
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: 26USC556]

 
                     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 III--FOREIGN PERSONAL HOLDING COMPANIES
 
Sec. 556. Undistributed foreign personal holding company income


(a) Definition

    For purposes of this part, the term ``undistributed foreign personal 
holding company income'' means the taxable income of a foreign personal 
holding company adjusted in the manner provided in subsection (b), minus 
the dividends paid deduction (as defined in section 561).

(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, 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 the deduction of the amounts disallowed under 
    paragraphs (5) and (6) of this subsection or the inclusion in gross 
    income of the amounts includible therein as dividends by reason of 
    the application of the provisions of section 555(b) (relating to the 
    inclusion in gross income of a foreign personal holding company of 
    its distributive share of the undistributed foreign personal holding 
    company income of another company in which it is a shareholder).

                  (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) 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 company, 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.

            (6) Taxes and contributions to pension trusts

        The deductions provided in section 164(e) (relating to taxes of 
    a shareholder paid by the corporation) and in section 404 (relating 
    to pension, etc., trusts) shall not be allowed.

(Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L. 85-866, title I, 
Sec. 33(a), (b)(1), (c)(1), Sept. 2, 1958, 72 Stat. 1632; Pub. L. 87-
403, Sec. 3(e), Feb. 2, 1962, 76 Stat. 7; Pub. L. 88-272, title II, 
Secs. 207(b)(6), 209(c)(2), Feb. 26, 1964, 78 Stat. 42, 46; Pub. L. 91-
172, title II, Sec. 201(a)(2)(B), Dec. 30, 1969, 83 Stat. 558; Pub. L. 
94-455, title XIX, Secs. 1901(a)(80), (b)(32)(G), 1906(b)(13)(A), Oct. 
4, 1976, 90 Stat. 1778, 1800, 1834; Pub. L. 97-448, title I, 
Sec. 102(m)(2), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 101-508, title XI, 
Sec. 11802(d)(1), Nov. 5, 1990, 104 Stat. 1388-529.)


                               Amendments

    1990--Subsec. (b)(1). Pub. L. 101-508 struck out at end ``A taxpayer 
which, for each taxable year in which it was subject to the provisions 
of supplement P of the Internal Revenue Code of 1939, deducted Federal 
income and excess profits taxes when paid for the purpose of computing 
undistributed supplement P net income under such code, shall deduct 
taxes under this paragraph when paid, unless the corporation elects, 
under regulations prescribed by the Secretary, after the date of 
enactment of this title to deduct the taxes described in this paragraph 
when accrued. Such election shall be irrevocable and shall apply to the 
taxable year for which the election is made and to all subsequent 
taxable years.''
    1983--Subsec. (b)(2). Pub. L. 97-448 substituted ``10-percent'' for 
``5-percent''.
    1976--Subsec. (b)(1). Pub. L. 94-455, Secs. 1901(a)(80), 
1906(b)(13)(A), struck out ``(other than the 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 ``deduction 
Federal income and excess profits taxes'' and ``or his delegate'' after 
``Secretary''.
    Subsec. (b)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ``or 
his delegate'' after ``Secretary'' in two places.
    Subsec. (b)(7), (8). Pub. L. 94-455, Sec. 1901(b)(32)(G), struck out 
par. (7) relating to disallowance of deduction as applied to taxes of a 
shareholder paid by the corporation and contributions to pension funds, 
and struck out par. (8) relating to special adjustment on disposition of 
antitrust stock received as a dividend.
    1969--Subsec. (b)(2). Pub. L. 91-172 substituted ``section 
170(b)(1)(A), (B), and (D)'' and ``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.
    1964--Subsec. (b)(1), (2). Pub. L. 88-272 substituted ``section 
275(a)(4)'' for ``section 164(b)(6)'' in par. (1), and inserted the 
reference to section 170(b)(5) in par. (2).
    1962--Subsec. (b)(7), (8). Pub. L. 87-403 added pars. (7) and (8).
    1958--Subsec. (b)(2). Pub. L. 85-866, Sec. 33(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)(2) shall 
not apply'' for ``but with the limitation in section 170(b)(1)(A) and 
(B) (in lieu of the limitation in section 170(b)(2))'' and in second 
sentence ``the taxable income computed with the adjustments (other than 
the 5-percent limitation) provided in the first sentence of section 
170(b)(2)'' for ``the taxable income computed with the adjustments 
provided in section 170(b)(2)''.
    Subsec. (b)(3). Pub. L. 85-866, Sec. 33(b)(1), substituted ``section 
248'' for ``sections 242 and 248''.
    Subsec. (b)(4). Pub. L. 85-866, Sec. 33(c)(1), inserted ``computed 
without the deductions provided in part VIII (except section 248) of 
subchapter B''.


                    Effective Date of 1990 Amendment

    Section 11802(d)(2) of Pub. L. 101-508 provided that: ``The 
amendment made by paragraph (1) [amending this section] shall not apply 
to any corporation with respect to which an election under the second 
sentence of section 556(b)(1) of the Internal Revenue Code of 1986 (as 
in effect before the amendment made by paragraph (1)) is in effect 
unless such corporation elects to have such amendment apply and agrees 
to such adjustments as the Secretary of the Treasury or his delegate may 
require.''


                    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

    Amendment 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.


                    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 1964 Amendment

    Amendment by section 207(b)(6) 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.


                    Effective Date of 1962 Amendment

    Amendment by Pub. L. 87-403 applicable only with respect to 
distribution 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 33(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 33(b)(2) of Pub. L. 85-866 provided that: ``The amendment 
made by paragraph (1) [amending this section] shall apply only with 
respect to taxable years ending after December 31, 1957.''
    Section 33(c)(2) 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 paragraph (1) [amending this section] shall apply with respect 
to adjustments under section 556(b)(4) of the Internal Revenue Code of 
1986 [formerly I.R.C. 1954] for taxable years ending 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 Referred to in Other Sections

    This section is referred to in sections 170, 508, 557, 4947, 4948 of 
this title.
