United States Code, 2015 Edition
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
From the U.S. Government Publishing Office, http://www.gpo.gov/
PART II—PERSONAL HOLDING COMPANIES
§541. Imposition of personal holding company tax
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 20 percent of the undistributed personal holding company income.
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 88–272, title II, §225(a), Feb. 26, 1964, 78 Stat. 79; Pub. L. 97–34, title I, §101(d)(2), Aug. 13, 1981, 95 Stat. 184; Pub. L. 99–514, title I, §104(b)(8), Oct. 22, 1986, 100 Stat. 2105; Pub. L. 101–508, title XI, §11802(f)(1), Nov. 5, 1990, 104 Stat. 1388–530; Pub. L. 103–66, title XIII, §§13201(b)(2), 13202(b), Aug. 10, 1993, 107 Stat. 459, 461; Pub. L. 107–16, title I, §101(c)(5), June 7, 2001, 115 Stat. 43; Pub. L. 108–27, title III, §302(e)(6), May 28, 2003, 117 Stat. 764; Pub. L. 112–240, title I, §102(c)(1)(B), Jan. 2, 2013, 126 Stat. 2319.)
Amendments
2013—Pub. L. 112–240 substituted "20 percent" for "15 percent".
2003—Pub. L. 108–27 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."
2001—Pub. L. 107–16 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."
1993—Pub. L. 103–66, §13202(b), substituted "39.6 percent" for "36 percent".
Pub. L. 103–66, §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 Date of 2013 Amendment
Amendment by Pub. L. 112–240 applicable to taxable years beginning after Dec. 31, 2012, see section 102(d)(1) of Pub. L. 112–240, set out as a note under section 1 of this title.
Effective Date 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 an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.
Effective Date of 2001 Amendment
Amendment by Pub. L. 107–16 applicable to taxable years beginning after Dec. 31, 2000, see section 101(d) of Pub. L. 107–16, set out as an Effective and Termination Dates of 2001 Amendment 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 45K of this title.
§542. Definition of personal holding company
(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 corporation,1
(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 2 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; and
(8) 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.
(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.
(Aug. 16, 1954, ch. 736, 68A Stat. 182; ch. 871, §3, Aug. 12, 1955, 69 Stat. 718; Pub. L. 86–376, §3(a), Sept. 23, 1959, 73 Stat. 700; Pub. L. 87–768, §1, Oct. 9, 1962, 76 Stat. 766; Pub. L. 88–272, title II, §225(b), (c), (k)(1), Feb. 26, 1964, 78 Stat. 79, 93; Pub. L. 89–809, title I, §104(h)(1), Nov. 13, 1966, 80 Stat. 1559; Pub. L. 91–172, title I, §101(j)(16), Dec. 30, 1969, 83 Stat. 528; Pub. L. 93–480, §3(a), Oct. 26, 1974, 88 Stat. 1454; Pub. L. 94–455, title XIX, §1901(a)(76), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 96–589, §5(a), Dec. 24, 1980, 94 Stat. 3405; Pub. L. 97–248, title II, §293(a)–(c), Sept. 3, 1982, 96 Stat. 575; Pub. L. 98–369, div. A, title II, §211(b)(7), July 18, 1984, 98 Stat. 755; Pub. L. 99–514, title XII, §1235(f)(2), Oct. 22, 1986, 100 Stat. 2575; Pub. L. 105–34, title XI, §1122(d)(1), Aug. 5, 1997, 111 Stat. 977; Pub. L. 108–357, title IV, §413(b)(1), Oct. 22, 2004, 118 Stat. 1506.)
References in Text
The Small Business Investment Act of 1958, referred to in subsec. (c)(7), is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, as amended, which is classified principally to chapter 14B (§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.
Amendments
2004—Subsec. (c)(5). Pub. L. 108–357, §413(b)(1)(A), amended par. (5) generally. Prior to amendment, par. (5) read as follows: "a foreign personal holding company as defined in section 552;".
Subsec. (c)(7) to (10). Pub. L. 108–357, §413(b)(1)(B)–(D), redesignated pars. (8) and (9) as (7) and (8), respectively, inserted "and" at end of par. (7), substituted period for "; and" at end of par. (8), and struck out former pars. (7) and (10) relating to foreign corporations whose outstanding stock during the last half of the taxable year is owned, directly or indirectly, by nonresident aliens and passive foreign investment companies, respectively.
