§547 — Title 26 Internal Revenue Code | U.S. Code

Summary

A personal holding company that gets hit with the special tax under section 541 has a way to reduce it after the fact. Once a court decision, closing agreement, or signed agreement with the IRS settles that the tax is owed, the company can pay extra dividends to its shareholders, called deficiency dividends, and deduct them in figuring the tax for that year. The dividends must be paid within 90 days after the determination, and the company must file a claim for the deduction within 120 days. The deduction lowers the tax itself but not any interest or penalties. While a claim is pending, collection of the disputed tax is generally paused, and filing a claim extends the IRS's time to assess and collect by 2 years. No deduction is allowed if the tax shortfall came from fraud or a willful failure to file a return.

Title 26, §547

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)(1)The deficiency dividend deduction shall be allowed as of the date the claim for the deficiency dividend deduction is filed.

(2)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)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)(1)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)(A)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)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)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)(1)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)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.

(g)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.

Notes & Related Subsidiaries

Editorial Notes

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.

Statutory Notes and Related Subsidiaries

Effective Date

of 1976 AmendmentAmendment 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.

§547 Deduction for Deficiency Dividends

Summary

Title 26, §547

Notes & Related Subsidiaries

Editorial Notes

Amendments

Effective Date

Statutory Notes and Related Subsidiaries

Effective Date

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