
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC545]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
   Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
 
                   PART II--PERSONAL HOLDING COMPANIES
 
Sec. 545. Undistributed personal holding company income


(a) Definition

    For purposes of this part, the term ``undistributed personal holding 
company income'' means the taxable income of a personal holding company 
adjusted in the manner provided in subsections (b), (c), and (d), minus 
the dividends paid deduction as defined in section 561. In the case of a 
personal holding company which is a foreign corporation, not more than 
10 percent in value of the outstanding stock of which is owned (within 
the meaning of section 958(a)) during the last half of the taxable year 
by United States persons, the term ``undistributed personal holding 
company income'' means the amount determined by multiplying the 
undistributed personal holding company income (determined without regard 
to this sentence) by the percentage in value of its outstanding stock 
which is the greatest percentage in value of its outstanding stock so 
owned by United States persons on any one day during such period.

(b) Adjustments to taxable income

    For the purposes of subsection (a), the taxable income shall be 
adjusted as follows:

                              (1) Taxes

        There shall be allowed as a deduction Federal income and excess 
    profits taxes and income, war profits and excess profits taxes of 
    foreign countries and possessions of the United States (to the 
    extent not allowable as a deduction under section 275(a)(4)), 
    accrued during the taxable year or deemed to be paid by a domestic 
    corporation under section 902(a) or 960(a)(1) for the taxable year, 
    but not including the accumulated earnings tax imposed by section 
    531, the personal holding company tax imposed by section 541, or the 
    taxes imposed by corresponding sections of a prior income tax law.

                    (2) Charitable contributions

        The deduction for charitable contributions provided under 
    section 170 shall be allowed, but in computing such deduction the 
    limitations in section 170(b)(1)(A), (B), and (D) shall apply, and 
    section 170(b)(2) and (d)(1) shall not apply. For purposes of this 
    paragraph, the term ``contribution base'' when used in section 
    170(b)(1) means the taxable income computed with the adjustments 
    (other than the 10-percent limitation) provided in section 170(b)(2) 
    and (d)(1) and without deduction of the amount disallowed under 
    paragraph (6) of this subsection.

                  (3) Special deductions disallowed

        The special deductions for corporations provided in part VIII 
    (except section 248) of subchapter B (section 241 and following, 
    relating to the deduction for dividends received by corporations, 
    etc.) shall not be allowed.

                       (4) Net operating loss

        The net operating loss deduction provided in section 172 shall 
    not be allowed, but there shall be allowed as a deduction the amount 
    of the net operating loss (as defined in section 172(c)) for the 
    preceding taxable year computed without the deductions provided in 
    part VIII (except section 248) of subchapter B.

                        (5) Net capital gains

        There shall be allowed as a deduction the net capital gain for 
    the taxable year, minus the taxes imposed by this subtitle 
    attributable to such net capital gain. The taxes attributable to 
    such net capital gain shall be an amount equal to the difference 
    between--
            (A) the taxes imposed by this subtitle (except the tax 
        imposed by this part) for such year, and
            (B) such taxes computed for such year without including such 
        excess in taxable income.

    (6) Expenses and depreciation applicable to property of the 
                                  taxpayer

        The aggregate of the deductions allowed under section 162 
    (relating to trade or business expenses) and section 167 (relating 
    to depreciation), which are allocable to the operation and 
    maintenance of property owned or operated by the corporation, shall 
    be allowed only in an amount equal to the rent or other compensation 
    received for the use of, or the right to use, the property, unless 
    it is established (under regulations prescribed by the Secretary) to 
    the satisfaction of the Secretary--
            (A) that the rent or other compensation received was the 
        highest obtainable, or, if none was received, that none was 
        obtainable;
            (B) that the property was held in the course of a business 
        carried on bona fide for profit; and
            (C) either that there was reasonable expectation that the 
        operation of the property would result in a profit, or that the 
        property was necessary to the conduct of the business.

      (7) Special rule for capital gains and losses of foreign 
                                corporations

        In the case of a foreign corporation, paragraph (5) shall be 
    applied by taking into account only gains and losses which are 
    effectively connected with the conduct of a trade or business within 
    the United States and are not exempt from tax under treaty.

