§547 Deduction for Deficiency Dividends

Summary

Allows a corporation that is finally found to owe personal holding company tax to reduce that tax by deducting certain dividends it pays afterward, called deficiency dividends. The deduction only lowers the personal holding company tax itself, not any interest, added amounts, or penalties. To get the deduction the company must file a claim within 120 days after the final decision. The deduction is treated as allowed on the date the claim is filed. If the deduction creates an overpayment, the company gets a credit or refund handled as if there were 2 years left to file a refund claim when the decision was made; no interest is paid on that refund. A “determination” means a final court decision, a closing agreement, or an agreement signed by the IRS and the taxpayer under IRS rules. “Deficiency dividends” are dividends the company pays after the determination and before filing the claim (and in any case within 90 days of the determination) that would have been part of the dividends-paid deduction for the taxable year in question. If a claim is filed, the time for the IRS to assess or collect the tax is paused for 2 years after the decision, and collection is stayed for 120 days (or longer while a valid claim is pending). No deduction is allowed if the decision finds fraud or willful failure to file.