Bloomberg Bloomberg
Comprehensive Tax Research. Practitioner to Practitioner. ®

Sec. 854. Limitations Applicable To Dividends Received From Regulated Investment Company

I.R.C. § 854(a) Capital Gain Dividend
For purposes of section 1(h)(11) (relating to maximum rate of tax on dividends) and section 243 (relating to deductions for dividends received by corporations), a capital gain dividend (as defined in section 852(b)(3)) received from a regulated investment company shall not be considered as a dividend.
I.R.C. § 854(b) Other Dividends
I.R.C. § 854(b)(1) Amount Treated As Dividend
I.R.C. § 854(b)(1)(A) Deduction Under Section 243
In any case in which—
I.R.C. § 854(b)(1)(A)(i)
a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies), and
I.R.C. § 854(b)(1)(A)(ii)
such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend,
then, in computing any deduction under section 243, there shall be taken into account only that portion of such dividend reported by the regulated investment company as eligible for such deduction in written statements furnished to its shareholders and such dividend shall be treated as received from a corporation which is not a 20-percent owned corporation.
I.R.C. § 854(b)(1)(B) Maximum Rate Under Section 1(h)
I.R.C. § 854(b)(1)(B)(i) In General
In any case in which—
I.R.C. § 854(b)(1)(B)(i)(I)
a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies),
I.R.C. § 854(b)(1)(B)(i)(II)
such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, and
I.R.C. § 854(b)(1)(B)(i)(III)
the qualified dividend income of such investment company for such taxable year is less than 95 percent of its gross income,
then, in computing qualified dividend income, there shall be taken into account only that portion of such dividend reported by the regulated investment company as qualified dividend income in written statements furnished to its shareholders.
I.R.C. § 854(b)(1)(B)(ii) Gross Income
For purposes of clause (i), in the case of 1 or more sales or other dispositions of stock or securities, the term “gross income” includes only the excess of—
I.R.C. § 854(b)(1)(B)(ii)(I)
the net short-term capital gain from such sales or dispositions, over
I.R.C. § 854(b)(1)(B)(ii)(II)
the net long-term capital loss from such sales or dispositions.
I.R.C. § 854(b)(1)(C) Limitations
I.R.C. § 854(b)(1)(C)(i) Subparagraph (A)
The aggregate amount which may be reported as dividends under subparagraph (A) shall not exceed the aggregate dividends received by the company for the taxable year.
I.R.C. § 854(b)(1)(C)(ii) Subparagraph (B)
The aggregate amount which may be reported as qualified dividend income under subparagraph (B) shall not exceed the sum of—
I.R.C. § 854(b)(1)(C)(ii)(I)
the qualified dividend income of the company for the taxable year, and
I.R.C. § 854(b)(1)(C)(ii)(II)
the amount of any earnings and profits which were distributed by the company for such taxable year and accumulated in a taxable year with respect to which this part did not apply.
I.R.C. § 854(b)(2) Aggregate Dividends
For purposes of this subsection—
I.R.C. § 854(b)(2)(A) In General
In computing the amount of aggregate dividends received, there shall only be taken into account dividends received from domestic corporations.
I.R.C. § 854(b)(2)(B) Dividends
For purposes of subparagraph (A), the term “dividend" shall not include any distribution from—
I.R.C. § 854(b)(2)(B)(i)
a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers' cooperative associations), or
I.R.C. § 854(b)(2)(B)(ii)
a real estate investment trust which, for the taxable year of the trust in which the dividend is paid, qualifies under part II of subchapter M (section 856 and following).
I.R.C. § 854(b)(2)(C) Limitations On Dividends From Regulated Investment Companies
In determining the amount of any dividend for purposes of this paragraph, a dividend received from a regulated investment company shall be subject to the limitations prescribed in this section.
I.R.C. § 854(b)(3) Special Rule For Computing Deduction Under Section 243
For purposes of subparagraph (A) of paragraph (1), an amount shall be treated as a dividend for the purpose of paragraph (1) only if a deduction would have been allowable under section 243 to the regulated investment company determined—
I.R.C. § 854(b)(3)(A)
as if section 243 applied to dividends received by a regulated investment company,
I.R.C. § 854(b)(3)(B)
after the application of section 246 (but without regard to subsection (b) thereof), and
I.R.C. § 854(b)(3)(C)
after the application of section 246A.
I.R.C. § 854(b)(4) Qualified Dividend Income
For purposes of this subsection, the term “qualified dividend income” has the meaning given such term by section 1(h)(11)(B).
