(c)(1), inserted
reference to section 543(a)(9) in introductory provisions.
Subsec. (a)(4)(B). Pub. L. 86-435, Sec. 1(c)(2), included
reference to section 543(a)(9).
Subsec. (b). Pub. L. 86-435, Sec. 1(d), added par. (4), and
inserted reference to par. (4) in last sentence.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88-272 set
out as a note under section 316 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-435 applicable only with respect to
taxable years beginning after Dec. 31, 1959, see section 2 of Pub.
L. 86-435, set out as a note under section 543 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 465, 542, 543, 856, 6501
of this title.
-End-
-CITE-
26 USC Sec. 545 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 545. Undistributed personal holding company income
-STATUTE-
(a) Definition
For purposes of this part, the term "undistributed personal
holding company income" means the taxable income of a personal
holding company adjusted in the manner provided in subsections (b),
(c), and (d), minus the dividends paid deduction as defined in
section 561. In the case of a personal holding company which is a
foreign corporation, not more than 10 percent in value of the
outstanding stock of which is owned (within the meaning of section
958(a)) during the last half of the taxable year by United States
persons, the term "undistributed personal holding company income"
means the amount determined by multiplying the undistributed
personal holding company income (determined without regard to this
sentence) by the percentage in value of its outstanding stock which
is the greatest percentage in value of its outstanding stock so
owned by United States persons on any one day during such period.
(b) Adjustments to taxable income
For the purposes of subsection (a), the taxable income shall be
adjusted as follows:
(1) Taxes
There shall be allowed as a deduction Federal income and excess
profits taxes and income, war profits and excess profits taxes of
foreign countries and possessions of the United States (to the
extent not allowable as a deduction under section 275(a)(4)),
accrued during the taxable year or deemed to be paid by a
domestic corporation under section 902(a) or 960(a)(1) for the
taxable year, but not including the accumulated earnings tax
imposed by section 531, the personal holding company tax imposed
by section 541, or the taxes imposed by corresponding sections of
a prior income tax law.
(2) Charitable contributions
The deduction for charitable contributions provided under
section 170 shall be allowed, but in computing such deduction the
limitations in section 170(b)(1)(A), (B), and (D) shall apply,
and section 170(b)(2) and (d)(1) shall not apply. For purposes of
this paragraph, the term "contribution base" when used in section
170(b)(1) means the taxable income computed with the adjustments
(other than the 10-percent limitation) provided in section
170(b)(2) and (d)(1) and without deduction of the amount
disallowed under paragraph (6) of this subsection.
(3) Special deductions disallowed
The special deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and following,
relating to the deduction for dividends received by corporations,
etc.) shall not be allowed.
(4) Net operating loss
The net operating loss deduction provided in section 172 shall
not be allowed, but there shall be allowed as a deduction the
amount of the net operating loss (as defined in section 172(c))
for the preceding taxable year computed without the deductions
provided in part VIII (except section 248) of subchapter B.
(5) Net capital gains
There shall be allowed as a deduction the net capital gain for
the taxable year, minus the taxes imposed by this subtitle
attributable to such net capital gain. The taxes attributable to
such net capital gain shall be an amount equal to the difference
between -
(A) the taxes imposed by this subtitle (except the tax
imposed by this part) for such year, and
(B) such taxes computed for such year without including such
excess in taxable income.
(6) Expenses and depreciation applicable to property of the
taxpayer
The aggregate of the deductions allowed under section 162
(relating to trade or business expenses) and section 167
(relating to depreciation), which are allocable to the operation
and maintenance of property owned or operated by the corporation,
shall be allowed only in an amount equal to the rent or other
compensation received for the use of, or the right to use, the
property, unless it is established (under regulations prescribed
by the Secretary) to the satisfaction of the Secretary -
(A) that the rent or other compensation received was the
highest obtainable, or, if none was received, that none was
obtainable;
(B) that the property was held in the course of a business
carried on bona fide for profit; and
(C) either that there was reasonable expectation that the
operation of the property would result in a profit, or that the
property was necessary to the conduct of the business.
(7) Special rule for capital gains and losses of foreign
corporations
In the case of a foreign corporation, paragraph (5) shall be
applied by taking into account only gains and losses which are
effectively connected with the conduct of a trade or business
within the United States and are not exempt from tax under
treaty.
(c) Certain foreign corporations
In the case of a foreign corporation all of the outstanding stock
of which during the last half of the taxable year is owned by
nonresident alien individuals (whether directly or indirectly
through foreign estates, foreign trusts, foreign partnerships, or
other foreign corporations), the taxable income for purposes of
subsection (a) shall be the income which constitutes personal
holding company income under section 543(a)(7), reduced by the
deductions attributable to such income, and adjusted, with respect
to such income, in the manner provided in subsection (b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 189; Pub. L. 85-866, title I,
Sec. 32(a), (b), Sept. 2, 1958, 72 Stat. 1631; Pub. L. 87-403, Sec.
3(d), Feb. 2, 1962, 76 Stat. 7; Pub. L. 87-834, Sec. 9(d)(2), Oct.
16, 1962, 76 Stat. 1001; Pub. L. 88-272, title II, Secs. 207(b)(5),
209(c)(2), 225(i)(1), (2), Feb. 26, 1964, 78 Stat. 42, 46, 90; Pub.
L. 89-719, title I, Sec. 101(b)(2), Nov. 2, 1966, 80 Stat. 1132;
Pub. L. 89-809, title I, Sec. 104(h)(3), Nov. 13, 1966, 80 Stat.
1560; Pub. L. 91-172, title II, Sec. 201(a)(2)(B), Dec. 30, 1969,
83 Stat. 558; Pub. L. 94-455, title X, Sec. 1033(b)(4), title XIX,
Secs. 1901(a)(77), (b)(20)(B), (32)(E), (33)(D), 1906(b)(13)(A),
1951(b)(9)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797, 1800, 1801,
1834, 1839; Pub. L. 97-448, title I, Sec. 102(m)(2), Jan. 12, 1983,
96 Stat. 2374; Pub. L. 99-514, title XII, Sec. 1225(b), Oct. 22,
1986, 100 Stat. 2559; Pub. L. 101-508, title XI, Sec. 11801(a)(24),
(c)(10)(B), Nov. 5, 1990, 104 Stat. 1388-521, 1388-527.)
-MISC1-
AMENDMENTS
1990 - Subsecs. (c), (d). Pub. L. 101-508 redesignated subsec.
(d) as (c) and struck out former subsec. (c) which related to a
special adjustment to taxable income for amounts used or set aside
to pay or retire qualified indebtedness.
1986 - Subsec. (b)(7). Pub. L. 99-514 added par. (7).
1983 - Subsec. (b)(2). Pub. L. 97-448 substituted "10-percent"
for "5-percent".
1976 - Subsec. (b)(1). Pub. L. 94-455, Secs. 1033(b)(4),
1901(a)(77)(A), struck out "(other than excess profits tax imposed
by subchapter E of chapter 2 of the Internal Revenue Code of 1939
for taxable years beginning after December 31, 1940)" after
"Federal income and excess profits taxes"; substituted "902(a) or
960(a)(1)" for "902(a)(1) or 960(a)(1)(C)" after "corporation under
section"; and struck out provisions after "prior income tax law"
relating to election by taxpayer who paid Federal income and excess
profits taxes to deduct payments, when made, for purposes of
computing subchapter A net income or, for a taxable year ending
after June 30, 1954, to deduct such taxes when accrued, such
election being irrevocable and applied to taxable year for which
election was made and to all subsequent taxable years.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(20)(B)(ii),
substituted "paragraph (6)" for "paragraph (8)" after "amount
disallowed under".
Subsec. (b)(5). Pub. L. 94-455, Sec. 1901(b)(33)(D), substituted
"Net" for "Long-term" after "(5)".
Subsec. (b)(6). Pub. L. 94-455, Secs. 1901(b)(20)(B)(i),
1906(b)(13)(A), struck out par. (6) relating to deduction allowed
to bank affiliates, redesignated former par. (8) as (6) and, as
redesignated, struck out "or his delegate" in two places after
"Secretary".
