PRIA, Government Policy, Made Personal

Summary

A personal holding company must use the extra dividend deductions from the two prior taxable years when it figures its dividends-paid deduction for the current year. For each of those two years, first compute that year’s taxable income using the adjustments in section 545 and that year’s dividends-paid deduction under section 561, ignoring any carryovers. If a year’s dividends-paid deduction is larger than its taxable income, the excess from the first preceding year carries to the current year. The excess from the second preceding year carries too, but only after reducing it by any amount the first preceding year’s taxable income exceeded its dividends-paid deduction.

Title 26, §564

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

For purposes of computing the dividends paid deduction under section 561, in the case of a personal holding company the dividend carryover for any taxable year shall be the dividend carryover to such taxable year, computed as provided in subsection (b), from the two preceding taxable years.

(b)Computation of dividend carryover

The dividend carryover to the taxable year shall be determined as follows:

(1)For each of the 2 preceding taxable years there shall be determined the taxable income computed with the adjustments provided in section 545 (whether or not the taxpayer was a personal holding company for either of such preceding taxable years), and there shall also be determined for each such year the deduction for dividends paid during such year as provided in section 561 (but determined without regard to the dividend carryover to such year).

(2)There shall be determined for each such taxable year whether there is an excess of such taxable income over such deduction for dividends paid or an excess of such deduction for dividends paid over such taxable income, and the amount of each such excess.

(3)If there is an excess of such deductions for dividends paid over such taxable income for the first preceding taxable year, such excess shall be allowed as a dividend carryover to the taxable year.

(4)If there is an excess of such deduction for dividends paid over such taxable income for the second preceding taxable year, such excess shall be reduced by the amount determined in paragraph (5), and the remainder of such excess shall be allowed as a dividend carryover to the taxable year.

(5)The amount of the reduction specified in paragraph (4) shall be the amount of the excess of the taxable income, if any, for the first preceding taxable year over such deduction for dividends paid, if any, for the first preceding taxable year.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (c). Pub. L. 94–455 struck out subsec. (c) which related to the determination of dividend carryover from taxable years to which this subtitle does not apply.

Statutory Notes and Related Subsidiaries

Effective Date

of 1976 AmendmentAmendment by 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.

§564 Dividend Carryover