(Aug. 16, 1954, ch. 736, 68A Stat. 273; Feb. 26, 1964, Pub. L. 88-272, title II, 201(d)(8)-(10), 229(a)(4), 78 Stat. 32, 99; Apr. 2, 1980, Pub. L. 96-223, title IV, 404(b)(6), 94 Stat. 307; Aug. 13, 1981, Pub. L. 97-34, title III, 302(c)(4), (d)(1), 95 Stat. 272, 274; July 18, 1984, Pub. L. 98-369, div. A, title I, 16(a), 52(a)-(c), 98 Stat. 505, 564, 565; Oct. 22, 1986, Pub. L. 99-514, title VI, 612(b)(6), 655(a)(4), 100 Stat. 2250, 2299; Dec. 22, 1987,Pub. L. 100-203, title X, 10221(d)(3), 101 Stat. 1330-409; Nov. 10, 1988, Pub. L. 100-647, title I, 1006(b)(2), 102 Stat. 3393; May 28, 2003, Pub. L. 108-27, title III, 302(c), 117 Stat. 752; Oct. 4, 2004,Pub. L. 108-311, title IV, Sec. 402(a), 118 Stat. 1166; Pub. L. 111-325, Sec. 301, Dec. 22, 2010, 124 Stat. 3537.)
BACKGROUND NOTES
AMENDMENTS
2010—Subsec. (b)(1)(A). Pub. L. 111-325, Sec. 301(e)(1)(A), amended subpar. (A) by substituting “reported by the regulated investment company as eligible for such deduction in written statements furnished to its shareholders” for “designated under this subparagraph by the regulated investment company”.
Subsec. (b)(1)(B)(i). Pub. L. 111-325, Sec. 301(e)(1)(B), amended clause (i) by substituting “reported by the regulated investment company as qualified dividend income in written statements furnished to its shareholders” for “designated by the regulated investment company”.
Subsec. (b)(1)(C)(i). Pub. L. 111-325, Sec. 301(e)(1)(C), amended clause (i) by substituting “reported” for “designated”.
Subsec. (b)(1)(C)(ii). Pub. L. 111-325, Sec. 301(e)(1)(D), amended clause (ii) by substituting “reported” for “designated”.
Subsec. (b)(2)-(5). Pub. L. 111-325, Sec. 301(e)(2), struck par. (2) and redesignated par. (3)-(5) as par. (2)-(4), respectively. Before being struck, it read as follows:
“(2) Notice To Shareholders.—The amount of any distribution by a regulated investment company which may be taken into account as qualified dividend income for purposes of section 1(h)(11) and as dividends for purposes of the deduction under section 243 shall not exceed the amount so designated by the company in a written notice to its shareholders mailed not later than 60 days after the close of its taxable year.”
2004—Subsec. (b)(1)(B)(i).Pub. L. 108-311, Sec. 402(a)(5), amended clause (i). Before amendment, it read as follows:
“(i) In general
“If the aggregate dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the maximum rate under section 1(h)(11), rules similar to the rules of subparagraph (A) shall apply.”
Subsec. (b)(1)(B)(iii)-(iv). Pub. L. 108-311, Sec. 402(a)(5)(A), struck clauses (iii) and (iv). Before being struck, they read as follows:
“(iii) Dividends from real estate investment trusts
“For purposes of clause (i)-
“(I) paragraph (3)(B)(ii) shall not apply, and
“(II) in the case of a distribution from a trust described in such paragraph, the amount of such distribution which is a dividend shall be subject to the limitations under section 857(c).
“(iv) Dividends from qualified foreign corporations
“For purposes of clause (i), dividends received from qualified foreign corporations (as defined in section 1(h)(11)) shall also be taken into account in computing aggregate dividends received.”
Subsec. (b)(1)(C). Pub. L. 108-311, Sec. 402(a)(5)(B), amended subpar. (C). Before amendment it read as follows:
“(C) Limitation
“The aggregate amount which may be designated as dividends under subparagraph (A) or (B) shall not exceed the aggregate dividends received by the company for the taxable year.”
Subsec. (b)(2). Pub. L. 108-311, Sec. 402(a)(5)(C), amended par. (2) by substituting “as qualified dividend income for purposes of section 1(h)(11) and as dividends for purposes of” for “as a dividend for purposes of the maximum rate under section 1(h)(11) and”.
Subsec. (b)(5). Pub. L. 108-311, Sec. 402(a)(5)(D), amended par. (5). Before amendment it read as follows:
“(5) Coordination with section 1(h)(11)
“For purposes of paragraph (1)(B), an amount shall be treated as a dividend only if the amount is qualified dividend income (within the meaning of section 1(h)(11)(B)).”
2003--Subsec. (a). Pub. L. 108-27, Sec. 302(c), amended subsec. (a) by inserting “section 1(h)(11) (relating to maximum rate of tax on dividends) and” after “For purposes of”.
Subsec. (b)(1). Pub. L. 108-27, Sec. 302(c), amended par. (1) by redesignating subpar. (B) as subpar. (C) and adding a new subpar. (B).
