§ 243. Dividends received by corporations

§ 243. Dividends received by corporations

(a) General rule In the case of a corporation, there shall be allowed as a deduction an amount equal to the following percentages of the amount received as dividends from a domestic corporation which is subject to taxation under this chapter:

(1) 50 percent, in the case of dividends other than dividends described in paragraph (2) or (3);

(2) 100 percent, in the case of dividends received by a small business investment company operating under the Small Business Investment Act of 1958 (15 U.S.C. 661 and following); and

(3) 100 percent, in the case of qualifying dividends (as defined in subsection (b)(1)).

(b) Qualifying dividends

(1) In general For purposes of this section, the term “qualifying dividend” means any dividend received by a corporation—

(A) if at the close of the day on which such dividend is received, such corporation is a member of the same affiliated group as the corporation distributing such dividend, and

(B) if such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group.

(2) Affiliated group For purposes of this subsection:

(A) In general The term “affiliated group” has the meaning given such term by section 1504(a), except that for such purposes sections 1504(b)(2) and 1504(c) shall not apply.

(B) Group must be consistent in foreign tax treatment The requirements of paragraph (1)(A) shall not be treated as being met with respect to any dividend received by a corporation if, for any taxable year which includes the day on which such dividend is received—

(i) 1 or more members of the affiliated group referred to in paragraph (1)(A) choose to any extent to take the benefits of section 901, and

(ii) 1 or more other members of such group claim to any extent a deduction for taxes otherwise creditable under section 901.

(3) Special rule for groups which include life insurance companies

(A) In general In the case of an affiliated group which includes 1 or more insurance companies under section 801, no dividend by any member of such group shall be treated as a qualifying dividend unless an election under this paragraph is in effect for the taxable year in which the dividend is received. The preceding sentence shall not apply in the case of a dividend described in paragraph (1)(B)(ii).

(B) Effect of election If an election under this paragraph is in effect with respect to any affiliated group—

(i) part II of subchapter B of chapter 6 (relating to certain controlled corporations) shall be applied with respect to the members of such group without regard to sections 1563(a)(4) and 1563(b)(2)(D), and

(ii) for purposes of this subsection, a distribution by any member of such group which is subject to tax under section 801 shall not be treated as a qualifying dividend if such distribution is out of earnings and profits for a taxable year for which an election under this paragraph is not effective and for which such distributing corporation was not a component member of a controlled group of corporations within the meaning of section 1563 solely by reason of section 1563(b)(2)(D).

(C) Election An election under this paragraph shall be made by the common parent of the affiliated group and at such time and in such manner as the Secretary shall by regulations prescribe. Any such election shall be binding on all members of such group and may be revoked only with the consent of the Secretary.

(c) Increased percentage for dividends from 20-percent owned corporations

(1) In general In the case of any dividend received from a 20-percent owned corporation, subsection (a)(1) shall be applied by substituting “65 percent” for “50 percent”.

(2) 20-percent owned corporation For purposes of this section, the term “20-percent owned corporation” means any corporation if 20 percent or more of the stock of such corporation (by vote and value) is owned by the taxpayer. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account.

(d) Special rules for certain distributions For purposes of subsection (a)—

(1) Any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.) shall not be treated as a dividend.

(2) A dividend received from a regulated investment company shall be subject to the limitations prescribed in section 854.

(3) Any dividend received from 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) shall not be treated as a dividend.

(e) Certain dividends from foreign corporations For purposes of subsection (a) and for purposes of section 245, any dividend from a foreign corporation from earnings and profits accumulated by a domestic corporation during a period with respect to which such domestic corporation was subject to taxation under this chapter (or corresponding provisions of prior law) shall be treated as a dividend from a domestic corporation which is subject to taxation under this chapter.

