
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC243]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
             PART VIII--SPECIAL DEDUCTIONS FOR CORPORATIONS
 
Sec. 243. Dividends received by corporations


(a) General rule

    In the case of a corporation, there shall be allowed as a deduction 
an amount equal to the following percentages of the amount received as 
dividends from a domestic corporation which is subject to taxation under 
this chapter:
        (1) 70 percent, in the case of dividends other than dividends 
    described in paragraph (2) or (3);
        (2) 100 percent, in the case of dividends received by a small 
    business investment company operating under the Small Business 
    Investment Act of 1958 (15 U.S.C. 661 and following); and
        (3) 100 percent, in the case of qualifying dividends (as defined 
    in subsection (b)(1)).

(b) Qualifying dividends

                           (1) In general

        For purposes of this section, the term ``qualifying dividend'' 
    means any dividend received by a corporation--
            (A) if at the close of the day on which such dividend is 
        received, such corporation is a member of the same affiliated 
        group as the corporation distributing such dividend, and
            (B) if--
                (i) such dividend is distributed out of the earnings and 
            profits of a taxable year of the distributing corporation 
            which ends after December 31, 1963, for which an election 
            under section 1562 was not in effect, and on each day of 
            which the distributing corporation and the corporation 
            receiving the dividend were members of such affiliated 
            group, or
                (ii) such dividend is paid by a corporation with respect 
            to which an election under section 936 is in effect for the 
            taxable year in which such dividend is paid.

                        (2) Affiliated group

        For purposes of this subsection:

        (A) In general

            The term ``affiliated group'' has the meaning given such 
        term by section 1504(a), except that for such purposes sections 
        1504(b)(2), 1504(b)(4), and 1504(c) shall not apply.

        (B) Group must be consistent in foreign tax treatment

            The requirements of paragraph (1)(A) shall not be treated as 
        being met with respect to any dividend received by a corporation 
        if, for any taxable year which includes the day on which such 
        dividend is received--
                (i) 1 or more members of the affiliated group referred 
            to in paragraph (1)(A) choose to any extent to take the 
            benefits of section 901, and
                (ii) 1 or more other members of such group claim to any 
            extent a deduction for taxes otherwise creditable under 
            section 901.

      (3) Special rule for groups which include life insurance 
                                  companies

        (A) In general

            In the case of an affiliated group which includes 1 or more 
        insurance companies under section 801, no dividend by any member 
        of such group shall be treated as a qualifying dividend unless 
        an election under this paragraph is in effect for the taxable 
        year in which the dividend is received. The preceding sentence 
        shall not apply in the case of a dividend described in paragraph 
        (1)(B)(ii).

        (B) Effect of election

            If an election under this paragraph is in effect with 
        respect to any affiliated group--
                (i) part II of subchapter B of chapter 6 (relating to 
            certain controlled corporations) shall be applied with 
            respect to the members of such group without regard to 
            sections 1563(a)(4) and 1563(b)(2)(D), and
                (ii) for purposes of this subsection, a distribution by 
            any member of such group which is subject to tax under 
            section 801 shall not be treated as a qualifying dividend if 
            such distribution is out of earnings and profits for a 
            taxable year for which an election under this paragraph is 
            not effective and for which such distributing corporation 
            was not a component member of a controlled group of 
            corporations within the meaning of section 1563 solely by 
            reason of section 1563(b)(2)(D).

        (C) Election

            An election under this paragraph shall be made by the common 
        parent of the affiliated group and at such time and in such 
        manner as the Secretary shall by regulations prescribe. Any such 
        election shall be binding on all members of such group and may 
        be revoked only with the consent of the Secretary.

(c) Retention of 80-percent dividends received deduction for dividends 
        from 20-percent owned corporations

                           (1) In general

        In the case of any dividend received from a 20-percent owned 
    corporation--
            (A) subsection (a)(1) of this section, and
            (B) subsections (a)(3) and (b)(2) of section 244,

    shall be applied by substituting ``80 percent'' for ``70 percent''.

                  (2) 20-percent owned corporation

        For purposes of this section, the term ``20-percent owned 
    corporation'' means any corporation if 20 percent or more of the 
    stock of such corporation (by vote and value) is owned by the 
    taxpayer. For purposes of the preceding sentence, stock described in 
    section 1504(a)(4) shall not be taken into account.