Subsec. (b)(7). Pub. L. 94-455, Sec. 1901(a)(77)(B), struck out
par. (7) relating to payment of indebtedness incurred prior to
January 1, 1934.
Subsec. (b)(8). Pub. L. 94-455, Sec. 1901(b)(20)(B)(i),
redesignated par. (8) as (6).
Subsec. (b)(9). Pub. L. 94-455, Sec. 1951(b)(9)(A), struck out
par. (9) relating to the deduction of the amount of a lien in favor
of the United States.
Subsec. (b)(10), (11). Pub. L. 94-455, Sec. 1901(b)(32)(E),
struck out par. (10) relating to deduction for distributions of
divested stock, and struck out par. (11) relating to special
adjustment on the disposition of antitrust stock received as a
dividend.
Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 1901(a)(77)(C),
substituted "February 26, 1964" for "the date of enactment of this
subsection" after "years ending before".
Subsec. (c)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(b)(20)(B)(iii),
substituted "subsection (b)(6)" for "subsection (b)(8)" after
"company income under".
1969 - Subsec. (b)(2). Pub. L. 91-172 substituted "section
170(b)(1)(A), (B), and (D)", "section 170(b)(2) and (d)(1)" for
"section 170(b)(1)(A) and (B)" and "section 170(b)(2) and (5)",
respectively, in provisions of first sentence setting out the
sections appropriate to the computation of the deduction, and in
provisions of second sentence describing applicability of terms for
purposes of this paragraph, substituted "contribution base" and
"section 170(b)(2) and (d)(1)" for "adjusted gross income" and "the
first sentence of section 170(b)(2) and (5)," respectively.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 104(h)(3)(A),
substituted "in the manner provided in subsections (b), (c), and
(d)" for "in the manner provided in subsection (b) and (c)" and
inserted provisions governing the case of a personal holding
company which is a foreign corporation, not more than 10 percent in
value of the outstanding stock of which is owned (within the
meaning of section 958(a)) during the last half of the taxable year
by United States persons.
Subsec. (b)(9). Pub. L. 89-719 substituted "section 6323(f)" for
"section 6323(a)(1), (2), or (3)".
Subsec. (d). Pub. L. 89-809, Sec. 104(h)(3)(B), added subsec.
(d).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 225(i)(1), inserted
reference to subsection (c).
Subsec. (b)(1), (2). Pub. L. 88-272, Secs. 207(b)(5), 209(c)(2),
substituted "section 275(a)(4)" for "section 164(b)(6)" in par.
(1), and inserted reference to section 170(b)(5) in par. (2).
Subsec. (c). Pub. L. 88-272, Sec. 225(i)(2), added subsec. (c).
1962 - Subsec. (b)(1). Pub. L. 87-834 substituted "accrued during
the taxable year or deemed to be paid by a domestic corporation
under section 902(a)(1) or 960(a)(1)(C) for the taxable year" for
"accrued during the taxable year".
Subsec. (b)(10), (11). Pub. L. 87-403 added pars. (10) and (11).
1958 - Subsec. (b)(2). Pub. L. 85-866, Sec. 32(a), substituted in
first sentence ", but in computing such deduction the limitations
in section 170(b)(1)(A) and (B) shall apply, and section 170(b)
shall not apply" for "but with the limitations in section
170(b)(1)(A) and (B) (in lieu of the limitation in section
170(b)(2)", and inserted in second sentence "(other than the
5-percent limitation)" and "the first sentence" after "with the
adjustments" and "provided in", respectively.
Subsec. (b)(4). Pub. L. 85-866, Sec. 32(b), inserted "computed
without the deductions provided in part VIII (except section 248)
of subchapter B".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to gains and losses
realized on or after Jan. 1, 1986, see section 1225(c) of Pub. L.
99-514, as amended, set out as a note under section 535 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1033(b)(4) of Pub. L.
94-455, see section 1033(c) of Pub. L. 94-455, set out as a note
under section 902 of this title.
Amendment by section 1901(a)(77), (b)(20)(B), (32)(E), (33)(D) of
Pub. L. 94-455 applicable with respect to taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
Amendment by section 1951(b)(9)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1951(d) of Pub. L. 94-455 set out as a note under section
72 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 201(g) of Pub. L. 91-172, set out
as a note under section 170 of this title.
EFFECTIVE DATE OF 1966 AMENDMENTS
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
Amendment by Pub. L. 89-719 applicable after Nov. 2, 1966,
regardless of when the title or lien of the United States arose or
when the lien or interest of another person was acquired, except in
a case in which a lien or title derived from enforcement of a lien
held by the United States has been enforced by a civil action or
suit which has become final by judgment, sale, or agreement before
Nov. 2, 1966, or in a case in which the amendment would impair a
priority held by any person other than the United States holding a
lien or interest prior to Nov. 2, 1966, operate to increase the
liability of such person, or shorten the time for bringing suit
with respect to transactions occurring before Nov. 2, 1966, see
section 114(a)-(e) of Pub. L. 89-719, set out as a note under
section 6323 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 207(b)(5) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 207(c) of
Pub. L. 88-272, set out as a note under section 164 of this title.
Amendment by section 209(c)(2) of Pub. L. 88-272 applicable to
contributions paid in taxable years beginning after Dec. 31, 1963,
see section 209(f)(1) of Pub. L. 88-272, set out as a note under
section 170 of this title.
Amendment by section 225(i)(1), (2) of Pub. L. 88-272 applicable
to taxable years beginning after Dec. 31, 1963, see section
225(l)(1) of Pub. L. 88-272 set out as a note under section 316 of
this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 32(a) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 32(c) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (b) of this section [amending this
section] shall apply with respect to adjustments under section
545(b)(4) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] for taxable years beginning after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
Section 1951(b)(9)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [amending this section], if any
amount was deducted under paragraph (9) of section 545(b) in a
taxable year beginning before January 1, 1977, on account of a lien
which is satisfied or released in a taxable year beginning on or
after such date, the amount so deducted shall be included in
income, for purposes of section 545, as provided in the second
sentence of such paragraph. Shareholders of any corporation which
has amounts included in its income by reason of the preceding
sentence may elect to compute the income tax on dividends
attributable to amounts so included as provided in the third
sentence of such paragraph."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 316, 501, 508, 541,
564, 631, 4947, 4948 of this title.
-End-
-CITE-
26 USC Sec. 546 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 546. Income not placed on annual basis
-STATUTE-
Section 443(b) (relating to computation of tax on change of
annual accounting period) shall not apply in the computation of the
personal holding company tax imposed by section 541.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 191.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 443 of this title.
-End-
-CITE-
26 USC Sec. 547 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 547. Deduction for deficiency dividends
-STATUTE-
(a) General rule
If a determination (as defined in subsection (c)) with respect to
a taxpayer establishes liability for personal holding company tax
imposed by section 541 (or by a corresponding provision of a prior
income tax law) for any taxable year, a deduction shall be allowed
to the taxpayer for the amount of deficiency dividends (as defined
in subsection (d)) for the purpose of determining the personal
holding company tax for such year, but not for the purpose of
determining interest, additional amounts, or assessable penalties
computed with respect to such personal holding company tax.
(b) Rules for application of section
(1) Allowance of deduction
The deficiency dividend deduction shall be allowed as of the
date the claim for the deficiency dividend deduction is filed.
(2) Credit or refund
If the allowance of a deficiency dividend deduction results in
an overpayment of personal holding company tax for any taxable
year, credit or refund with respect to such overpayment shall be
made as if on the date of the determination 2 years remained
before the expiration of the period of limitation on the filing
of claim for refund for the taxable year to which the overpayment
relates. No interest shall be allowed on a credit or refund
arising from the application of this section.
(c) Determination
For purposes of this section, the term "determination" means -
(1) a decision by the Tax Court or a judgment, decree, or other
order by any court of competent jurisdiction, which has become
final;
(2) a closing agreement made under section 7121; or
(3) under regulations prescribed by the Secretary, an agreement
signed by the Secretary and by, or on behalf of, the taxpayer
relating to the liability of such taxpayer for personal holding
company tax.
