§ 854. Limitations applicable to dividends received from regulated investment company

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(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.

(b)Other dividends

(1)Amount treated as dividend

(A)Deduction under section 243 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 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.

(B)Maximum rate under section 1(h)

(i)In general In any case in which—

(I)a dividend is received from a regulated investment company (other than a dividend to which subsection

(a)applies),

(II)such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, and

(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.

(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)the net short-term capital gain from such sales or dispositions, over

(II)the net long-term capital loss from such sales or dispositions.

(C)Limitations

(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.

(ii)Subparagraph

(b)The aggregate amount which may be reported as qualified dividend income under subparagraph

(B)shall not exceed the sum of—

(I)the qualified dividend income of the company for the taxable year, and

(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.

(2)Aggregate dividends For purposes of this subsection—

(A)In general In computing the amount of aggregate dividends received, there shall only be taken into account dividends received from domestic corporations.

(B)Dividends For purposes of subparagraph (A), the term “dividend” shall not include any distribution from—

(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

(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).

(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.

(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—

(A)as if section 243 applied to dividends received by a regulated investment company,

(B)after the application of section 246 (but without regard to subsection

(b)thereof), and

(C)after the application of section 246A.

(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; Pub. L. 88–272, title II, §§ 201(d)(8)–(10), 229(a)(4), Feb. 26, 1964, 78 Stat. 32, 99; Pub. L. 96–223, title IV, § 404(b)(6), Apr. 2, 1980, 94 Stat. 307; Pub. L. 97–34, title III, § 302(c)(4), (d)(1), Aug. 13, 1981, 95 Stat. 272, 274; Pub. L. 98–369, div. A, title I, §§ 16(a), 52(a)–(c), July 18, 1984, 98 Stat. 505, 564, 565; Pub. L. 99–514, title VI, §§ 612(b)(6), 655(a)(4), Oct. 22, 1986, 100 Stat. 2250, 2299; Pub. L. 100–203, title X, § 10221(d)(3), Dec. 22, 1987, 101 Stat. 1330–409;

Pub. L. 100–647, title I, § 1006(b)(2), Nov. 10, 1988, 102 Stat. 3393; Pub. L. 108–27, title III, § 302(c), May 28, 2003, 117 Stat. 762; Pub. L. 108–311, title IV, § 402(a)(5)(A)–(D), Oct. 4, 2004, 118 Stat. 1184; Pub. L. 111–325, title III, § 301(e), Dec. 22, 2010, 124 Stat. 3544.)

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