Subsec. (b)(1)(C). Pub. L. 108-27, Sec. 302(c), amended subpar. (C) by substituting “subparagraph (A) or (B)” for “subparagraph (A)”.
Subsec. (b)(2). Pub. L. 108-27, Sec. 302(c), amended par. (2) by inserting “the maximum rate under section 1(h)(11) and” after “for purposes of”.
Subsec. (b)(5). Pub. L. 108-27, Sec. 302(c), added par. (5).
1988--Subsec. (b)(3). Pub. L. 100-647 substituted “Aggregate dividends” for “Definitions” in heading and amended text generally, substituting subpars. (A) to (C) for former subpars. (A) and (B).
1987--Subsec. (b)(1)(A).Pub. L. 100-203 inserted “and such dividend shall be treated as received from a corporation which is not a 20-percent owned corporation” before period at end.
1986--Subsec. (a). Pub. L. 99-514, 612(b)(6)(A), which directed that “section 116 (relating to an exclusion for dividends received by individuals), and” be struck out, was executed by striking out “section 116 (relating to an exclusion for dividends received by individuals) and” before “section 243” as the probable intent of Congress.
Subsec. (b)(1)(B), (C). Pub. L. 99-514, 612(b)(6)(B)(i), (ii), redesignated subpar. (C) as (B), struck out “or (B)” before “shall not exceed”, and struck out former subpar. (B), exclusion under section 116, which read as follows: “If the aggregate dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the exclusion under section 116, rules similar to the rules of subparagraph (A) shall apply.”
Subsec. (b)(2). Pub. L. 99-514, 655(a)(4), substituted “60 days” for “45 days”.
Pub. L. 99-514, 612(b)(6)(B)(iii), struck out “the exclusion under section 116 and" before “the deduction under section 243”.
Subsec. (b)(3)(B). Pub. L. 99-514, 612(b)(6)(B)(iv), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘aggregate dividends received’ includes only dividends received from domestic corporations other than dividends described in section 116(b) (relating to dividends excluded from gross income). In determining the amount of any dividend for purposes of this subparagraph, the rules provided in section 116(c) (relating to certain distributions) shall apply.”
1984--Subsec. (b). Pub. L. 98-369, 16(a), repealed amendments made by Pub. L. 97-34, 302(c). See 1981 Amendment note below.
Subsec. (b)(1). Pub. L. 98-369, 52(a), increased the required amount of dividends by substituting provisions directing that in any case in which (i) a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies), and (ii) such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, then, in computing any deduction under section 243, there shall be taken into account only that portion of such dividend thus designated by the regulated investment company, that if the aggregate dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the exclusion under section 116, similar rules applied, and that the aggregate amount which may be designated thus dividends shall not exceed the aggregate dividends received by the company for the taxable year for provisions which had directed that in the case of a dividend received from a regulated investment company (other than a dividend to which subsection (a) applied) (A) if such investment company met the requirements of section 852(a) for the taxable year during which it paid such dividend; and (B) the aggregate dividends received by such company during such taxable year were less than 75 percent of its gross income, then, in computing the exclusion under section 116 and the deduction under section 243, there was taken into account only that portion of the dividend which bore the same ratio to the amount of such dividend as the aggregate dividends received by such company during such taxable year to its gross income for such taxable year.
Subsec. (b)(3)(A). Pub. L. 98-369, 52(c), substituted provisions directing that in the case of 1 or more sales or other dispositions of stock and securities, the term “gross income” include only the excess of (i) the net short-term capital gain from such sales or dispositions, over (ii) the net long-term capital loss from such sales or dispositions for provisions which had directed that the term “gross income” not include gain from the sale or other disposition of stock or securities.
Subsec. (b)(4). Pub. L. 98-369, 52(b), added par. (4).
1981--Subsec. (b). Pub. L. 97-34, 302(c)(4), (d)(1), provided for general amendment of subsec. (b) so as to include provisions relating to taxable interest described in section 128 of this title, applicable to taxable years beginning after Dec. 31, 1984. Section 16(a) of Pub. L. 98-369, repealed section 302(c) of Pub. L. 97-34, and provided that this title shall be applied and administered as if section 302(c), and the amendments made by section 302(c), had not been enacted.
1980--Subsec. (b). Pub. L. 96-223, 404(b)(6), temporarily substituted “Other dividends and taxable interest” for “Other dividends" in heading, substituted “Deduction under section 243” for “General rule” in heading for par. (1), struck out “the exclusion under section 116 and” after “in computing” in text of par. (1) following subpar. (B), added par. (2), redesignated former pars. (2) and (3) as (3) and (4), respectively, and, in par. (4) as so redesignated, substituted “116(b)(2)” for “116(b)” and “116(c)(2)” for “116(c)” in subpar. (B) and added subpar. (C).