(d) Deficiency dividends
(1) Definition
For purposes of this section, the term "deficiency dividends"
means the amount of the dividends paid by the corporation on or
after the date of the determination and before filing claim under
subsection (e), which would have been includible in the
computation of the deduction for dividends paid under section 561
for the taxable year with respect to which the liability for
personal holding company tax exists, if distributed during such
taxable year. No dividends shall be considered as deficiency
dividends for purposes of subsection (a) unless distributed
within 90 days after the determination.
(2) Effect on dividends paid deduction
(A) For taxable year in which paid
Deficiency dividends paid in any taxable year (to the extent
of the portion thereof taken into account under subsection (a)
in determining personal holding company tax) shall not be
included in the amount of dividends paid for such year for
purposes of computing the dividends paid deduction for such
year and succeeding years.
(B) For prior taxable year
Deficiency dividends paid in any taxable year (to the extent
of the portion thereof taken into account under subsection (a)
in determining personal holding company tax) shall not be
allowed for purposes of section 563(b) in the computation of
the dividends paid deduction for the taxable year preceding the
taxable year in which paid.
(e) Claim required
No deficiency dividend deduction shall be allowed under
subsection (a) unless (under regulations prescribed by the
Secretary) claim therefor is filed within 120 days after the
determination.
(f) Suspension of statute of limitations and stay of collection
(1) Suspension of running of statute
If the corporation files a claim, as provided in subsection
(e), the running of the statute of limitations provided in
section 6501 on the making of assessments, and the bringing of
distraint or a proceeding in court for collection, in respect of
the deficiency and all interest, additional amounts, or
assessable penalties, shall be suspended for a period of 2 years
after the date of the determination.
(2) Stay of collection
In the case of any deficiency with respect to the tax imposed
by section 541 established by a determination under this section
-
(A) the collection of the deficiency and all interest,
additional amounts, and assessable penalties shall, except in
cases of jeopardy, be stayed until the expiration of 120 days
after the date of the determination, and
(B) if claim for deficiency dividend deduction is filed under
subsection (e), the collection of such part of the deficiency
as is not reduced by the deduction for deficiency dividends
provided in subsection (a) shall be stayed until the date the
claim is disallowed (in whole or in part) and if disallowed in
part collection shall be made only with respect to the part
disallowed.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (A) or (B) during the period for which the
collection of such amount is stayed.
(g) Deduction denied in case of fraud, etc.
No deficiency dividend deduction shall be allowed under
subsection (a) if the determination contains a finding that any
part of the deficiency is due to fraud with intent to evade tax, or
to wilful failure to file an income tax return within the time
prescribed by law or prescribed by the Secretary in pursuance of
law.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 191; Pub. L. 94-455, title XIX,
Secs. 1901(a)(78), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1777,
1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (c)(3), (e), (g). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary"
wherever appearing.
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(78), struck out subsec.
(h) relating to the effective date of provisions concerning
deduction of deficiency dividends.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(78) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 316, 381, 6422, 6503,
6515 of this title.
-End-
-CITE-
26 USC PART III - FOREIGN PERSONAL HOLDING COMPANIES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-MISC1-
Sec.
551. Foreign personal holding company income taxed to
United States shareholders.
552. Definition of foreign personal holding company.
553. Foreign personal holding company income.
554. Stock ownership.
555. Gross income of foreign personal holding companies.
556. Undistributed foreign personal holding company income.
557. Income not placed on annual basis.
558. Returns of officers, directors, and shareholders of
foreign personal holding companies.
AMENDMENTS
1958 - Pub. L. 85-866, title I, Sec. 33(d)(2), Sept. 2, 1958, 72
Stat. 1632, added item 558.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 563, 864 of this title.
-End-
-CITE-
26 USC Sec. 551 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 551. Foreign personal holding company income taxed to United
States shareholders
-STATUTE-
(a) General rule
The undistributed foreign personal holding company income of a
foreign personal holding company shall be included in the gross
income of the citizens or residents of the United States, domestic
corporations, domestic partnerships, and estates or trusts (other
than foreign estates or trusts), who are shareholders in such
foreign personal holding company (hereinafter called "United States
shareholders") in the manner and to the extent set forth in this
part.
(b) Amount included in gross income
Each United States shareholder, who was a shareholder on the day
in the taxable year of the company which was the last day on which
a United States group (as defined in section 552(a)(2)) existed
with respect to the company, shall include in his gross income, as
a dividend, for the taxable year in which or with which the taxable
year of the company ends, the amount he would have received as a
dividend (determined as if any distribution in liquidation actually
made in such taxable year had not been made) if on such last day
there had been distributed by the company, and received by the
shareholders, an amount which bears the same ratio to the
undistributed foreign personal holding company income of the
company for the taxable year as the portion of such taxable year up
to and including such last day bears to the entire taxable year.
(c) Information in return
Every United States shareholder who is required under subsection
(b) to include in his gross income any amount with respect to the
undistributed foreign personal holding company income of a foreign
personal holding company and who, on the last day on which a United
States group existed with respect to the company, owned 5 percent
or more in value of the outstanding stock of such company, shall
set forth in his return in complete detail the gross income,
deductions and credits, taxable income, foreign personal holding
company, and undistributed foreign personal holding company income
of such company.
(d) Effect on capital account of foreign personal holding company
An amount which bears the same ratio to the undistributed foreign
personal holding company income of the foreign personal holding
company for its taxable year as the portion of such taxable year up
to and including the last day on which a United States group
existed with respect to the company bears to the entire taxable
year, shall, for the purpose of determining the effect of
distributions in subsequent taxable years by the corporation, be
considered as paid-in surplus or as a contribution to capital, and
the accumulated earnings and profits as of the close of the taxable
year shall be correspondingly reduced, if such amount or any
portion thereof is required to be included as a dividend, directly
or indirectly, in the gross income of United States shareholders.
(e) Basis of stock in hands of shareholders
The amount required to be included in the gross income of a
United States shareholder under subsection (b) shall, for the
purpose of adjusting the basis of his stock with respect to which
the distribution would have been made (if it had been made), be
treated as having been reinvested by the shareholder as a
contribution to the capital of the corporation; but only to the
extent to which such amount is included in his gross income in his
return, increased or decreased by any adjustment of such amount in
the last determination of the shareholder's tax liability, made
before the expiration of 6 years after the date prescribed by law
for filing the return.
(f) Stock held through foreign entity
For purposes of this section, stock of a foreign personal holding
company owned (directly or through the application of this
subsection) by -
(1) a foreign partnership or an estate or trust which is a
foreign estate or trust, or
(2) a foreign corporation which is not a foreign personal
holding company,
shall be considered as being owned proportionately by its partners,
beneficiaries, or shareholders. In any case to which the preceding
sentence applies, the Secretary may by regulations provide that
rules similar to the rules of section 1298(b)(5) shall apply, and
provide for such other adjustments in the application of this
subchapter as may be necessary to carry out the purposes of this
subsection.
(g) Coordination with passive foreign investment company provisions
If, but for this subsection, an amount would be included in the
gross income of any person under subsection (a) and under section
1293 (relating to current taxation of income from certain passive
foreign investment companies), such amount shall be included in the
gross income of such person only under subsection (a).
(h) Cross references
(1) For basis of stock or securities in a foreign personal
holding company acquired from a decedent, see section
1014(b)(5).
(2) For period of limitation on assessment and collection
without assessment, in case of failure to include in gross
income the amount properly includible therein under subsection
(b), see section 6501.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 193; Pub. L. 88-272, title II,
Sec. 225(f)(4), Feb. 26, 1964, 78 Stat. 88; Pub. L. 94-455, title
XIX, Sec. 1901(a)(79), (b)(1)(F)(i), (12)(A), Oct. 4, 1976, 90
Stat. 1777, 1790, 1795; Pub. L. 98-369, div. A, title I, Sec.
132(b), July 18, 1984, 98 Stat. 666; Pub. L. 99-514, title XII,
Sec. 1235(e), title XVIII, Sec. 1810(h)(2), Oct. 22, 1986, 100
Stat. 2575, 2829; Pub. L. 100-647, title I, Sec. 1012(bb)(1)(A),
(B), Nov. 10, 1988, 102 Stat. 3533; Pub. L. 105-34, title XI, Sec.
