Internal Revenue Code:Sec. 860. Deduction for deficiency dividends
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
Statute
Sec. 860. Deduction for deficiency dividends
(a) General rule
If a determination with respect to any qualified investment
entity results in any adjustment for any taxable year, a deduction
shall be allowed to such entity for the amount of deficiency
dividends for purposes of determining the deduction for dividends
paid (for purposes of section 852 or 857, whichever applies) for
such year.
(b) Qualified investment entity defined
For purposes of this section, the term ''qualified investment
entity'' means -
(1) a regulated investment company, and
(2) a real estate investment trust.
(c) Rules for application of section
(1) Interest and additions to tax determined with respect to the
amount of deficiency dividend deduction allowed
For purposes of determining interest, additions to tax, and
additional amounts -
(A) the tax imposed by this chapter (after taking into
account the deduction allowed by subsection (a)) on the
qualified investment entity for the taxable year with respect
to which the determination is made shall be deemed to be
increased by an amount equal to the deduction allowed by
subsection (a) with respect to such taxable year,
(B) the last date prescribed for payment of such increase in
tax shall be deemed to have been the last date prescribed for
the payment of tax (determined in the manner provided by
section 6601(b)) for the taxable year with respect to which the
determination is made, and
(C) such increase in tax shall be deemed to be paid 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 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 limitations on the filing of claim for refund for the
taxable year to which the overpayment relates.
(d) Adjustment
For purposes of this section -
(1) Adjustment in the case of regulated investment company
In the case of any regulated investment company, the term
''adjustment'' means -
(A) any increase in the investment company taxable income of
the regulated investment company (determined without regard to
the deduction for dividends paid (as defined in section 561)),
(B) any increase in the amount of the excess described in
section 852(b)(3)(A) (relating to the excess of the net capital
gain over the deduction for capital gain dividends paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(2) Adjustment in the case of real estate investment trust
In the case of any real estate investment trust, the term
''adjustment'' means -
(A) any increase in the sum of -
(i) the real estate investment trust taxable income of the
real estate investment trust (determined without regard to
the deduction for dividends paid (as defined in section 561)
and by excluding any net capital gain), and
(ii) the excess of the net income from foreclosure property
(as defined in section 857(b)(4)(B)) over the tax on such
income imposed by section 857(b)(4)(A),
(B) any increase in the amount of the excess described in
section 857(b)(3)(A)(ii) (relating to the excess of the net
capital gain over the deduction for capital gains dividends
paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(e) 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;
(3) under regulations prescribed by the Secretary, an agreement
signed by the Secretary and by, or on behalf of, the qualified
investment entity relating to the liability of such entity for
tax; or
(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.
(f) Deficiency dividends
(1) Definition
For purposes of this section, the term ''deficiency dividends''
means a distribution of property made by the qualified investment
entity on or after the date of the determination and before
filing claim under subsection (g), 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 tax resulting from the determination exists if
distributed during such taxable year. No distribution of
property shall be considered as deficiency dividends for purposes
of subsection (a) unless distributed within 90 days after the
determination, and unless a claim for a deficiency dividend
deduction with respect to such distribution is filed pursuant to
subsection (g).
(2) Limitations
(A) Ordinary dividends
The amount of deficiency dividends (other than deficiency
dividends qualifying as capital gain dividends) paid by a
qualified investment entity for the taxable year with respect
to which the liability for tax resulting from the determination
exists shall not exceed the sum of -
(i) the excess of the amount of increase referred to in
subparagraph (A) of paragraph (1) or (2) of subsection (d)
(whichever applies) over the amount of any increase in the
deduction for dividends paid (computed without regard to
capital gain dividends) for such taxable year which results
from such determination, and
(ii) the amount of decreased (FOOTNOTE 1) referred to in
subparagraph (C) of paragraph (1) or (2) of subsection (d)
(whichever applies).
(FOOTNOTE 1) So in original. Probably should be ''decrease''.