1964--Subsec. (a). Pub. L. 88-272, 201(d)(8), struck out “section 34(a) (relating to credit for dividends received by individuals)," before “section 116” and the comma before “and”.
Subsec. (b). Pub. L. 88-272, 201(d)(9), (10), 229(a)(4), substituted “45 days” for “30 days” in par. (2), and struck out “the credit under section 34(a),” before “the exclusion” in par. (1), and “the credit under section 34,” before “the exclusion” in par. (2).
EFFECTIVE DATE OF 2010 AMENDMENTS
Amendments by Pub. L. 111-325, Sec. 301(e)(1)(A) and (C), effective for taxable years beginning after the date of the enactment of this Act [Enacted: Dec. 22, 2010].
Amendments by Pub. L. 111-325, Sec. 301(e)(1)(B) and (D), effective for taxable years beginning after the date of the enactment of this Act [Enacted: Dec. 22, 2010]. Sec. 301(i) of Pub. L. 111-325 provided that:
“(i) APPLICATION OF JGTRRA SUNSET.—Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 shall apply to the amendments made by subparagraphs (B) and (D) of subsection (e)(1) to the same extent and in the same manner as section 303 of such Act applies to the amendments made by section 302 of such Act.”
Amendments by Pub. L. 111-325, Sec. 301(e)(2), effective for taxable years beginning after the date of the enactment of this Act [Enacted: Dec. 22, 2010].
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendments by Pub. L. 108-311, Sec. 402(a), applicable as if included in the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 [Pub. L. 108-27, Sec. 302] to which they relate [Effective date: Taxable years beginning after Dec. 31, 2002].
EFFECTIVE DATE OF 2003 AMENDMENT
Amendments by Pub. L. 108-27, Sec. 302, applicable to taxable years beginning after December 31, 2002.
Section 302(f)(2) of Pub. L. 108-27, as amended by Pub. L. 108-311, Sec. 402(a)(6), provided that:
“(2) Pass-thru Entities.--In the case of a pass-thru entity described in subparagraph (A), (B), (C), (D), (E), or (F) of section 1(h)(10) of the Internal Revenue Code of 1986, as amended by this Act, the amendments made by this section shall apply to taxable years ending after December 31, 2002; except that dividends received by such an entity on or before such date shall not be treated as qualified dividend income (as defined in section 1(h)(11) of such Code, as added by this Act).”
Section 303 (Sunset of Title) of Pub. L. 108-27, as amended by Sec. 102 of Pub. L. 109-222 and Sec. 102 of Pub. L. 111-312, and struck by Pub. L. 112-240, Sec. 102(a) (effective for taxable years beginning after Dec. 31, 2012), provided that:
“All provisions of, and amendments made by, this title shall not apply to taxable years beginning after December 31, 2012, and the Internal Revenue Code of 1986 shall be applied and administered to such years as if such provisions and amendments had never been enacted.”
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by 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.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or accrued after Dec. 31, 1987, in taxable years ending after such date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 612(b)(6) of Pub. L. 99-514 applicable to taxable years beginning after Dec. 31, 1986, see section 612(c) of Pub. L. 99-514, set out as a note under section 301 of this title.
Amendment by section 655(a)(4) of Pub. L. 99-514 applicable to taxable years beginning after Oct. 22, 1986, see section 655(b) of Pub. L. 99-514, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to taxable years ending after Dec. 31, 1983, see section 18(a) ofPub. L. 98-369, set out as a note under section 48 of this title.
Section 52(d) of Pub. L. 98-369 provided that: “The amendments made by this section [amending this section] shall apply to taxable years of regulated investment companies beginning after the date of the enactment of this Act [July 18, 1984].”
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see section 404(c) of Pub. L. 96-223, set out as a note under section 265 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 201(d)(8)-(10) of Pub. L. 88-272, applicable to dividends received after Dec. 31, 1964, in taxable years ending after such date, see section 201(e) of Pub. L. 88-272, set out as a note under section 22 of this title.
Amendment by section 229(a)(4) of Pub. L. 88-272 applicable to taxable years of regulated investment companies ending on or after Feb. 26, 1964, see section 229(c) of Pub. L. 88-272, set out as a note under section 852 of this title.
PERIOD FOR PROVIDING NOTICE TO SHAREHOLDERS
Section 402(a)(5)(F) of Pub. L. 108-311 provided that:
“(F) With respect to any taxable year of a regulated investment company or real estate investment trust ending on or before November 30, 2003, the period for providing notice of the qualified dividend amount to shareholders under sections 854(b)(2) and 857(c)(2)(C) of the Internal Revenue Code of 1986, as amended by this section, shall not expire before the date on which the statement under section 6042(c) of such Code is required to be furnished with respect to the last calendar year beginning in such taxable year.”