1122(d)(2), Aug. 5, 1997, 111 Stat. 977.)
-MISC1-
AMENDMENTS
1997 - Subsec. (f). Pub. L. 105-34 substituted "section
1298(b)(5)" for "section 1297(b)(5)" in concluding provisions.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1012(bb)(1)(B),
substituted "(other than foreign estates or trusts)" for "(other
than estates or trusts the gross income of which under this
subtitle includes only income from sources within the United
States)".
Subsec. (f). Pub. L. 100-647, Sec. 1012(bb)(1)(A), substituted "a
foreign partnership" for "a partnership, estate, or trust which is
not a United States shareholder" in par. (1) and "that rules
similar to the rules of section 1297(b)(5) shall apply, and provide
for such other adjustments in the application of this subchapter as
may be necessary to carry out the purposes of this subsection" for
"for such adjustments in the application of this part as may be
necessary to carry out the purposes of the preceding sentence" in
last sentence.
1986 - Subsec. (f)(1). Pub. L. 99-514, Sec. 1810(h)(2), inserted
"or an estate or trust which is a foreign estate or trust".
Subsecs. (g), (h). Pub. L. 99-514, Sec. 1235(e), added subsec.
(g) and redesignated former subsec. (g) as (h).
1984 - Subsecs. (f), (g). Pub. L. 98-369 added subsec. (f) and
redesignated former subsec. (f) as (g).
1976 - Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(79),
(b)(1)(F)(i), struck out subsec. (c) relating to deduction for
obligations of United States and its instrumentalities. Former
subsec. (d) redesignated (c) and, as redesignated, substituted
"foreign personal holding company income" for "foreign personal
holding company" after "credits, taxable income".
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1901(b)(1)(F)(i),
redesignated subsecs. (d) and (e) as (c) and (d), respectively.
Former subsecs. (e) and (f) redesignated (d) and (e), respectively.
Subsecs. (f), (g). Pub. L. 94-455, Secs. 1901(b)(1)(F)(i),
(b)(12)(A), redesignated subsec. (f) as (e). Former subsec. (g)
redesignated (f) and, as redesignated, struck out par. (3) relating
to cross reference for treatment of gain on liquidation of certain
foreign personal holding companies.
1964 - Subsec. (b). Pub. L. 88-272 inserted "(determined as if
any distribution in liquidation actually made in such taxable year
had not been made)".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(1)(D) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section and
section 552 of this title] shall apply to taxable years of foreign
corporations beginning after December 31, 1986."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1235(e) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
Amendment by section 1810(h)(2) of Pub. L. 99-514 effective,
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 OF 1984 AMENDMENT
Section 132(d)(1) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsections (a) and (b) [amending this section
and section 554 of this title] shall apply to taxable years of
foreign corporations beginning after December 31, 1983.
"(B) 1-year extension for certain trusts created before june 30,
1953. -
"(i) In general. - The amendment made by subsection (b)
[amending this section] shall apply to taxable years of a foreign
corporation beginning after December 31, 1984, with respect to
stock of such corporation which is held (directly or indirectly,
within the meaning of section 554 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) by a trust created before June 30,
1953, if -
"(I) none of the beneficiaries of such trust was a citizen or
resident of the United States at the time of its creation or
within 5 years thereafter, and
"(II) such trust does not, after July 1, 1983, acquire
(directly or indirectly) stock of any foreign personal holding
company other than a company described in clause (ii).
"(ii) Description of company. - A company is described in this
clause if -
"(I) substantially all of the assets of such company are
stock or assets previously held by such trust, or
"(II) such company ceases to be a foreign personal holding
company before January 1, 1985."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to distributions made in
any taxable year of the distributing corporation beginning after
Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out as a
note under section 316 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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 563, 898, 904, 951, 989,
1016, 1291, 1294, 6103, 6501 of this title.
-End-
-CITE-
26 USC Sec. 552 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 552. Definition of foreign personal holding company
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "foreign personal holding
company" means any foreign corporation if -
(1) Gross income requirement
At least 60 percent of its gross income (as defined in section
555(a)) for the taxable year is foreign personal holding company
income as defined in section 553; but if the corporation is a
foreign personal holding company with respect to any taxable year
ending after August 26, 1937, then, for each subsequent taxable
year, the minimum percentage shall be 50 percent in lieu of 60
percent, until a taxable year during the whole of which the stock
ownership required by paragraph (2) does not exist, or until the
expiration of three consecutive taxable years in each of which
less than 50 percent of the gross income is foreign personal
holding company income. For purposes of this paragraph, there
shall be included in the gross income the amount includible
therein as a dividend by reason of the application of section
555(c)(2); and
(2) Stock ownership requirement
At any time during the taxable year more than 50 percent of -
(A) the total combined voting power of all classes of stock
of such corporation entitled to vote, or
(B) the total value of the stock of such corporation,
is owned (directly or indirectly) by or for not more than 5
individuals who are citizens or residents of the United States
(hereinafter in this part referred to as the "United States
group").
(b) Exceptions
The term "foreign personal holding company" does not include -
(1) a corporation exempt from tax under subchapter F (sec. 501
and following); and
(2) a corporation organized and doing business under the
banking and credit laws of a foreign country if it is established
(annually or at other periodic intervals) to the satisfaction of
the Secretary that such corporation is not formed or availed of
for the purpose of evading or avoiding United States income taxes
which would otherwise be imposed upon its shareholders. If the
Secretary is satisfied that such corporation is not so formed or
availed of, he shall issue to such corporation annually or at
other periodic intervals a certification that the corporation is
not a foreign personal holding company.
Each United States shareholder of a foreign corporation which
would, except for the provisions of paragraph (2), be a foreign
personal holding company, shall attach to and file with his income
tax return for the taxable year a copy of the certification by the
Secretary made pursuant to paragraph (2). Such copy shall be filed
with the taxpayer's return for the taxable year if he has been a
shareholder of such corporation for any part of such year.
(c) Look-thru for certain dividends and interest
(1) In general
For purposes of this part, any related person dividend or
interest shall be treated as foreign personal holding company
income only to the extent such dividend or interest is
attributable (determined under rules similar to the rules of
subparagraphs (C) and (D) of section 904(d)(3)) to income of the
related person which would be foreign personal holding company
income.
(2) Related person dividend or interest
For purposes of paragraph (1), the term "related person
dividend or interest" means any dividend or interest which -
(A) is described in subparagraph (A) of section 954(c)(3),
and
(B) is received from a related person which is not a foreign
personal holding company (determined without regard to this
subsection).
For purposes of the preceding sentence, the term "related person"
has the meaning given such term by section 954(d)(3) (determined
by substituting "foreign personal holding company" for
"controlled foreign corporation" each place it appears).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 195; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 132(c)(2), July 18, 1984, 98 Stat. 666; Pub.
L. 99-514, title XII, Sec. 1222(b), title XVIII, Sec. 1810(h)(1),
Oct. 22, 1986, 100 Stat. 2557, 2829; Pub. L. 100-647, title I, Sec.
1012(bb)(1)(C), Nov. 10, 1988, 102 Stat. 3533.)
-MISC1-
AMENDMENTS
1988 - Subsec. (c). Pub. L. 100-647 substituted "Look-thru for
certain dividends and interest" for "Certain dividends and interest
not taken into account" in heading and amended text generally.
Prior to amendment, text read as follows: "For purposes of
subsection (a)(1) and section 553(a)(1), gross income and foreign
personal holding company income shall not include any dividends and
interest which -
"(1) are described in subparagraph (A) of section 954(c)(4),
and
"(2) are received from a related person which is not a foreign
personal holding company (determined without regard to this
subsection).
For purposes of the preceding sentence, the term 'related person'
has the meaning given such term by section 954(d)(3) (determined by
substituting 'foreign personal holding company' for 'controlled
foreign corporation' each place it appears)."
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 1222(b), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "At
any time during the taxable year more than 50 percent in value of
its outstanding stock is owned, directly or indirectly, by or for
not more than five individuals who are citizens or residents of the
United States, hereinafter called 'United States group'."
