Title 26 — Internal Revenue CodeRelease 119-73
§562 Rules applicable in determining dividends eligible for dividends paid deduction
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter G— - Corporations Used to Avoid Income Tax on Shareholders › Part PART IV— - DEDUCTION FOR DIVIDENDS PAID › § 562
Summary
Lists which corporate payments count as dividends when a company wants the dividends-paid tax deduction. Normally a “dividend” means what section 316 says. If a company is liquidating, amounts paid that come from earnings and profits earned after February 28, 1913 count as dividends for the deduction. If the company completes liquidation within 24 months after adopting a liquidation plan, distributions during those 24 months count as dividends up to the corporation’s earnings and profits for the year (computed without regard to capital losses). For a personal holding company that liquidates within 24 months, amounts paid to corporate shareholders count as dividends to the extent they match those shareholders’ share of the undistributed personal holding company income for that year, with certain technical computation rules. Distributions only count as dividends for the deduction if they are paid pro rata (equal to each share of the same class and no preferred class over another), unless the payer is a publicly offered regulated investment company or a publicly offered REIT. A regulated investment company’s payment to an investor who put in at least $10,000,000 is not treated as non-pro rata just because distributions rose from lower administrative costs. A “publicly offered REIT” means a REIT that files SEC reports under the Securities Exchange Act of 1934. For REITs, gains from selling real property are added to that year’s earnings (but not to accumulated earnings) when figuring dividends for the deduction, and the IRS can allow fixes if a REIT unintentionally fails the pro rata rule.
Full Legal Text
Title 26, §562
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this part, the term “dividend” shall, except as otherwise provided in this section, include only dividends described in section 316 (relating to definition of dividends for purposes of corporate distributions).
(A)in the case of amounts distributed in liquidation, the part of such distribution which is properly chargeable to earnings and profits accumulated after February 28, 1913, shall be treated as a dividend for purposes of computing the dividends paid deduction, and
(B)in the case of a complete liquidation occurring within 24 months after the adoption of a plan of liquidation, any distribution within such period pursuant to such plan shall, to the extent of the earnings and profits (computed without regard to capital losses) of the corporation for the taxable year in which such distribution is made, be treated as a dividend for purposes of computing the dividends paid deduction.
(2)In the case of a complete liquidation of a personal holding company, occurring within 24 months after the adoption of a plan of liquidation, the amount of any distribution within such period pursuant to such plan shall be treated as a dividend for purposes of computing the dividends paid deduction, to the extent that such amount is distributed to corporate distributees and represents such corporate distributees’ allocable share of the undistributed personal holding company income for the taxable year of such distribution computed without regard to this paragraph and without regard to subparagraph (B) of section 316(b)(2).
(c)(1)Except in the case of a publicly offered regulated investment company (as defined in section 67(c)(2)(B)) or a publicly offered REIT, the amount of any distribution shall not be considered as a dividend for purposes of computing the dividends paid deduction, unless such distribution is pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that the former is entitled (without reference to waivers of their rights by shareholders) to such preference. In the case of a distribution by a regulated investment company (other than a publicly offered regulated investment company (as so defined)) to a shareholder who made an initial investment of at least $10,000,000 in such company, such distribution shall not be treated as not being pro rata or as being preferential solely by reason of an increase in the distribution by reason of reductions in administrative expenses of the company.
(2)For purposes of this subsection, the term “publicly offered REIT” means a real estate investment trust which is required to file annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
(d)In the case where a corporation which is a member of an affiliated group of corporations filing or required to file a consolidated return for a taxable year is required to file a separate personal holding company schedule for such taxable year, a distribution by such corporation to another member of the affiliated group shall be considered as a dividend for purposes of computing the dividends paid deduction if such distribution would constitute a dividend under the other provisions of this section to a recipient which is not a member of an affiliated group.
(e)(1)In the case of a real estate investment trust, in determining the amount of dividends under section 316 for purposes of computing the dividends paid deduction—
(A)the earnings and profits of such trust for any taxable year (but not its accumulated earnings) shall be increased by the amount of gain (if any) on the sale or exchange of real property which is taken into account in determining the taxable income of such trust for such taxable year (and not otherwise taken into account in determining such earnings and profits), and
(B)section 857(d)(1) shall be applied without regard to subparagraph (B) thereof.