(B) Capital gain dividends
The amount of deficiency dividends qualifying as capital gain
dividends paid by a qualified investment entity for the taxable
year with respect to which the liability for tax resulting from
the determination exists shall not exceed the amount by which
(i) the increase referred to in subparagraph (B) of paragraph
(1) or (2) of subsection (d) (whichever applies), exceeds (ii)
the amount of any dividends paid during such taxable year which
are designated as capital gain dividends after such
determination.
(3) Effect on dividends paid deduction
(A) For taxable year in which paid
Deficiency dividends paid in any taxable year shall not be
included in the amount of dividends paid for such year for
purposes of computing the dividends paid deduction for such
year.
(B) For prior taxable year
Deficiency dividends paid in any taxable year shall not be
allowed for purposes of section 855(a) or 858(a) in the
computation of the dividends paid deduction for the taxable
year preceding the taxable year in which paid.
(g) Claim required
No deficiency dividend deduction shall be allowed under
subsection (a) unless (under regulations prescribed by the
Secretary) claim therefore is filed within 120 days after the date
of the determination.
(h) Suspension of statute of limitations and stay of collection
(1) Suspension of running of statute
If the qualified investment entity files a claim as provided in
subsection (g), 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 established by a determination under
this section, and all interest, additions to tax, additional
amounts, or assessable penalties in respect thereof, 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 established by a determination
under this section -
(A) the collection of the deficiency, and all interest,
additions to tax, additional amounts, and assessable penalties
in respect thereof, 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 a deficiency dividend deduction is filed
under subsection (g), 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.
(i) Deduction denied in case of fraud
No deficiency dividend deduction shall be allowed under
subsection (a) if the determination contains a finding that any
part of any deficiency attributable to an adjustment with respect
to the taxable year is due to fraud with intent to evade tax or to
willfull (FOOTNOTE 2) failure to file an income tax return within
the time prescribed by law or prescribed by the Secretary in
pursuance of law.
(FOOTNOTE 2) So in original. Probably should be ''willful''.
(j) Penalty
For assessable penalty with respect to liability for tax of a
regulated investment company which is allowed a deduction under
subsection (a), see section 6697.
Sources
(Added Pub. L. 95-600, title III, Sec. 362(a), Nov. 6, 1978, 92
Stat. 2848; amended Pub. L. 96-222, title I, Sec. 103(a)(11)(B),
(C), Apr. 1, 1980, 94 Stat. 213; Pub. L. 99-514, title VI, Sec.
667(b)(1), Oct. 22, 1986, 100 Stat. 2306.)
Miscellaneous
PRIOR PROVISIONS
A prior section 860 was renumbered section 859 of this title.
AMENDMENTS
2004 - Subsec.243(f)(5),Pub.L.108-357, amended Sec.860(e)
by adding a new paragraph (4).
1986 - Subsec. (j). Pub. L. 99-514 substituted ''regulated
investment company'' for ''qualified investment entity''.
1980 - Subsec. (f). Pub. L. 96-222 substituted in heading
''Deficiency'' for ''Efficiency'' and in par. (2)(A)(i) ''(computed
without regard'' for ''computed without regard''.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub.L.108-357,Sec.243.(f), shall apply to
taxable years beginning after the date of the enactment of
this Act.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as
a note under section 856 of this title.
EFFECTIVE DATE
Section 362(e) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(11)(A), Apr. 1, 1980, 94 Stat. 212; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by this section (enacting this section, amending
sections 316, 381, 852, 857, 6422, 6503, 6515, and 6697 of this
title, repealing section 859 of this title, and redesignating prior
section 860 as 859 of this title) shall apply with respect to
determinations (as defined in section 860(e) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954)) after the date of the
enactment of this Act (Nov. 6, 1978).''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 316, 381, 852, 857, 4981,
4982, 6422, 6503, 6515, 6697 of this title.