(d) Special rules for certain distributions

    For purposes of subsection (a)--
        (1) Any amount allowed as a deduction under section 591 
    (relating to deduction for dividends paid by mutual savings banks, 
    etc.) shall not be treated as a dividend.
        (2) A dividend received from a regulated investment company 
    shall be subject to the limitations prescribed in section 854.
        (3) Any dividend received from a real estate investment trust 
    which, for the taxable year of the trust in which the dividend is 
    paid, qualifies under part II of subchapter M (section 856 and 
    following) shall not be treated as a dividend.
        (4) Any dividend received which is described in section 244 
    (relating to dividends received on preferred stock of a public 
    utility) shall not be treated as a dividend.

(e) Certain dividends from foreign corporations

    For purposes of subsection (a) and for purposes of section 245, any 
dividend from a foreign corporation from earnings and profits 
accumulated by a domestic corporation during a period with respect to 
which such domestic corporation was subject to taxation under this 
chapter (or corresponding provisions of prior law) shall be treated as a 
dividend from a domestic corporation which is subject to taxation under 
this chapter.

(Aug. 16, 1954, ch. 736, 68A Stat. 73; Pub. L. 85-866, title I, 
Sec. 57(b), Sept. 2, 1958, 72 Stat. 1645; Pub. L. 86-779, Secs. 3(a), 
10(g), Sept. 14, 1960, 74 Stat. 998, 1009; Pub. L. 88-272, title II, 
Sec. 214(a), Feb. 26, 1964, 78 Stat. 52; Pub. L. 90-364, title I, 
Sec. 103(e)(2), June 28, 1968, 82 Stat. 264; Pub. L. 91-172, title V, 
Sec. 504(c)(1), Dec. 30, 1969, 83 Stat. 633; Pub. L. 94-12, title III, 
Sec. 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title X, 
Secs. 1031(b)(2), 1051(f)(1), (2), title XIX, Secs. 1901(a)(34), 
(b)(1)(J)(ii), (21)(A)(i), 1906(b)(3)(C)(ii), (13)(A), Oct. 4, 1976, 90 
Stat. 1622, 1646, 1769, 1791, 1797, 1833, 1834; Pub. L. 97-34, title II, 
Sec. 232(b)(2), Aug. 13, 1981, 95 Stat. 250; Pub. L. 98-369, div. A, 
title II, Sec. 211(b)(3), July 18, 1984, 98 Stat. 754; Pub. L. 99-514, 
title IV, Sec. 411(b)(2)(C)(iv), title VI, Sec. 611(a)(1), Oct. 22, 
1986, 100 Stat. 2227, 2249; Pub. L. 100-203, title X, Sec. 10221(a)(1), 
(b), Dec. 22, 1987, 101 Stat. 1330-408; Pub. L. 100-647, title I, 
Sec. 1010(f)(4), Nov. 10, 1988, 102 Stat. 3454; Pub. L. 101-508, title 
XI, Sec. 11814(a), Nov. 5, 1990, 104 Stat. 1388-556; Pub. L. 104-188, 
title I, Sec. 1702(h)(4), (8), Aug. 20, 1996, 110 Stat. 1873, 1874.)

                       References in Text

    The Small Business Investment Act of 1958, referred to in subsec. 
(a)(2), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended, 
which is classified principally to chapter 14B (Sec. 661 et seq.) of 
Title 15, Commerce and Trade. For complete classification of this Act to 
the Code, see Short Title note set out under section 661 of Title 15 and 
Tables.
    Section 1562, referred to in subsec. (b)(1)(B)(i), was repealed by 
Pub. L. 91-172, title IV, Sec. 401(a)(2), Dec. 30, 1969, 83 Stat. 600.


