§565 Consent dividends

Summary

A shareholder who owns "consent stock" on the last day of a company's tax year can sign a consent on the company's tax return to treat a named amount as a dividend. If they do, that amount will count as a consent dividend for the company’s dividends-paid deduction, unless it is excluded because the amount would be part of a disqualified preferential distribution or because the total consents would not have been dividends if paid in cash on that day. A consent dividend is treated as if the company paid cash to the shareholder on the last day of the tax year and as if the shareholder then contributed that same amount back to the company’s capital. If some payment is cash or property and some is by consent, all amounts are added together for tax rules. If the consent would require U.S. withholding for a foreign person, the consent must include cash (or an allowed substitute) equal to the withholding amount; that cash is credited against the shareholder’s tax. Consent stock: stock that shares remaining earnings after preferred dividends in the same proportion. Preferred dividends: limited amounts that must be paid to one class of stock before others share remaining earnings.