(Aug. 16, 1954, ch. 736, 68A Stat. 73; Pub. L. 85–866, title I, § 57(b), Sept. 2, 1958, 72 Stat. 1645; Pub. L. 86–779, §§ 3(a), 10(g), Sept. 14, 1960, 74 Stat. 998, 1009; Pub. L. 88–272, title II, § 214(a), Feb. 26, 1964, 78 Stat. 52; Pub. L. 90–364, title I, § 103(e)(2), June 28, 1968, 82 Stat. 264; Pub. L. 91–172, title V, § 504(c)(1), Dec. 30, 1969, 83 Stat. 633; Pub. L. 94–12, title III, § 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94–455, title X, §§ 1031(b)(2), 1051(f)(1), (2), title XIX, §§ 1901(a)(34), (b)(1)(J)(ii), (21)(A)(i), 1906(b)(3)(C)(ii), (13)(A), Oct. 4, 1976, 90 Stat. 1622, 1646, 1769, 1791, 1797, 1833, 1834; Pub. L. 97–34, title II, § 232(b)(2), Aug. 13, 1981, 95 Stat. 250; Pub. L. 98–369, div. A, title II, § 211(b)(3), July 18, 1984, 98 Stat. 754; Pub. L. 99–514, title IV, § 411(b)(2)(C)(iv), title VI, § 611(a)(1), Oct. 22, 1986, 100 Stat. 2227, 2249; Pub. L. 100–203, title X, § 10221(a)(1), (b), Dec. 22, 1987, 101 Stat. 1330–408; Pub. L. 100–647, title I, § 1010(f)(4), Nov. 10, 1988, 102 Stat. 3454; Pub. L. 101–508, title XI, § 11814(a), Nov. 5, 1990, 104 Stat. 1388–556; Pub. L. 104–188, title I, § 1702(h)(4), (8), Aug. 20, 1996, 110 Stat. 1873, 1874; Pub. L. 113–295, div. A, title II, § 221(a)(41)(C), (D), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 115–97, title I, § 13002(a), Dec. 22, 2017, 131 Stat. 2100; Pub. L. 115–141, div. U, title IV, § 401(d)(1)(D)(v), (xvii)(II), Mar. 23, 2018, 132 Stat. 1207, 1208.)

Editorial Notes

References in Text

The Small Business Investment Act of 1958, referred to in subsec. (a)(2), is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under section 661 of Title 15 and Tables.

Amendments

2018—Subsec. (b)(1)(B). Pub. L. 115–141, § 401(d)(1)(D)(v), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “if—

“(i) such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, for which an election under section 1562 was not in effect, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group, or

“(ii) such dividend is paid by a corporation with respect to which an election under section 936 is in effect for the taxable year in which such dividend is paid.”

Subsec. (b)(2)(A). Pub. L. 115–141, § 401(d)(1)(D)(xvii)(II), struck out “, 1504(b)(4),” after “1504(b)(2)”.

2017—Subsec. (a)(1). Pub. L. 115–97, § 13002(a)(1), substituted “50 percent” for “70 percent”.

Subsec. (c). Pub. L. 115–97, § 13002(a)(3), which directed amendment of subsec. (c) heading by substituting “Increased percentage” for “Retention of 80-percent dividend received deduction”, was executed by making the substitution for “Retention of 80-percent dividends received deduction”, to reflect the probable intent of Congress.

Subsec. (c)(1). Pub. L. 115–97, § 13002(a)(2), substituted “65 percent” for “80 percent” and “50 percent” for “70 percent”.

2014—Subsec. (c)(1). Pub. L. 113–295, § 221(a)(41)(C), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “In the case of any dividend received from a 20-percent owned corporation—

“(A) subsection (a)(1) of this section, and

“(B) subsections (a)(3) and (b)(2) of section 244,

shall be applied by substituting ‘80 percent’ for ‘70 percent’.”

Subsec. (d)(4). Pub. L. 113–295, § 221(a)(41)(D), struck out par. (4) which read as follows: “Any dividend received which is described in section 244 (relating to dividends received on preferred stock of a public utility) shall not be treated as a dividend.”

1996—Subsec. (b)(2). Pub. L. 104–188, § 1702(h)(8), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “For purposes of this subsection, the term ‘affiliated group’ has the meaning given such term by section 1504(a), except that for such purposes sections 1504(b)(2), 1504(b)(4), and 1504(c) shall not apply.”

Subsec. (b)(3)(A). Pub. L. 104–188, § 1702(h)(4), inserted “of” after “In the case”.

1990—Subsec. (b). Pub. L. 101–508 amended subsec. (b) generally, substituting present provisions for provisions defining “qualifying dividends”, providing for an election by or for an affiliated group, the effect of an election, and the termination of an election, defining an “affiliated group”, and providing special rules for insurance companies.

1988—Subsec. (b)(6). Pub. L. 100–647 substituted “section 801” for “section 801 or 821”.

1987—Subsec. (a)(1). Pub. L. 100–203, § 10221(a)(1), substituted “70 percent” for “80 percent”.

Subsecs. (c) to (e). Pub. L. 100–203, § 10221(b), added subsec. (c) and redesignated former subsecs. (c) and (d) as (d) and (e), respectively.

1986—Subsec. (a)(1). Pub. L. 99–514, § 611(a)(1), substituted “80 percent” for “85 percent”.

Subsec. (b)(3)(C). Pub. L. 99–514, § 411(b)(2)(C)(iv), inserted “and” at end of cl. (i), redesignated cl. (iii) as (ii), and struck out former cl. (ii) which read as follows: “$400,000 limitation for certain exploration expenditures under section 617(h)(1), and”.