                               Amendments

    1996--Subsec. (b)(2). Pub. L. 104-188, Sec. 1702(h)(8), reenacted 
heading without change and amended text generally. Prior to amendment, 
text read as follows: ``For purposes of this subsection, the term 
`affiliated group' has the meaning given such term by section 1504(a), 
except that for such purposes sections 1504(b)(2), 1504(b)(4), and 
1504(c) shall not apply.''
    Subsec. (b)(3)(A). Pub. L. 104-188, Sec. 1702(h)(4), inserted ``of'' 
after ``In the case''.
    1990--Subsec. (b). Pub. L. 101-508 amended subsec. (b) generally, 
substituting present provisions for provisions defining ``qualifying 
dividends'', providing for an election by or for an affiliated group, 
the effect of an election, and the termination of an election, defining 
an ``affiliated group'', and providing special rules for insurance 
companies.
    1988--Subsec. (b)(6). Pub. L. 100-647 substituted ``section 801'' 
for ``section 801 or 821''.
    1987--Subsec. (a)(1). Pub. L. 100-203, Sec. 10221(a)(1), substituted 
``70 percent'' for ``80 percent''.
    Subsecs. (c) to (e). Pub. L. 100-203, Sec. 10221(b), added subsec. 
(c) and redesignated former subsecs. (c) and (d) as (d) and (e), 
respectively.
    1986--Subsec. (a)(1). Pub. L. 99-514, Sec. 611(a)(1), substituted 
``80 percent'' for ``85 percent''.
    Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 411(b)(2)(C)(iv), inserted 
``and'' at end of cl. (i), redesignated cl. (iii) as (ii), and struck 
out former cl. (ii) which read as follows: ``$400,000 limitation for 
certain exploration expenditures under section 617(h)(1), and''.
    1984--Subsec. (b)(3)(C). Pub. L. 98-369, Sec. 211(b)(3)(A), inserted 
``and'' at end of cl. (ii), struck out cl. (iii) which provided for a 
$25,000 limitation on small business deduction of life insurance 
companies under sections 804(a)(3) and 809(d)(10), and redesignated cl. 
(iv) as (iii).
    Subsec. (b)(6). Pub. L. 98-369, Sec. 211(b)(3)(B), substituted 
``section 801'' for ``section 802''.
    1981--Subsec. (b)(3)(C)(i). Pub. L. 97-34 struck out ``$150,000'' 
before ``minimum accumulated earnings credit''.
    1976--Subsec. (a)(2). Pub. L. 94-455, Sec. 1901(a)(34)(A), inserted 
``(15 U.S.C. 661 and following)'' after ``Small Business Investment Act 
of 1958''.
    Subsec. (b)(1). Pub. L. 94-455, Sec. 1051(f)(1), inserted ``either'' 
at end of subpar. (A), substituted a comma for a period and inserted 
``or'' at end of subpar. (B), and added subpar. (C).
    Subsec. (b)(2), (3), (4). Pub. L. 94-455, title XIX, 
Sec. 1906(b)(13)(A), struck out ``or his delegate'' after ``Secretary''.
    Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(34)(B), struck out 
``(except that in the case of a taxable year of a member beginning in 
1963 and ending in 1964, if the election is effective for the taxable 
year of the common parent corporation which includes the last day of 
such taxable year of such member, such election shall be effective for 
such taxable year of such member, if such member consents to such 
election with respect to such taxable year)'' after ``with respect to 
which the election is made''.
    Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1031(b)(2), substituted 
``election under section 901(a) (relating to allowance of foreign tax 
credit)'' for ``elections under section 901(a) (relating to allowance of 
foreign tax credit) and section 904(b)(1) (relating to election of 
overall limitation)''.
    Subsec. (b)(3)(C). Pub. L. 94-455, Secs. 1901(b)(1)(J)(ii), 
(21)(A)(i), 1906(b)(3)(C)(ii), struck out cl. (ii) which set a $100,000 
limitation for exploration expenditures under section 615 (a) and (b), 
redesignated former cls. (iii), (iv), and (v) as cls. (ii), (iii), and 
(iv), respectively, and substituted ``certain exploration expenditures 
under section 617(h)(1)'' for ``exploration expenditures under sections 
615(c)(1) and 617(h)(1)'' in cl. (ii) as so redesignated, ``804(a)(3)'' 
for ``804(a)(4)'' in cl. (iii) as so redesignated, and ``section 
6154(c)(2) and section 6655(e)(2)'' for ``sections 6154(c)(2) and (3) 
and sections 6655(e)(2) and (3)'' in cl. (iv) as so redesignated.
    Subsec. (b)(5). Pub. L. 94-455, Sec. 1051(f)(2), inserted ``, 
1504(b)(4),'' after ``sections 1504(b)(2)''.
    1975--Subsec. (b)(3)(C)(i). Pub. L. 94-12 substituted ``$150,000'' 
for ``$100,000''.
    1969--Subsec. (b)(3)(C)(iii). Pub. L. 91-172 substituted ``sections 
615(c)(1) and 617(h)(1)'' for ``section 615(c)(1)''.
    1968--Subsec. (b)(3)(C)(v). Pub. L. 90-364 substituted ``surtax 
exemption, and one amount under section 6154(c)(2) and (3) and sections 
6655(e)(2) and (3), for purposes of estimated tax payment requirements 
under section 6154'' for ``$100,000 exemption for purposes of estimated 
tax filing requirements under section 6016''.
    1964--Subsec. (a). Pub. L. 88-272 substituted provisions permitting 
a deduction for 85 percent of dividends received except that it shall be 
100 percent when received by a small business investment company 
operating under the Small Business Investment Act of 1958, and 100 
percent in case of qualifying dividends, for provisions permitting an 85 
percent deduction for corporations other than one operating under the 
Small Business Investment Act of 1958, and for other than dividends 
described in section 244(1) of this title.
    Subsec. (b). Pub. L. 88-272 added subsec. (b) and omitted a prior 
subsec. (b) which allowed a 100 percent deduction of dividends received 
by a small business investment company operating under the Small 
Business Investment Act of 1958, other than dividends described in 
section 244(1) of this title.
    Subsec. (c). Pub. L. 88-272 substituted ``subsection (a)'' for 
``subsections (a) and (b)'' and added par. (4).
    Subsec. (d). Pub. L. 88-272 substituted ``subsection (a)'' for 
``subsections (a) and (b)''.
    1960--Subsec. (c)(3). Pub. L. 86-779, Sec. 10(g), added par. (3).
    Subsec. (d). Pub. L. 86-779, Sec. 3(a), added subsec. (d).
    1958--Subsec. (a). Pub. L. 85-866, Sec. 57(b)(1), inserted ``(other 
than a small business investment company operating under the Small 
Business Investment Act of 1958)''.
    Subsecs. (b), (c). Pub. L. 85-866, Sec. 57(b)(2), (3), added subsec. 
(b), redesignated former subsec. (b) as (c), and substituted 
``subsections (a) and (b)'' for ``subsection (a)''.