(c) Certain foreign corporations

    In the case of a foreign corporation all of the outstanding stock of 
which during the last half of the taxable year is owned by nonresident 
alien individuals (whether directly or indirectly through foreign 
estates, foreign trusts, foreign partnerships, or other foreign 
corporations), the taxable income for purposes of subsection (a) shall 
be the income which constitutes personal holding company income under 
section 543(a)(7), reduced by the deductions attributable to such 
income, and adjusted, with respect to such income, in the manner 
provided in subsection (b).

(Aug. 16, 1954, ch. 736, 68A Stat. 189; Pub. L. 85-866, title I, 
Sec. 32(a), (b), Sept. 2, 1958, 72 Stat. 1631; Pub. L. 87-403, 
Sec. 3(d), Feb. 2, 1962, 76 Stat. 7; Pub. L. 87-834, Sec. 9(d)(2), Oct. 
16, 1962, 76 Stat. 1001; Pub. L. 88-272, title II, Secs. 207(b)(5), 
209(c)(2), 225(i)(1), (2), Feb. 26, 1964, 78 Stat. 42, 46, 90; Pub. L. 
89-719, title I, Sec. 101(b)(2), Nov. 2, 1966, 80 Stat. 1132; Pub. L. 
89-809, title I, Sec. 104(h)(3), Nov. 13, 1966, 80 Stat. 1560; Pub. L. 
91-172, title II, Sec. 201(a)(2)(B), Dec. 30, 1969, 83 Stat. 558; Pub. 
L. 94-455, title X, Sec. 1033(b)(4), title XIX, Secs. 1901(a)(77), 
(b)(20)(B), (32)(E), (33)(D), 1906(b)(13)(A), 1951(b)(9)(A), Oct. 4, 
1976, 90 Stat. 1628, 1777, 1797, 1800, 1801, 1834, 1839; Pub. L. 97-448, 
title I, Sec. 102(m)(2), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 99-514, 
title XII, Sec. 1225(b), Oct. 22, 1986, 100 Stat. 2559; Pub. L. 101-508, 
title XI, Sec. 11801(a)(24), (c)(10)(B), Nov. 5, 1990, 104 Stat. 1388-
521, 1388-527.)