Subsec. (c). Pub. L. 99-514, Sec. 1810(h)(1), inserted provision
relating to meaning of "related person" as given by section
954(d)(3).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary" in three places.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1012(bb)(1)(D) of Pub. L. 100-647, set out as a note under section
551 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1222(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 957 of this title] shall apply to taxable
years of foreign corporations beginning after December 31, 1986;
except that for purposes of applying sections 951(a)(1)(B) and 956
of the Internal Revenue Code of 1986, such amendments shall take
effect on August 16, 1986.
"(2) Transitional rule. - In the case of any corporation treated
as a controlled foreign corporation by reason of the amendments
made by this section, property acquired before August 16, 1986,
shall not be taken into account under section 956(b) of the
Internal Revenue Code of 1986.
"(3) Special rule for beneficiary of trust. - In the case of an
individual -
"(A) who is a beneficiary of a trust which was established on
December 7, 1979, under the laws of a foreign jurisdiction, and
"(B) who was not a citizen or resident of the United States on
the date the trust was established,
amounts which are included in the gross income of such beneficiary
under section 951(a) of the Internal Revenue Code of 1986 with
respect to stock held by the trust (and treated as distributed to
the trust) shall be treated as the first amounts which are
distributed by the trust to such beneficiary and as amounts to
which section 959(a) of such Code applies."
Amendment by section 1810(h)(1) of Pub. L. 99-514 effective,
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 OF 1984 AMENDMENT
Section 132(d)(2)(B) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (2) of subsection (c) [amending this
section] shall apply to taxable years of foreign corporations
beginning after March 15, 1984."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 171, 312, 465, 532,
542, 551, 553, 554, 555, 562, 898, 1212, 6035, 6103 of this title.
-End-
-CITE-
26 USC Sec. 553 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 553. Foreign personal holding company income
-STATUTE-
(a) Foreign personal holding company income
For purposes of this subtitle, the term "foreign personal holding
company income" means that portion of the gross income, determined
for purposes of section 552, which consists of:
(1) Dividends, etc.
Dividends, interest, royalties, and annuities. This paragraph
shall not apply to active business computer software royalties
(as defined in section 543(d)).
(2) Stock and securities transactions
Except in the case of regular dealers in stock or securities,
gains from the sale or exchange of stock or securities.
(3) Commodities transactions
Gains from futures transactions in any commodity on or subject
to the rules of a board of trade or commodity exchange. This
paragraph shall not apply to gains by a producer, processor,
merchant, or handler of the commodity which arise out of bona
fide hedging transactions reasonably necessary to the conduct of
its business in the manner in which such business is customarily
and usually conducted by others.
(4) Estates and trusts
Amounts includible in computing the taxable income of the
corporation under part I of subchapter J (sec. 641 and following,
relating to estates, trusts, and beneficiaries); and gains from
the sale or other disposition of any interest in an estate or
trust.
(5) Personal service contracts
(A) Amounts received under a contract under which the
corporation is to furnish personal services; if some person
other than the corporation has the right to designate (by name
or by description) the individual who is to perform the
services, or if the individual who is to perform the services
is designated (by name or by description) in the contract; and
(B) amounts received from the sale or other disposition of
such a contract.
This paragraph shall apply with respect to amounts received for
services under a particular contract only if at some time during
the taxable year 25 percent or more in value of the outstanding
stock of the corporation is owned, directly or indirectly, by or
for the individual who has performed, is to perform, or may be
designated (by name or by description) as the one to perform,
such services.
(6) Use of corporation property by shareholder
Amounts received as compensation (however designated and from
whomsoever received) for the use of, or right to use, property of
the corporation in any case where, at any time during the taxable
year, 25 percent or more in value of the outstanding stock of the
corporation is owned, directly or indirectly, by or for an
individual entitled to the use of the property; whether such
right is obtained directly from the corporation or by means of a
sublease or other arrangement. This paragraph shall apply only to
a corporation which has foreign personal holding company income
for the taxable year, computed without regard to this paragraph
and paragraph (7), in excess of 10 percent of its gross income.
(7) Rents
Rents, unless constituting 50 percent or more of the gross
income. For purposes of this paragraph, the term "rents" means
compensation, however designated, for the use of, or right to
use, property, but does not include amounts constituting foreign
personal holding company income under paragraph (6).
(b) Limitation on gross income in certain transactions
For purposes of this part -
(1) gross income and foreign personal holding company income
determined with respect to transactions described in subsection
(a)(2) (relating to gains from stock and security transactions)
shall include only the excess of gains over losses from such
transactions, and
(2) gross income and foreign personal holding company income
determined with respect to transactions described in subsection
(a)(3) (relating to gains from commodity transactions) shall
include only the excess of gains over losses from such
transactions.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 195; Pub. L. 86-435, Sec. 1(e),
Apr. 22, 1960, 74 Stat. 78; Pub. L. 88-272, title II, Sec. 225(e),
Feb. 26, 1964, 78 Stat. 85; Pub. L. 94-455, title XIX, Sec.
1901(b)(32)(F), Oct. 4, 1976, 90 Stat. 1800; Pub. L. 99-514, title
VI, Sec. 645(a)(3), Oct. 22, 1986, 100 Stat. 2291.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a)(1). Pub. L. 99-514 inserted at end "This
paragraph shall not apply to active business computer software
royalties (as defined in section 543(d))."
1976 - Subsec. (a)(1). Pub. L. 94-455 struck out provisions
relating to dividend distribution of divested stock after
"royalties, and annuities".
1964 - Subsec. (a). Pub. L. 88-272 designated existing provisions
as subsec. (a), and substituted pars. (1) to (7) for "personal
holding company income, as defined in section 543, except that all
interest, whether or not treated as rent, and all royalties,
whether or not mineral, oil, or gas royalties or copyright
royalties, shall constitute 'foreign personal holding company
income'."
Subsec. (b). Pub. L. 88-272 added subsec. (b).
1960 - Pub. L. 86-435 included copyright royalties within foreign
personal holding company income.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to royalties received
before, on, and after Dec. 31, 1986, see section 645(e) of Pub. L.
99-514 set out as a note under section 543 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88-272, set
out as a note under section 316 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-435 applicable only with respect to
taxable years beginning after Dec. 31, 1959, see section 2 of Pub.
L. 86-435, set out as a note under section 543 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 552, 554 of this title.
-End-
-CITE-
26 USC Sec. 554 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 554. Stock ownership
-STATUTE-
(a) Constructive ownership
For purposes of determining whether a corporation is a foreign
personal holding company, insofar as such determination is based on
stock ownership under section 552(a)(2), section 553(a)(5), or
section 553(a)(6) -
(1) Stock not owned by individual
Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned
proportionately by its shareholders, partners, or beneficiaries.
(2) Family and partnership ownership
An individual shall be considered as owning the stock owned,
directly or indirectly, by or for his family or by or for his
partner. For purposes of this paragraph, the family of an
individual includes only his brothers and sisters (whether by the
whole or half blood), spouse, ancestors, and lineal descendants.
(3) Options
If any person has an option to acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option, and each one of a
series of such options, shall be considered as an option to
acquire such stock.
(4) Application of family-partnership and option rules
Paragraphs (2) and (3) shall be applied -
(A) for purposes of the stock ownership requirement provided
in section 552(a)(2), if, but only if, the effect is to make
the corporation a foreign personal holding company;
(B) for purposes of section 553(a)(5) (relating to personal
service contracts) or of section 553(a)(6) (relating to the use
of property by shareholders), if, but only if, the effect is to
make the amounts therein referred to includible under such
paragraph as foreign personal holding company income.
(5) Constructive ownership as actual ownership
Stock constructively owned by a person by reason of the
application of paragraph (1) or (3) shall, for purposes of
applying paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by an individual by
reason of the application of paragraph (2) shall not be treated
as owned by him for purposes of again applying such paragraph in
order to make another the constructive owner of such stock.
(6) Option rule in lieu of family and partnership rule
If stock may be considered as owned by an individual under
either paragraph (2) or (3) it shall be considered as owned by
him under paragraph (3).
