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Title 26 — Internal Revenue CodeRelease 119-73

§563 Rules Relating to Dividends Paid After Close of Taxable Year

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter G— Corporations Used to Avoid Income Tax on Shareholders › Part IV— DEDUCTION FOR DIVIDENDS PAID › § 563

Last updated Apr 6, 2026|Official source

Summary

A corporation gets extra time to pay dividends that count against last year's income for two penalty taxes. For the accumulated earnings tax, a dividend paid after year-end but by the 15th day of the fourth month following the close of the year is automatically treated as paid during that year. For the personal holding company tax, the corporation can elect the same treatment on its return, but the amount is capped at the lesser of its undistributed personal holding company income for the year or 20 percent of the dividends it actually paid during the year. A matching timing rule treats such distributions as made on the last day of the earlier year.

Full Legal Text

Title 26, §563

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the determination of the dividends paid deduction for purposes of the accumulated earnings tax imposed by section 531, a dividend paid after the close of any taxable year and on or before the 15th day of the fourth month following the close of such taxable year shall be considered as paid during such taxable year.
(b)In the determination of the dividends paid deduction for purposes of the personal holding company tax imposed by section 541, a dividend paid after the close of any taxable year and on or before the 15th day of the fourth month following the close of such taxable year shall, to the extent the taxpayer elects in its return for the taxable year, be considered as paid during such taxable year. The amount allowed as a dividend by reason of the application of this subsection with respect to any taxable year shall not exceed either—
(1)The undistributed personal holding company income of the corporation for the taxable year, computed without regard to this subsection, or
(2)20 percent of the sum of the dividends paid during the taxable year, computed without regard to this subsection.
(c)For the purpose of applying section 562(a), with respect to distributions under subsection (a) or (b) of this section, a distribution made after the close of a taxable year and on or before the 15th day of the fourth month following the close of the taxable year shall be considered as made on the last day of such taxable year.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2015—Pub. L. 114–41 substituted “fourth month” for “third month” wherever appearing. 2004—Subsecs. (c), (d). Pub. L. 108–357 redesignated subsec. (d) as (c), substituted “subsection (a) or (b)” for “subsection (a), (b), or (c)”, and struck out former subsec. (c) which related to foreign personal holding company tax. 1989—Subsec. (c). Pub. L. 101–239, § 7401(b)(1), added subsec. (c). Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 101–239, § 7401(b)(2), substituted “subsection (a), (b), or (c)” for “subsection (a) or (b)”. Pub. L. 101–239, § 7401(b)(1), redesignated former subsec. (c) as (d). 1969—Subsec. (b)(2). Pub. L. 91–172 substituted “20 percent” for “10 percent”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2015 AmendmentAmendment by Pub. L. 114–41 applicable to returns for taxable years beginning after Dec. 31, 2015, with special rule for certain C corporations, see section 2006(a)(3) of Pub. L. 114–41, set out as a note under section 170 of this title.

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 1989 AmendmentAmendment by Pub. L. 101–239 applicable to taxable years of foreign corporations beginning after July 10, 1989, with special rules for any foreign corporation required by the

Amendments

made by section 7401 of Pub. L. 101–239 to change its taxable year for its first taxable year beginning after July 10, 1989, see section 7401(d) of Pub. L. 101–239, set out as an

Effective Date

note under section 898 of this title.

Effective Date

of 1969 Amendment Pub. L. 91–172, title IX, § 914(b), Dec. 30, 1969, 83 Stat. 723, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1969.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 563

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73