                               Amendments

    1990--Subsecs. (c), (d). Pub. L. 101-508 redesignated subsec. (d) as 
(c) and struck out former subsec. (c) which related to a special 
adjustment to taxable income for amounts used or set aside to pay or 
retire qualified indebtedness.
    1986--Subsec. (b)(7). Pub. L. 99-514 added par. (7).
    1983--Subsec. (b)(2). Pub. L. 97-448 substituted ``10-percent'' for 
``5-percent''.
    1976--Subsec. (b)(1). Pub. L. 94-455, Secs. 1033(b)(4), 
1901(a)(77)(A), struck out ``(other than excess profits tax imposed by 
subchapter E of chapter 2 of the Internal Revenue Code of 1939 for 
taxable years beginning after December 31, 1940)'' after ``Federal 
income and excess profits taxes''; substituted ``902(a) or 960(a)(1)'' 
for ``902(a)(1) or 960(a)(1)(C)'' after ``corporation under section''; 
and struck out provisions after ``prior income tax law'' relating to 
election by taxpayer who paid Federal income and excess profits taxes to 
deduct payments, when made, for purposes of computing subchapter A net 
income or, for a taxable year ending after June 30, 1954, to deduct such 
taxes when accrued, such election being irrevocable and applied to 
taxable year for which election was made and to all subsequent taxable 
years.
    Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(20)(B)(ii), substituted 
``paragraph (6)'' for ``paragraph (8)'' after ``amount disallowed 
under''.
    Subsec. (b)(5). Pub. L. 94-455, Sec. 1901(b)(33)(D), substituted 
``Net'' for ``Long-term'' after ``(5)''.
    Subsec. (b)(6). Pub. L. 94-455, Secs. 1901(b)(20)(B)(i), 
1906(b)(13)(A), struck out par. (6) relating to deduction allowed to 
bank affiliates, redesignated former par. (8) as (6) and, as 
redesignated, struck out ``or his delegate'' in two places after 
``Secretary''.
    Subsec. (b)(7). Pub. L. 94-455, Sec. 1901(a)(77)(B), struck out par. 
(7) relating to payment of indebtedness incurred prior to January 1, 
1934.
    Subsec. (b)(8). Pub. L. 94-455, Sec. 1901(b)(20)(B)(i), redesignated 
par. (8) as (6).
    Subsec. (b)(9). Pub. L. 94-455, Sec. 1951(b)(9)(A), struck out par. 
(9) relating to the deduction of the amount of a lien in favor of the 
United States.
    Subsec. (b)(10), (11). Pub. L. 94-455, Sec. 1901(b)(32)(E), struck 
out par. (10) relating to deduction for distributions of divested stock, 
and struck out par. (11) relating to special adjustment on the 
disposition of antitrust stock received as a dividend.
    Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 1901(a)(77)(C), substituted 
``February 26, 1964'' for ``the date of enactment of this subsection'' 
after ``years ending before''.
    Subsec. (c)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ``or 
his delegate'' after ``Secretary''.
    Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(b)(20)(B)(iii), 
substituted ``subsection (b)(6)'' for ``subsection (b)(8)'' after 
``company income under''.
    1969--Subsec. (b)(2). Pub. L. 91-172 substituted ``section 
170(b)(1)(A), (B), and (D)'', ``section 170(b)(2) and (d)(1)'' for 
``section 170(b)(1)(A) and (B)'' and ``section 170(b)(2) and (5)'', 
respectively, in provisions of first sentence setting out the sections 
appropriate to the computation of the deduction, and in provisions of 
second sentence describing applicability of terms for purposes of this 
paragraph, substituted ``contribution base'' and ``section 170(b)(2) and 
(d)(1)'' for ``adjusted gross income'' and ``the first sentence of 
section 170(b)(2) and (5),'' respectively.
    1966--Subsec. (a). Pub. L. 89-809, Sec. 104(h)(3)(A), substituted 
``in the manner provided in subsections (b), (c), and (d)'' for ``in the 
manner provided in subsection (b) and (c)'' and inserted provisions 
governing the case of a personal holding company which is a foreign 
corporation, not more than 10 percent in value of the outstanding stock 
of which is owned (within the meaning of section 958(a)) during the last 
half of the taxable year by United States persons.
    Subsec. (b)(9). Pub. L. 89-719 substituted ``section 6323(f)'' for 
``section 6323(a)(1), (2), or (3)''.
    Subsec. (d). Pub. L. 89-809, Sec. 104(h)(3)(B), added subsec. (d).
    1964--Subsec. (a). Pub. L. 88-272, Sec. 225(i)(1), inserted 
reference to subsection (c).
    Subsec. (b)(1), (2). Pub. L. 88-272, Secs. 207(b)(5), 209(c)(2), 
substituted ``section 275(a)(4)'' for ``section 164(b)(6)'' in par. (1), 
and inserted reference to section 170(b)(5) in par. (2).
    Subsec. (c). Pub. L. 88-272, Sec. 225(i)(2), added subsec. (c).
    1962--Subsec. (b)(1). Pub. L. 87-834 substituted ``accrued during 
the taxable year or deemed to be paid by a domestic corporation under 
section 902(a)(1) or 960(a)(1)(C) for the taxable year'' for ``accrued 
during the taxable year''.
    Subsec. (b)(10), (11). Pub. L. 87-403 added pars. (10) and (11).
    1958--Subsec. (b)(2). Pub. L. 85-866, Sec. 32(a), substituted in 
first sentence ``, but in computing such deduction the limitations in 
section 170(b)(1)(A) and (B) shall apply, and section 170(b) shall not 
apply'' for ``but with the limitations in section 170(b)(1)(A) and (B) 
(in lieu of the limitation in section 170(b)(2)'', and inserted in 
second sentence ``(other than the 5-percent limitation)'' and ``the 
first sentence'' after ``with the adjustments'' and ``provided in'', 
respectively.
    Subsec. (b)(4). Pub. L. 85-866, Sec. 32(b), inserted ``computed 
without the deductions provided in part VIII (except section 248) of 
subchapter B''.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to gains and losses realized 
on or after Jan. 1, 1986, see section 1225(c) of Pub. L. 99-514, as 
amended, set out as a note under section 535 of this title.


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 97-448 effective, except as otherwise provided, 
as if it had been included in the provision of the Economic Recovery Tax 
Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 
109 of Pub. L. 97-448, set out as a note under section 1 of this title.