(b) Convertible securities
Outstanding securities convertible into stock (whether or not
convertible during the taxable year) shall be considered as
outstanding stock -
(1) for purposes of the stock ownership requirement provided in
section 552(a)(2), but only if the effect of the inclusion of all
such securities is to make the corporation a foreign personal
holding company;
(2) for purposes of section 553(a)(5) (relating to personal
service contracts), but only if the effect of the inclusion of
all such securities is to make the amounts therein referred to
includible under such paragraph as foreign personal holding
company income; and
(3) for purposes of section 553(a)(6) (relating to the use of
property by shareholders), but only if the effect of the
inclusion of all such securities is to make the amounts therein
referred to includible under such paragraph as foreign personal
holding company income.
The requirement in paragraphs (1), (2), and (3) that all
convertible securities must be included if any are to be included
shall be subject to the exception that, where some of the
outstanding securities are convertible only after a later date than
in the case of others, the class having the earlier conversion date
may be included although the others are not included, but no
convertible securities shall be included unless all outstanding
securities having a prior conversion date are also included.
(c) Special rules for application of subsection (a)(2)
For purposes of the stock ownership requirement provided in
section 552(a)(2) -
(1) stock owned by a nonresident alien individual (other than a
foreign trust or foreign estate) shall not be considered by
reason of so much of subsection (a)(2) as relates to attribution
through family membership as owned by a citizen or by a resident
alien individual who is not the spouse of the nonresident
individual and who does not otherwise own stock in such
corporation (determined after the application of subsection (a),
other than attribution through family membership), and
(2) stock of a corporation owned by any foreign person shall
not be considered by reason of so much of subsection (a)(2) as
relates to attribution through partners as owned by a citizen or
resident of the United States who does not otherwise own stock in
such corporation (determined after application of subsection (a)
and paragraph (1), other than attribution through partners).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L. 88-272, title II,
Sec. 225(e), Feb. 26, 1964, 78 Stat. 86; Pub. L. 98-369, div. A,
title I, Sec. 132(a), July 18, 1984, 98 Stat. 665.)
-MISC1-
AMENDMENTS
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1964 - Pub. L. 88-272 amended section generally by designating
existing provisions as subsec. (a), and substituting pars. (1) to
(6) therein and subsec. (b), for provisions which incorporated by
reference substantially the same provisions as in such pars. (1) to
(6) and subsec. (b).
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1983, see section
132(d)(1) of Pub. L. 98-369, set out as a note under section 551 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88-272, set
out as a note under section 316 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 898, 6035 of this title.
-End-
-CITE-
26 USC Sec. 555 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 555. Gross income of foreign personal holding companies
-STATUTE-
(a) General rule
For purposes of this part, the term "gross income" means, with
respect to a foreign corporation, gross income computed (without
regard to the provisions of subchapter N (sec. 861 and following))
as if the foreign corporation were a domestic corporation which is
a personal holding company.
(b) Additions to gross income
In the case of a foreign personal holding company (whether or not
a United States group, as defined in section 552(a)(2), existed
with respect to such company on the last day of its taxable year)
which was a shareholder in another foreign personal holding company
on the day in the taxable year of the second company which was the
last day on which a United States group existed with respect to the
second company, there shall be included, as a dividend, in the
gross income of the first company, for the taxable year in which or
with which the taxable year of the second company ends, the amount
the first company would have received as a dividend if on such last
day there had been distributed by the second company, and received
by the shareholders, an amount which bears the same ratio to the
undistributed foreign personal holding company income of the second
company for its taxable year as the portion of such taxable year up
to and including such last day bears to the entire taxable year.
(c) Application of subsection (b)
The rule provided in subsection (b) -
(1) shall be applied in the case of a foreign personal holding
company for the purpose of determining its undistributed foreign
personal holding company income which, or a part of which, is to
be included in the gross income of its shareholders, whether
United States shareholders or other foreign personal holding
companies;
(2) shall be applied in the case of every foreign corporation
with respect to which a United States group exists on some day of
its taxable year, for the purpose of determining whether such
corporation meets the gross income requirements of section
552(a)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 196.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 551, 552, 556, 6035 of
this title.
-End-
-CITE-
26 USC Sec. 556 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 556. Undistributed foreign personal holding company income
-STATUTE-
(a) Definition
For purposes of this part, the term "undistributed foreign
personal holding company income" means the taxable income of a
foreign personal holding company adjusted in the manner provided in
subsection (b), minus the dividends paid deduction (as defined in
section 561).
(b) Adjustments to taxable income
For the purposes of subsection (a), the taxable income shall be
adjusted as follows:
(1) Taxes
There shall be allowed as a deduction Federal income and excess
profits taxes and income, war profits, and excess-profits taxes
of foreign countries and possessions of the United States (to the
extent not allowable as a deduction under section 275(a)(4)),
accrued during the taxable year, but not including the
accumulated earnings tax imposed by section 531, the personal
holding company tax imposed by section 541, or the taxes imposed
by corresponding sections of a prior income tax law.
(2) Charitable contributions
The deduction for charitable contributions provided under
section 170 shall be allowed, but in computing such deduction the
limitations in section 170(b)(1)(A), (B), and (D) shall apply,
and section 170(b)(2) and (d)(1) shall not apply. For purposes of
this paragraph, the term "contribution base" when used in section
170(b)(1) means the taxable income computed with the adjustments
(other than the 10-percent limitation) provided in section
170(b)(2) and (d)(1) and without the deduction of the amounts
disallowed under paragraphs (5) and (6) of this subsection or the
inclusion in gross income of the amounts includible therein as
dividends by reason of the application of the provisions of
section 555(b) (relating to the inclusion in gross income of a
foreign personal holding company of its distributive share of the
undistributed foreign personal holding company income of another
company in which it is a shareholder).
(3) Special deductions disallowed
The special deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and following,
relating to the deduction for dividends received by corporations,
etc.) shall not be allowed.
(4) Net operating loss
The net operating loss deduction provided in section 172 shall
not be allowed, but there shall be allowed as a deduction the
amount of the net operating loss (as defined in section 172(c))
for the preceding taxable year computed without the deductions
provided in part VIII (except section 248) of subchapter B.
(5) Expenses and depreciation applicable to property of the
taxpayer
The aggregate of the deductions allowed under section 162
(relating to trade or business expenses) and section 167
(relating to depreciation) which are allocable to the operation
and maintenance of property owned or operated by the company,
shall be allowed only in an amount equal to the rent or other
compensation received for the use of, or the right to use, the
property, unless it is established (under regulations prescribed
by the Secretary) to the satisfaction of the Secretary -
(A) that the rent or other compensation received was the
highest obtainable, or, if none was received, that none was
obtainable;
(B) that the property was held in the course of a business
carried on bona fide for profit; and
(C) either that there was reasonable expectation that the
operation of the property would result in a profit, or that the
property was necessary to the conduct of the business.
(6) Taxes and contributions to pension trusts
The deductions provided in section 164(e) (relating to taxes of
a shareholder paid by the corporation) and in section 404
(relating to pension, etc., trusts) shall not be allowed.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L. 85-866, title I,
Sec. 33(a), (b)(1), (c)(1), Sept. 2, 1958, 72 Stat. 1632; Pub. L.
87-403, Sec. 3(e), Feb. 2, 1962, 76 Stat. 7; Pub. L. 88-272, title
II, Secs. 207(b)(6), 209(c)(2), Feb. 26, 1964, 78 Stat. 42, 46;
Pub. L. 91-172, title II, Sec. 201(a)(2)(B), Dec. 30, 1969, 83
Stat. 558; Pub. L. 94-455, title XIX, Secs. 1901(a)(80),
(b)(32)(G), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1778, 1800,
1834; Pub. L. 97-448, title I, Sec. 102(m)(2), Jan. 12, 1983, 96
Stat. 2374; Pub. L. 101-508, title XI, Sec. 11802(d)(1), Nov. 5,
1990, 104 Stat. 1388-529.)
-MISC1-
AMENDMENTS
1990 - Subsec. (b)(1). Pub. L. 101-508 struck out at end "A
taxpayer which, for each taxable year in which it was subject to
the provisions of supplement P of the Internal Revenue Code of
1939, deducted Federal income and excess profits taxes when paid
for the purpose of computing undistributed supplement P net income
under such code, shall deduct taxes under this paragraph when paid,
unless the corporation elects, under regulations prescribed by the
Secretary, after the date of enactment of this title to deduct the
taxes described in this paragraph when accrued. Such election shall
be irrevocable and shall apply to the taxable year for which the
election is made and to all subsequent taxable years."