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, §293(a), struck out "but not $1,000,000" after "exceeds $500,000".
Subsec. (d)(1)(B)(i). Pub. L. 97–248, §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, §293(c), added subpar. (C).
1980—Subsec. (c)(9). Pub. L. 96–589, added par. (9).
1976—Subsec. (a)(2). Pub. L. 94–455, §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, §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, §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, §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, §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, §225(k)(1), substituted "adjusted ordinary gross income" for "gross income", wherever appearing.
Subsec. (c)(2), (6) to (11). Pub. L. 88–272, §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, §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, §3, inserted sentence at end excepting from consideration as "individuals" certain charitable foundations created before July 1, 1950.
Effective Date of 2004 Amendment
Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title.
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
Pub. L. 97–248, title II, §293(d), Sept. 3, 1982, 96 Stat. 575, 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
Pub. L. 93–480, §3(b), Oct. 26, 1974, 88 Stat. 1454, 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
Pub. L. 87–768, §2, Oct. 9, 1962, 76 Stat. 766, 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
Pub. L. 86–376, §3(b), Sept. 23, 1959, 73 Stat. 700, 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
Act Aug. 12, 1955, ch. 871, §4, 69 Stat. 718, 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, §701(o), Nov. 6, 1978, 92 Stat. 2907, as amended by Pub. L. 99–514, §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."
1 So in original. The comma probably should be a semicolon.
2 So in original. Probably should not be capitalized.
§543. Personal holding company income
(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 chapter 533 or 535 of title 46, United States Code,
(C) dividends received by a United States shareholder (as defined in section 951(b)) from a controlled foreign corporation (as defined in section 957(a)),
(D) active business computer software royalties (within the meaning of subsection (d)), and
(E) 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) 1 (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, and
(B) all gains (other than those referred to in subparagraph (A)) from the sale or other disposition of property described in section 1231(b).
(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) 1 (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).
(Aug. 16, 1954, ch. 736, 68A Stat. 186; Pub. L. 86–435, §1(a), (b), Apr. 22, 1960, 74 Stat. 77; Pub. L. 87–403, §3(c), Feb. 2, 1962, 76 Stat. 6; Pub. L. 88–272, title II, §225(d), (k)(2), Feb. 26, 1964, 78 Stat. 81, 93; Pub. L. 88–484, §3(a), Aug. 22, 1964, 78 Stat. 598; Pub. L. 89–809, title I, §104(h)(2), title II, §206(a), (b), Nov. 13, 1966, 80 Stat. 1559, 1578, 1579; Pub. L. 94–455, title II, §211(a), title XIX, §§1901(b)(32)(D), 1906(b)(13)(A), title XXI, §2106(a), Oct. 4, 1976, 90 Stat. 1544, 1800, 1834, 1902; Pub. L. 94–553, §105(d), Oct. 19, 1976, 90 Stat. 2599; Pub. L. 97–248, title II, §222(e)(6), Sept. 3, 1982, 96 Stat. 480; Pub. L. 98–369, div. A, title VII, §712(i)(3), July 18, 1984, 98 Stat. 948; Pub. L. 99–514, title VI, §645(a)(1), (2), (4), title XVIII, §1899A(18), Oct. 22, 1986, 100 Stat. 2289, 2291, 2959; Pub. L. 100–647, title I, §1010(f)(5), title VI, §6279(a), Nov. 10, 1988, 102 Stat. 3454, 3754; Pub. L. 104–188, title I, §1704(t)(6), Aug. 20, 1996, 110 Stat. 1887; Pub. L. 105–206, title VI, §6023(9), July 22, 1998, 112 Stat. 825; Pub. L. 106–170, title V, §532(c)(2)(E), Dec. 17, 1999, 113 Stat. 1930; Pub. L. 108–357, title IV, §413(c)(8), Oct. 22, 2004, 118 Stat. 1507; Pub. L. 109–304, §17(e)(3), Oct. 6, 2006, 120 Stat. 1708; Pub. L. 113–295, div. B, title II, §207(a), Dec. 19, 2014, 128 Stat. 4072.)