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 effective, except as otherwise 
expressly provided, as if included in the provision of the Revenue 
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which such 
amendment relates, see section 1702(i) of Pub. L. 104-188, set out as a 
note under section 38 of this title.


                    Effective Date of 1990 Amendment

    Section 11814(c) of Pub. L. 101-508 provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section and section 1504 of this title] shall apply to taxable 
years beginning after December 31, 1990.
    ``(2) Treatment of old elections.--For purposes of section 243(b)(3) 
of the Internal Revenue Code of 1986 (as amended by subsection (a)), any 
reference to an election under such section shall be treated as 
including a reference to an election under section 243(b) of such Code 
(as in effect on the day before the date of the enactment of this Act 
[Nov. 5, 1990]).''


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1987 Amendment

    Section 10221(e) of Pub. L. 100-203, as amended by Pub. L. 100-647, 
title II, Sec. 2004(i)(1), Nov. 10, 1988, 102 Stat. 3603, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendments made by this section [amending this section and sections 244 
to 246A, 805, 854, and 861 of this title] shall apply to dividends 
received or accrued after December 31, 1987, in taxable years ending 
after such date.
    ``(2) Amendments relating to limitations.--The amendments made by 
subsection (c) [amending sections 246 and 805 of this title] shall apply 
to taxable years beginning after December 31, 1987.''