                    Effective Date of 1976 Amendment

    For effective date of amendment by section 1033(b)(4) of Pub. L. 94-
455, see section 1033(c) of Pub. L. 94-455, set out as a note under 
section 902 of this title.
    Amendment by section 1901(a)(77), (b)(20)(B), (32)(E), (33)(D) 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.
    Amendment by section 1951(b)(9)(A) of Pub. L. 94-455 applicable with 
respect to taxable years beginning after Dec. 31, 1976, see section 
1951(d) of Pub. L. 94-455 set out as a note under section 72 of this 
title.


                    Effective Date of 1969 Amendment

    Amendment by Pub. L. 91-172 applicable to taxable years beginning 
after Dec. 31, 1969, see section 201(g) of Pub. L. 91-172, set out as a 
note under section 170 of this title.


                    Effective Date of 1966 Amendments

    Amendment by Pub. L. 89-809 applicable with respect to taxable years 
beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-809, set 
out as a note under section 11 of this title.
    Amendment by Pub. L. 89-719 applicable after Nov. 2, 1966, 
regardless of when the title or lien of the United States arose or when 
the lien or interest of another person was acquired, except in a case in 
which a lien or title derived from enforcement of a lien held by the 
United States has been enforced by a civil action or suit which has 
become final by judgment, sale, or agreement before Nov. 2, 1966, or in 
a case in which the amendment would impair a priority held by any person 
other than the United States holding a lien or interest prior to Nov. 2, 
1966, operate to increase the liability of such person, or shorten the 
time for bringing suit with respect to transactions occurring before 
Nov. 2, 1966, see section 114(a)-(e) of Pub. L. 89-719, set out as a 
note under section 6323 of this title.


                    Effective Date of 1964 Amendment

    Amendment by section 207(b)(5) of Pub. L. 88-272 applicable to 
taxable years beginning after Dec. 31, 1963, see section 207(c) of Pub. 
L. 88-272, set out as a note under section 164 of this title.
    Amendment by section 209(c)(2) of Pub. L. 88-272 applicable to 
contributions paid in taxable years beginning after Dec. 31, 1963, see 
section 209(f)(1) of Pub. L. 88-272, set out as a note under section 170 
of this title.
    Amendment by section 225(i)(1), (2) of Pub. L. 88-272 applicable to 
taxable years beginning after Dec. 31, 1963, see section 225(l)(1) of 
Pub. L. 88-272 set out as a note under section 316 of this title.


                    Effective Date of 1962 Amendments

    Amendment by Pub. L. 87-834 applicable in respect of any 
distribution received by a domestic corporation after Dec. 31, 1964, and 
in respect of any distribution received by a domestic corporation before 
Jan. 1, 1965, in a taxable year of such corporation beginning after Dec. 
31, 1962, but only to the extent that such distribution is made out of 
the accumulated profits of a foreign corporation for a taxable year (of 
such foreign corporation) beginning after Dec. 31, 1962, see section 
9(e) of Pub. L. 87-834, set out as a note under section 902 of this 
title.
    Amendment by Pub. L. 87-403 applicable only with respect to 
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L. 87-
403, set out as a note under section 312 of this title.


                    Effective Date of 1958 Amendment

    Amendment by section 32(a) of Pub. L. 85-866 applicable to taxable 
years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see 
section 1(c)(1) of Pub. L. 85-866, set out as a note under section 165 
of this title.
    Section 32(c) of Pub. L. 85-866, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by subsection (b) of this section [amending this section] shall 
apply with respect to adjustments under section 545(b)(4) of the 
Internal Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years 
beginning after December 31, 1957.''


                            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 1951(b)(9)(B) of Pub. L. 94-455 provided that: 
``Notwithstanding subparagraph (A) [amending this section], if any 
amount was deducted under paragraph (9) of section 545(b) in a taxable 
year beginning before January 1, 1977, on account of a lien which is 
satisfied or released in a taxable year beginning on or after such date, 
the amount so deducted shall be included in income, for purposes of 
section 545, as provided in the second sentence of such paragraph. 
Shareholders of any corporation which has amounts included in its income 
by reason of the preceding sentence may elect to compute the income tax 
on dividends attributable to amounts so included as provided in the 
third sentence of such paragraph.''

                  Section Referred to in Other Sections

    This section is referred to in sections 170, 316, 508, 541, 564, 
631, 4947, 4948 of this title.