1984—Subsec. (b)(3)(C). Pub. L. 98–369, § 211(b)(3)(A), inserted “and” at end of cl. (ii), struck out cl. (iii) which provided for a $25,000 limitation on small business deduction of life insurance companies under sections 804(a)(3) and 809(d)(10), and redesignated cl. (iv) as (iii).

Subsec. (b)(6). Pub. L. 98–369, § 211(b)(3)(B), substituted “section 801” for “section 802”.

1981—Subsec. (b)(3)(C)(i). Pub. L. 97–34 struck out “$150,000” before “minimum accumulated earnings credit”.

1976—Subsec. (a)(2). Pub. L. 94–455, § 1901(a)(34)(A), inserted “(15 U.S.C. 661 and following)” after “Small Business Investment Act of 1958”.

Subsec. (b)(1). Pub. L. 94–455, § 1051(f)(1), inserted “either” at end of subpar. (A), substituted a comma for a period and inserted “or” at end of subpar. (B), and added subpar. (C).

Subsec. (b)(2), (3), (4). Pub. L. 94–455, title XIX, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

Subsec. (b)(2)(A). Pub. L. 94–455, § 1901(a)(34)(B), struck out “(except that in the case of a taxable year of a member beginning in 1963 and ending in 1964, if the election is effective for the taxable year of the common parent corporation which includes the last day of such taxable year of such member, such election shall be effective for such taxable year of such member, if such member consents to such election with respect to such taxable year)” after “with respect to which the election is made”.

Subsec. (b)(3)(B). Pub. L. 94–455, § 1031(b)(2), substituted “election under section 901(a) (relating to allowance of foreign tax credit)” for “elections under section 901(a) (relating to allowance of foreign tax credit) and section 904(b)(1) (relating to election of overall limitation)”.

Subsec. (b)(3)(C). Pub. L. 94–455, §§ 1901(b)(1)(J)(ii), (21)(A)(i), 1906(b)(3)(C)(ii), struck out cl. (ii) which set a $100,000 limitation for exploration expenditures under section 615 (a) and (b), redesignated former cls. (iii), (iv), and (v) as cls. (ii), (iii), and (iv), respectively, and substituted “certain exploration expenditures under section 617(h)(1)” for “exploration expenditures under sections 615(c)(1) and 617(h)(1)” in cl. (ii) as so redesignated, “804(a)(3)” for “804(a)(4)” in cl. (iii) as so redesignated, and “section 6154(c)(2) and section 6655(e)(2)” for “sections 6154(c)(2) and (3) and sections 6655(e)(2) and (3)” in cl. (iv) as so redesignated.

Subsec. (b)(5). Pub. L. 94–455, § 1051(f)(2), inserted “, 1504(b)(4),” after “sections 1504(b)(2)”.

1975—Subsec. (b)(3)(C)(i). Pub. L. 94–12 substituted “$150,000” for “$100,000”.

1969—Subsec. (b)(3)(C)(iii). Pub. L. 91–172 substituted “sections 615(c)(1) and 617(h)(1)” for “section 615(c)(1)”.

1968—Subsec. (b)(3)(C)(v). Pub. L. 90–364 substituted “surtax exemption, and one amount under section 6154(c)(2) and (3) and sections 6655(e)(2) and (3), for purposes of estimated tax payment requirements under section 6154” for “$100,000 exemption for purposes of estimated tax filing requirements under section 6016”.

1964—Subsec. (a). Pub. L. 88–272 substituted provisions permitting a deduction for 85 percent of dividends received except that it shall be 100 percent when received by a small business investment company operating under the Small Business Investment Act of 1958, and 100 percent in case of qualifying dividends, for provisions permitting an 85 percent deduction for corporations other than one operating under the Small Business Investment Act of 1958, and for other than dividends described in section 244(1) of this title.

Subsec. (b). Pub. L. 88–272 added subsec. (b) and omitted a prior subsec. (b) which allowed a 100 percent deduction of dividends received by a small business investment company operating under the Small Business Investment Act of 1958, other than dividends described in section 244(1) of this title.

Subsec. (c). Pub. L. 88–272 substituted “subsection (a)” for “subsections (a) and (b)” and added par. (4).

Subsec. (d). Pub. L. 88–272 substituted “subsection (a)” for “subsections (a) and (b)”.

1960—Subsec. (c)(3). Pub. L. 86–779, § 10(g), added par. (3).

Subsec. (d). Pub. L. 86–779, § 3(a), added subsec. (d).