References in Text
Section 3(a)(4) and (5) of the Securities and Exchange Act of 1934, referred to in subsec. (a)(1)(E), is classified to section 78c(a)(4) and (5) of Title 15, Commerce and Trade.
Section 563(d), referred to in subsecs. (a)(2)(B)(ii) and (d)(5)(A)(ii), was redesignated section 563(c) by Pub. L. 108–357, title IV, §413(c)(10)(B), Oct. 22, 2004, 118 Stat. 1507.
Amendments
2014—Subsec. (a)(1)(C) to (E). Pub. L. 113–295 added subpar. (C) and redesignated former subpars. (C) and (D) as (D) and (E), respectively.
2006—Subsec. (a)(1)(B). Pub. L. 109–304 substituted "chapter 533 or 535 of title 46, United States Code" for "section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. App. 1161 or 1177)".
2004—Subsec. (b)(1). Pub. L. 108–357 inserted "and" at end of subpar. (A), substituted a period for ", and" at end of subpar. (B), and struck out subpar. (C) which read as follows: "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:".
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, §6279(a), added subpar. (D).
Subsec. (c). Pub. L. 100–647, §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, §1899A(18), substituted "46 U.S.C. App." for "46 U.S.C.".
Subsec. (a)(1)(C). Pub. L. 99–514, §645(a)(1), added subpar. (C).
Subsec. (a)(4). Pub. L. 99–514, §645(a)(4)(A), inserted "This paragraph shall not apply to active business computer software royalties."
Subsec. (b)(3)(E). Pub. L. 99–514, §645(a)(4)(B), added subpar. (E).
Subsec. (d). Pub. L. 99–514, §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, §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, §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, §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, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".
1966—Subsec. (a)(2). Pub. L. 89–809, §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, §104(h)(2), added subpar. (C).
Subsec. (b)(2)(D). Pub. L. 89–809, §206(b)(2), added subpar. (D).
Subsec. (b)(3). Pub. L. 89–809, §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, §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, §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, §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, §1(b)(1), excluded copyright royalties.
Subsec. (a)(6). Pub. L. 86–435, §1(b)(2), inserted sentence providing that copyright royalties constitute personal holding company income.
Subsec. (a)(9). Pub. L. 86–435, §1(a), added par. (9).
Effective Date of 2014 Amendment
Pub. L. 113–295, div. B, title II, §207(b), Dec. 19, 2014, 128 Stat. 4072, provided that: "The amendments made by this Act [probably means this section, section 207 of title II of div. B of Pub. L. 113–295, which amended this section] shall apply to taxable years ending on or after the date of the enactment of this Act [Dec. 19, 2014]."
Effective Date of 2004 Amendment
Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title.
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.
Pub. L. 100–647, title VI, §6279(b), Nov. 10, 1988, 102 Stat. 3754, 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
Pub. L. 99–514, title VI, §645(e), Oct. 22, 1986, 100 Stat. 2292, 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 Amendment
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.
Pub. L. 94–455, title II, §211(b), Oct. 4, 1976, 90 Stat. 1545, 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.
Pub. L. 94–455, title XXI, §2106(b), Oct. 4, 1976, 90 Stat. 1903, 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.
Pub. L. 89–809, title II, §206(c), Nov. 13, 1966, 80 Stat. 1579, 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 Amendment
Pub. L. 88–484, §3(b), Aug. 22, 1964, 78 Stat. 598, 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
Pub. L. 86–435, §2, Apr. 22, 1960, 74 Stat. 78, 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
Pub. L. 100–647, title VI, §6280, Nov. 10, 1988, 102 Stat. 3754, 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
Pub. L. 99–514, title VI, §645(b)–(d), Oct. 22, 1986, 100 Stat. 2292, 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) [now section 1362(d)(3)(C)]) 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 [§§1101–1147 and 1171–1177] or title XVIII [§§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.
1 See References in Text note below.
§544. Rules for determining stock ownership
(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.
(Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86–435, §1(c), (d), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88–272, title II, §225(k)(3), Feb. 26, 1964, 78 Stat. 93.)
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, §1(c)(1), inserted reference to section 543(a)(9) in introductory provisions.
Subsec. (a)(4)(B). Pub. L. 86–435, §1(c)(2), included reference to section 543(a)(9).