1983 - Subsec. (b)(2). Pub. L. 97-448 substituted "10-percent"
for "5-percent".
1976 - Subsec. (b)(1). Pub. L. 94-455, Secs. 1901(a)(80),
1906(b)(13)(A), struck out "(other than the excess profits tax
imposed by subchapter E of chapter 2 of the Internal Revenue Code
of 1939 for taxable years beginning after December 31, 1940)" after
"deduction Federal income and excess profits taxes" and "or his
delegate" after "Secretary".
Subsec. (b)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary" in two places.
Subsec. (b)(7), (8). Pub. L. 94-455, Sec. 1901(b)(32)(G), struck
out par. (7) relating to disallowance of deduction as applied to
taxes of a shareholder paid by the corporation and contributions to
pension funds, and struck out par. (8) relating to special
adjustment on disposition of antitrust stock received as a
dividend.
1969 - Subsec. (b)(2). Pub. L. 91-172 substituted "section
170(b)(1)(A), (B), and (D)" and "section 170(b)(2) and (d)(1)" for
"section 170(b)(1)(A) and (B)" and "section 170(b)(2) and (5)",
respectively, in provisions of first sentence setting out the
sections appropriate to the computation of the deduction, and in
provisions of second sentence describing applicability of terms for
purposes of this paragraph, substituted "contribution base" and
"section 170(b)(2) and (d)(1)" for "adjusted gross income" and "the
first sentence of section 170(b)(2) and (5)", respectively.
1964 - Subsec. (b)(1), (2). Pub. L. 88-272 substituted "section
275(a)(4)" for "section 164(b)(6)" in par. (1), and inserted the
reference to section 170(b)(5) in par. (2).
1962 - Subsec. (b)(7), (8). Pub. L. 87-403 added pars. (7) and
(8).
1958 - Subsec. (b)(2). Pub. L. 85-866, Sec. 33(a), substituted in
first sentence "but in computing such deduction the limitations in
section 170(b)(1)(A) and (B) shall apply, and section 170(b)(2)
shall not apply" for "but with the limitation in section
170(b)(1)(A) and (B) (in lieu of the limitation in section
170(b)(2))" and in second sentence "the taxable income computed
with the adjustments (other than the 5-percent limitation) provided
in the first sentence of section 170(b)(2)" for "the taxable income
computed with the adjustments provided in section 170(b)(2)".
Subsec. (b)(3). Pub. L. 85-866, Sec. 33(b)(1), substituted
"section 248" for "sections 242 and 248".
Subsec. (b)(4). Pub. L. 85-866, Sec. 33(c)(1), inserted "computed
without the deductions provided in part VIII (except section 248)
of subchapter B".
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11802(d)(2) of Pub. L. 101-508 provided that: "The
amendment made by paragraph (1) [amending this section] shall not
apply to any corporation with respect to which an election under
the second sentence of section 556(b)(1) of the Internal Revenue
Code of 1986 (as in effect before the amendment made by paragraph
(1)) is in effect unless such corporation elects to have such
amendment apply and agrees to such adjustments as the Secretary of
the Treasury or his delegate may require."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 201(g) of Pub. L. 91-172, set out
as a note under section 170 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 207(b)(6) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 207(c) of
Pub. L. 88-272, set out as a note under section 164 of this title.
Amendment by section 209(c)(2) of Pub. L. 88-272 applicable to
contributions paid in taxable years beginning after Dec. 31, 1963,
see section 209(f)(1) of Pub. L. 88-272, set out as a note under
section 170 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-403 applicable only with respect to
distribution made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 33(a) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 33(b)(2) of Pub. L. 85-866 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply only with
respect to taxable years ending after December 31, 1957."
Section 33(c)(2) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
with respect to adjustments under section 556(b)(4) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years
ending after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 501, 508, 557, 4947,
4948 of this title.
-End-
-CITE-
26 USC Sec. 557 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 557. Income not placed on annual basis
-STATUTE-
Section 443(b) (relating to computation of tax on change of
annual accounting period) shall not apply in the computation of the
undistributed foreign personal holding company income under section
556.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 198.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 443 of this title.
-End-
-CITE-
26 USC Sec. 558 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART III - FOREIGN PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 558. Returns of officers, directors, and shareholders of
foreign personal holding companies
-STATUTE-
For provisions relating to returns of officers, directors,
and shareholders of foreign personal holding companies, see
section 6035.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 33(d)(1), Sept. 2, 1958, 72
Stat. 1632.)
-MISC1-
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub.
L. 85-866, set out as an Effective Date of 1958 Amendment note
under section 165 of this title.
-End-
-CITE-
26 USC PART IV - DEDUCTION FOR DIVIDENDS PAID 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
PART IV - DEDUCTION FOR DIVIDENDS PAID
-MISC1-
Sec.
561. Definition of deduction for dividends paid.
562. Rules applicable in determining dividends eligible for
dividends paid deduction.
563. Rules relating to dividends paid after close of
taxable year.
564. Dividend carryover.
565. Consent dividends.
-End-
-CITE-
26 USC Sec. 561 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 561. Definition of deduction for dividends paid
-STATUTE-
(a) General rule
The deduction for dividends paid shall be the sum of -
(1) the dividends paid during the taxable year,
(2) the consent dividends for the taxable year (determined
under section 565), and
(3) in the case of a personal holding company, the dividend
carryover described in section 564.
(b) Special rules applicable
In determining the deduction for dividends paid, the rules
provided in section 562 (relating to rules applicable in
determining dividends eligible for dividends paid deduction) and
section 563 (relating to dividends paid after the close of the
taxable year) shall be applicable.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 87-403, Sec. 3(f),
Feb. 2, 1962, 76 Stat. 8; Pub. L. 94-455, title XIX, Sec.
1901(b)(32)(H), Oct. 4, 1976, 90 Stat. 1800.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 redesignated existing
provisions of par. (1) as subsec. (b) and struck out par. (2)
relating to special adjustment on disposition of antitrust stock as
a dividend.
1962 - Subsec. (b). Pub. L. 87-403 designated existing provisions
as par. (1) and added par. (2).
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 162, 535, 545, 547, 556,
564, 565, 852, 857, 860, 4981, 4982 of this title.
-End-
-CITE-
26 USC Sec. 562 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 562. Rules applicable in determining dividends eligible for
dividends paid deduction
-STATUTE-
(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).
(b) Distributions in liquidation
(1) Except in the case of a personal holding company described
in section 542 or a foreign personal holding company described in
section 552 -
(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
(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).
(c) Preferential dividends
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 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.
(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.
(e) Special rules for real estate investment trusts
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, 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.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 88-272, title II,
Sec. 225(f)(3), Feb. 26, 1964, 78 Stat. 88; Pub. L. 97-248, title
II, Sec. 222(e)(7), Sept. 3, 1982, 96 Stat. 480; Pub. L. 97-448,
title I, Sec. 102(c)(2), Jan. 12, 1983, 96 Stat. 2370; Pub. L.
99-514, title VI, Sec. 657(a), title XVIII, Sec. 1804(d)(1), Oct.
22, 1986, 100 Stat. 2299, 2800.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 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."
Subsec. (c). Pub. L. 99-514, Sec. 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."
1983 - Subsec. (e). Pub. L. 97-448 added subsec. (e).
1982 - Subsec. (b)(1). 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.
1964 - Subsec. (b). 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).
EFFECTIVE DATE OF 1986 AMENDMENT
Section 657(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after the date of the enactment of this Act [Oct. 22,
1986]."
Section 1804(d)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to distributions after September 27, 1985."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment Pub. L. 88-272 applicable to distributions made in any
taxable year of the distributing corporation beginning after Dec.
31, 1963, see section 225(l) of Pub. L. 88-272, set out as a note
under section 316 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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 316, 543, 561, 563, 565,
852 of this title.