                    Effective Date of 1986 Amendment

    Amendment by section 411(b)(2)(C)(iv) of Pub. L. 99-514 applicable, 
except as otherwise provided, to costs paid or incurred after Dec. 31, 
1986, in taxable years ending after such date, see section 411(c) of 
Pub. L. 99-514 set out as a note under section 263 of this title.
    Amendment by section 611(a)(1) of Pub. L. 99-514 applicable to 
dividends received or accrued after Dec. 31, 1986, in taxable years 
ending after such date, see section 611(b) of Pub. L. 99-514, set out as 
a note under section 246 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to taxable years beginning 
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as an 
Effective Date note under section 801 of this title.


                    Effective Date of 1981 Amendment

    Amendment by Pub. L. 97-34 applicable to taxable years beginning 
after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out as a 
note under section 535 of this title.


                    Effective Date of 1976 Amendment

    For effective date of amendment by section 1031(b)(2) of Pub. L. 94-
455, see section 1031(c) of Pub. L. 94-455, set out as a note set out 
under section 904 of this title.
    For effective date of amendment by section 1051(f)(1), (2) of Pub. 
L. 94-455, see section 1051(i) of Pub. L. 94-455, set out as a note 
under section 27 of this title.
    Amendment by section 1901(a)(34), (b)(1), (21) of Pub. L. 94-455 
effective for 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.
    For effective date of amendment by section 1906(b)(3)(C)(ii) of Pub. 
L. 94-455, see section 1906(d) of Pub. L. 94-455, set out as a note 
under section 6013 of this title.


                    Effective Date of 1975 Amendment

    Amendment by Pub. L. 94-12 applicable to taxable years beginning 
after Dec. 31, 1974, see section 305(c) of Pub. L. 94-12, set out as a 
note under section 535 of this title.


                    Effective Date of 1969 Amendment

    Section 504(d) of Pub. L. 91-172, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section and sections 381, 615, 617, 703, and 1016 of this title] 
shall apply with respect to exploration expenditures paid or incurred 
after December 31, 1969.
    ``(2) Presumption of election under section 617.--For purposes of 
section 617 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], 
an election under section 615(e) of such Code, which is effective with 
respect to exploration expenditures paid or incurred before January 1, 
1970, shall be treated as an election under section 617(a) of such Code 
with respect to exploration expenditures paid or incurred after December 
31, 1969. The preceding sentence shall not apply to any taxpayer who 
notifies the Secretary of the Treasury or his delegate (at such time and 
in such manner as the Secretary or his delegate prescribes by 
regulations) that he does not desire his election under section 615(e) 
to be so treated.''


                    Effective Date of 1968 Amendment

    Section 103(f) of Pub. L. 90-364 provided that: ``Except as provided 
by section 104 [formerly set out as notes under sections 51 and 6154 of 
this title], the amendments made by this section [enacting section 6425, 
amending this section and sections 6020, 6154, 6651, 6655, 7203, and 
7701, and repealing sections 6016 and 6074 of this title] shall apply 
with respect to taxable years beginning after December 31, 1967.''


                    Effective Date of 1964 Amendment

    Section 214(c) of Pub. L. 88-272 provided that: ``The amendments 
made by subsections (a) [amending this section] and (b) [amending 
sections 244, 246, 804, and 809 of this title] shall apply with respect 
to dividends received in taxable years ending after December 31, 1963.''


                    Effective Date of 1960 Amendment

    Section 3(c) of Pub. L. 86-779 provided that: ``The amendments made 
by subsections (a) and (b) [amending this section and section 861 of 
this title] shall apply to dividends received after December 31, 1959, 
in taxable years ending after such date.''
    Amendment by section 10(g) of Pub. L. 86-779 applicable with respect 
to taxable years of real estate investment trusts beginning after Dec. 
31, 1960, see section 10(k) of Pub. L. 86-779, set out as an Effective 
Date note under section 856 of this title.


                    Effective Date of 1958 Amendment

    Section 57(d) of Pub. L. 85-866 provided that: ``The amendments made 
by this section [enacting sections 1242 and 1243 and amending this 
section and sections 165 and 246 of this title] shall apply with respect 
to taxable years beginning after the date of the enactment of this Act 
[Sept. 2, 1958].''


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 56, 163, 172, 244, 245, 246, 
246A, 263, 277, 301, 469, 512, 805, 810, 812, 815, 832, 833, 854, 857, 
861, 864, 1059, 1244, 1504, 7518 of this title; title 46 App. section 
1177.