Subsec. (b). Pub. L. 86–435, §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.
§545. Undistributed personal holding company income
(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 or the personal holding company tax imposed by section 541.
(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), (D), and (E) 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).
(Aug. 16, 1954, ch. 736, 68A Stat. 189; Pub. L. 85–866, title I, §32(a), (b), Sept. 2, 1958, 72 Stat. 1631; Pub. L. 87–403, §3(d), Feb. 2, 1962, 76 Stat. 7; Pub. L. 87–834, §9(d)(2), Oct. 16, 1962, 76 Stat. 1001; Pub. L. 88–272, title II, §§207(b)(5), 209(c)(2), 225(i)(1), (2), Feb. 26, 1964, 78 Stat. 42, 46, 90; Pub. L. 89–719, title I, §101(b)(2), Nov. 2, 1966, 80 Stat. 1132; Pub. L. 89–809, title I, §104(h)(3), Nov. 13, 1966, 80 Stat. 1560; Pub. L. 91–172, title II, §201(a)(2)(B), Dec. 30, 1969, 83 Stat. 558; Pub. L. 94–455, title X, §1033(b)(4), title XIX, §§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, §102(m)(2), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 99–514, title XII, §1225(b), Oct. 22, 1986, 100 Stat. 2559; Pub. L. 101–508, title XI, §11801(a)(24), (c)(10)(B), Nov. 5, 1990, 104 Stat. 1388–521, 1388-527; Pub. L. 109–280, title XII, §1206(b)(2), Aug. 17, 2006, 120 Stat. 1070; Pub. L. 113–295, div. A, title II, §221(a)(64), Dec. 19, 2014, 128 Stat. 4048.)
Amendments
2014—Subsec. (b)(1). Pub. L. 113–295 substituted "section 531 or the personal holding company tax imposed by section 541." for "section 531, the personal holding company tax imposed by section 541, or the taxes imposed by corresponding sections of a prior income tax law."
2006—Subsec. (b)(2). Pub. L. 109–280, which directed the substitution of "(D), and (E)" for "and (D)" in section 545(b)(2), without specifying the act to be amended, was executed by making the substitution in subsec. (b)(2) of this section, which is section 545 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress.
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, §§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, §1901(b)(20)(B)(ii), substituted "paragraph (6)" for "paragraph (8)" after "amount disallowed under".
Subsec. (b)(5). Pub. L. 94–455, §1901(b)(33)(D), substituted "Net" for "Long-term" after "(5)".
Subsec. (b)(6). Pub. L. 94–455, §§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, §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, §1901(b)(20)(B)(i), redesignated par. (8) as (6).
Subsec. (b)(9). Pub. L. 94–455, §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, §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, §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, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (c)(5). Pub. L. 94–455, §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, §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, §104(h)(3)(B), added subsec. (d).
1964—Subsec. (a). Pub. L. 88–272, §225(i)(1), inserted reference to subsection (c).
Subsec. (b)(1), (2). Pub. L. 88–272, §§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, §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, §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, §32(b), inserted "computed without the deductions provided in part VIII (except section 248) of subchapter B".
Effective Date of 2014 Amendment
Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 2006 Amendment
Amendment by Pub. L. 109–280 applicable to contributions made in taxable years beginning after Dec. 31, 2005, see section 1206(c) of Pub. L. 109–280, set out as a note under section 170 of this title.
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.
Pub. L. 85–866, title I, §32(c), Sept. 2, 1958, 72 Stat. 1632, as amended by Pub. L. 99–514, §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 45K of this title.
Pub. L. 94–455, title XIX, §1951(b)(9)(B), Oct. 4, 1976, 90 Stat. 1839, 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."
§546. Income not placed on annual basis
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.
(Aug. 16, 1954, ch. 736, 68A Stat. 191.)
§547. Deduction for deficiency dividends
(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.
(Aug. 16, 1954, ch. 736, 68A Stat. 191; Pub. L. 94–455, title XIX, §§1901(a)(78), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1777, 1834.)
Amendments
1976—Subsecs. (c)(3), (e), (g). Pub. L. 94–455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary" wherever appearing.
Subsec. (h). Pub. L. 94–455, §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.