-End-
-CITE-
26 USC Sec. 563 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 563. Rules relating to dividends paid after close of taxable
year
-STATUTE-
(a) Accumulated earnings tax
In the determination of the dividends paid deduction for purposes
of the accumulated earnings tax imposed by section 531, a dividend
paid after the close of any taxable year and on or before the 15th
day of the third month following the close of such taxable year
shall be considered as paid during such taxable year.
(b) Personal holding company tax
In the determination of the dividends paid deduction for purposes
of the personal holding company tax imposed by section 541, a
dividend paid after the close of any taxable year and on or before
the 15th day of the third month following the close of such taxable
year shall, to the extent the taxpayer elects in its return for the
taxable year, be considered as paid during such taxable year. The
amount allowed as a dividend by reason of the application of this
subsection with respect to any taxable year shall not exceed either
-
(1) The undistributed personal holding company income of the
corporation for the taxable year, computed without regard to this
subsection, or
(2) 20 percent of the sum of the dividends paid during the
taxable year, computed without regard to this subsection.
(c) Foreign personal holding company tax
(1) In general
In the determination of the dividends paid deduction for
purposes of part III, a dividend paid after the close of any
taxable year and on or before the 15th day of the 3rd month
following the close of such taxable year shall, to the extent the
company designates such dividend as being taken into account
under this subsection, be considered as paid during such taxable
year. The amount allowed as a deduction by reason of the
application of this subsection with respect to any taxable year
shall not exceed the undistributed foreign personal holding
company income of the corporation for the taxable year computed
without regard to this subsection.
(2) Special rules
In the case of any distribution referred to in paragraph (1) -
(A) paragraph (1) shall apply only if such distribution is to
the person who was the shareholder of record (as of the last
day of the taxable year of the foreign personal holding
company) with respect to the stock for which such distribution
is made,
(B) the determination of the person required to include such
distribution in gross income shall be made under the principles
of section 551(f), and
(C) any person required to include such distribution in gross
or distributable net income shall include such distribution in
income for such person's taxable year in which the taxable year
of the foreign personal holding company ends.
(d) Dividends considered as paid on last day of taxable year
For the purpose of applying section 562(a), with respect to
distributions under subsection (a), (b), or (c) of this section, a
distribution made after the close of a taxable year and on or
before the 15th day of the third month following the close of the
taxable year shall be considered as made on the last day of such
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 199; Pub. L. 91-172, title IX,
Sec. 914(a), Dec. 30, 1969, 83 Stat. 723; Pub. L. 101-239, title
VII, Sec. 7401(b), Dec. 19, 1989, 103 Stat. 2356.)
-MISC1-
AMENDMENTS
1989 - Subsec. (c). Pub. L. 101-239, Sec. 7401(b)(1), added
subsec. (c). Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 101-239, Sec. 7401(b)(2), substituted
"subsection (a), (b), or (c)" for "subsection (a) or (b)".
Pub. L. 101-239, Sec. 7401(b)(1), redesignated former subsec. (c)
as (d).
1969 - Subsec. (b)(2). Pub. L. 91-172 substituted "20 percent"
for "10 percent".
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to taxable years of
foreign corporations beginning after July 10, 1989, with special
rules for any foreign corporation required by the amendments made
by section 7401 of Pub. L. 101-239 to change its taxable year for
its first taxable year beginning after July 10, 1989, see section
7401(d) of Pub. L. 101-239, set out as an Effective Date note under
section 898 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 914(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 316, 535, 543, 547, 561
of this title.
-End-
-CITE-
26 USC Sec. 564 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 564. Dividend carryover
-STATUTE-
(a) General rule
For purposes of computing the dividends paid deduction under
section 561, in the case of a personal holding company the dividend
carryover for any taxable year shall be the dividend carryover to
such taxable year, computed as provided in subsection (b), from the
two preceding taxable years.
(b) Computation of dividend carryover
The dividend carryover to the taxable year shall be determined as
follows:
(1) For each of the 2 preceding taxable years there shall be
determined the taxable income computed with the adjustments
provided in section 545 (whether or not the taxpayer was a
personal holding company for either of such preceding taxable
years), and there shall also be determined for each such year the
deduction for dividends paid during such year as provided in
section 561 (but determined without regard to the dividend
carryover to such year).
(2) There shall be determined for each such taxable year
whether there is an excess of such taxable income over such
deduction for dividends paid or an excess of such deduction for
dividends paid over such taxable income, and the amount of each
such excess.
(3) If there is an excess of such deductions for dividends paid
over such taxable income for the first preceding taxable year,
such excess shall be allowed as a dividend carryover to the
taxable year.
(4) If there is an excess of such deduction for dividends paid
over such taxable income for the second preceding taxable year,
such excess shall be reduced by the amount determined in
paragraph (5), and the remainder of such excess shall be allowed
as a dividend carryover to the taxable year.
(5) The amount of the reduction specified in paragraph (4)
shall be the amount of the excess of the taxable income, if any,
for the first preceding taxable year over such deduction for
dividends paid, if any, for the first preceding taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94-455, title XIX,
Sec. 1901(a)(81), Oct. 4, 1976, 90 Stat. 1778.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455 struck out subsec. (c) which
related to the determination of dividend carryover from taxable
years to which this subtitle does not apply.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 381, 561 of this title.
-End-
-CITE-
26 USC Sec. 565 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 565. Consent dividends
-STATUTE-
(a) General rule
If any person owns consent stock (as defined in subsection
(f)(1)) in a corporation on the last day of the taxable year of
such corporation, and such person agrees, in a consent filed with
the return of such corporation in accordance with regulations
prescribed by the Secretary, to treat as a dividend the amount
specified in such consent, the amount so specified shall, except as
provided in subsection (b), constitute a consent dividend for
purposes of section 561 (relating to the deduction for dividends
paid).
(b) Limitations
A consent dividend shall not include -
(1) an amount specified in a consent which, if distributed in
money, would constitute, or be part of, a distribution which
would be disqualified for purposes of the dividends paid
deduction under section 562(c) (relating to preferential
dividends), or
(2) an amount specified in a consent which would not constitute
a dividend (as defined in section 316) if the total amounts
specified in consents filed by the corporation had been
distributed in money to shareholders on the last day of the
taxable year of such corporation.
(c) Effect of consent
The amount of a consent dividend shall be considered, for
purposes of this title -
(1) as distributed in money by the corporation to the
shareholder on the last day of the taxable year of the
corporation, and
(2) as contributed to the capital of the corporation by the
shareholder on such day.
(d) Consent dividends and other distributions
If a distribution by a corporation consists in part of consent
dividends and in part of money or other property, the entire amount
specified in the consents and the amount of such money or other
property shall be considered together for purposes of applying this
title.
(e) Nonresident aliens and foreign corporations
In the case of a consent dividend which, if paid in money would
be subject to the provisions of section 1441 (relating to
withholding of tax on nonresident aliens) or section 1442 (relating
to withholding of tax on foreign corporations), this section shall
not apply unless the consent is accompanied by money, or such other
medium of payment as the Secretary may by regulations authorize, in
an amount equal to the amount that would be required to be deducted
and withheld under sections 1441 or 1442 if the consent dividend
had been, on the last day of the taxable year of the corporation,
paid to the shareholder in money as a dividend. The amount
accompanying the consent shall be credited against the tax imposed
by this subtitle on the shareholder.
(f) Definitions
(1) Consent stock
Consent stock, for purposes of this section, means the class or
classes of stock entitled, after the payment of preferred
dividends, to a share in the distribution (other than in complete
or partial liquidation) within the taxable year of all the
remaining earnings and profits, which share constitutes the same
proportion of such distribution regardless of the amount of such
distribution.
(2) Preferred dividends
Preferred dividends, for purposes of this section, means a
distribution (other than in complete or partial liquidation),
limited in amount, which must be made on any class of stock
before a further distribution (other than in complete or partial
liquidation) of earnings and profits may be made within the
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (a), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 543, 561 of this title.
-End-
|
' |
about irs efile - about us - terms of use - privacy - contact us - irs tax code - state tax links - Tax Glossary
© 2010 RETURN-TAX.COM All Rights Reserved.