(2)In the case of a failure of a distribution by a real estate investment trust to comply with the requirements of subsection (c), the Secretary may provide an appropriate remedy to cure such failure in lieu of not considering the distribution to be a dividend for purposes of computing the dividends paid deduction if—
(A)the Secretary determines that such failure is inadvertent or is due to reasonable cause and not due to willful neglect, or
(B)such failure is of a type of failure which the Secretary has identified for purposes of this paragraph as being described in subparagraph (A).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Securities Exchange Act of 1934, referred to in subsec. (c)(2), is act June 6, 1934, ch. 404, 48 Stat. 881, which is classified principally to chapter 2B (§ 78a et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78a of Title 15 and Tables.
Amendments
2015—Subsec. (c). Pub. L. 114–113, § 314(a), (b), designated existing provisions as par. (1), inserted heading and “or a publicly offered REIT” after “a publicly offered regulated investment company (as defined in section 67(c)(2)(B))” in text, and added par. (2). Subsec. (e). Pub. L. 114–113, § 315(a), designated existing provisions as par. (1), inserted heading, and added par. (2). Subsec. (e)(1). Pub. L. 114–113, § 320(b), substituted “deduction—” for “deduction, the earnings and profits of such trust for any taxable year beginning after December 31, 1980, shall be increased by the total amount of gain (if any) on the sale or exchange of real property by such trust during such taxable year.” and added subpars. (A) and (B). 2010—Subsec. (c). Pub. L. 111–325 substituted “Except in the case of a publicly offered regulated investment company (as defined in section 67(c)(2)(B)), the amount” for “The amount” in first sentence and inserted “(other than a publicly offered regulated investment company (as so defined))” after “regulated investment company” in second sentence. 2004—Subsec. (b)(1). Pub. L. 108–357 struck out “or a foreign personal holding company described in section 552” after “section 542” in introductory provisions. 1986—Subsec. (b)(1). Pub. L. 99–514, § 1804(d)(1), inserted at end “Except to the extent provided in
Regulations
, the preceding sentence shall not apply in the case of any mere holding or investment company which is not a regulated investment company.” Subsec. (c). Pub. L. 99–514, § 657(a), inserted at end “In the case of a distribution by a regulated investment company to a shareholder who made an initial investment of at least $10,000,000 in such company, such distribution shall not be treated as not being pro rata or as being preferential solely by reason of an increase in the distribution by reason of reductions in administrative expenses of the company.” 1983—Subsec. (e). Pub. L. 97–448 added subsec. (e). 1982—Subsec. (b)(1). Pub. L. 97–248 inserted sentence at end providing that, for purposes of subpar. (A), a liquidation includes a redemption of stock to which section 302 applies. 1964—Subsec. (b). Pub. L. 88–272 designated existing provisions as subpars. (A) and (B) of par. (1), excepted personal holding companies in section 542, and foreign personal holding companies in section 552 therefrom, and added par. (2).
Statutory Notes and Related Subsidiaries
Effective Date
of 2015 Amendment Pub. L. 114–113, div. Q, title III, § 314(c), Dec. 18, 2015, 129 Stat. 3093, provided that: “The
Amendments
made by this section [amending this section] shall apply to distributions in taxable years beginning after December 31, 2014.” Pub. L. 114–113, div. Q, title III, § 315(b), Dec. 18, 2015, 129 Stat. 3093, provided that: “The
Amendments
made by this section [amending this section] shall apply to distributions in taxable years beginning after December 31, 2015.” Pub. L. 114–113, div. Q, title III, § 320(c), Dec. 18, 2015, 129 Stat. 3097, provided that: “The
Amendments
made by this section [amending this section and section 857 of this title] shall apply to taxable years beginning after December 31, 2015.”
Effective Date
of 2010 Amendment Pub. L. 111–325, title III, § 307(c), Dec. 22, 2010, 124 Stat. 3550, provided that: “The
Amendments
made by this section [amending this section] shall apply to distributions in taxable years beginning after the date of the enactment of this Act [Dec. 22, 2010].”
Effective Date
of 2004 AmendmentAmendment 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 1986 Amendment Pub. L. 99–514, title VI, § 657(b), Oct. 22, 1986, 100 Stat. 2299, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Oct. 22, 1986].” Pub. L. 99–514, title XVIII, § 1804(d)(2), Oct. 22, 1986, 100 Stat. 2800, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to distributions after September 27, 1985.”
Effective Date
of 1983 AmendmentAmendment 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 1982 AmendmentAmendment 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 1964 AmendmentAmendment Pub. L. 88–272 applicable to distributions made in any taxable year of the distributing corporation 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. Plan
Amendments
Not Required Until January 1, 1989For 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.
Reference
Citations & Metadata
Citation
26 U.S.C. § 562
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73