
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: 26USC565]

 
                     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 IV--DEDUCTION FOR DIVIDENDS PAID
 
Sec. 565. Consent dividends


(a) General rule

    If any person owns consent stock (as defined in subsection (f)(1)) 
in a corporation on the last day of the taxable year of such 
corporation, and such person agrees, in a consent filed with the return 
of such corporation in accordance with regulations prescribed by the 
Secretary, to treat as a dividend the amount specified in such consent, 
the amount so specified shall, except as provided in subsection (b), 
constitute a consent dividend for purposes of section 561 (relating to 
the deduction for dividends paid).

(b) Limitations

    A consent dividend shall not include--
        (1) an amount specified in a consent which, if distributed in 
    money, would constitute, or be part of, a distribution which would 
    be disqualified for purposes of the dividends paid deduction under 
    section 562(c) (relating to preferential dividends), or
        (2) an amount specified in a consent which would not constitute 
    a dividend (as defined in section 316) if the total amounts 
    specified in consents filed by the corporation had been distributed 
    in money to shareholders on the last day of the taxable year of such 
    corporation.

(c) Effect of consent

    The amount of a consent dividend shall be considered, for purposes 
of this title--
        (1) as distributed in money by the corporation to the 
    shareholder on the last day of the taxable year of the corporation, 
    and
        (2) as contributed to the capital of the corporation by the 
    shareholder on such day.

(d) Consent dividends and other distributions

    If a distribution by a corporation consists in part of consent 
dividends and in part of money or other property, the entire amount 
specified in the consents and the amount of such money or other property 
shall be considered together for purposes of applying this title.

(e) Nonresident aliens and foreign corporations

    In the case of a consent dividend which, if paid in money would be 
subject to the provisions of section 1441 (relating to withholding of 
tax on nonresident aliens) or section 1442 (relating to withholding of 
tax on foreign corporations), this section shall not apply unless the 
consent is accompanied by money, or such other medium of payment as the 
Secretary may by regulations authorize, in an amount equal to the amount 
that would be required to be deducted and withheld under sections 1441 
or 1442 if the consent dividend had been, on the last day of the taxable 
year of the corporation, paid to the shareholder in money as a dividend. 
The amount accompanying the consent shall be credited against the tax 
imposed by this subtitle on the shareholder.

(f) Definitions

                          (1) Consent stock

        Consent stock, for purposes of this section, means the class or 
    classes of stock entitled, after the payment of preferred dividends, 
    to a share in the distribution (other than in complete or partial 
    liquidation) within the taxable year of all the remaining earnings 
    and profits, which share constitutes the same proportion of such 
    distribution regardless of the amount of such distribution.

                       (2) Preferred dividends

        Preferred dividends, for purposes of this section, means a 
    distribution (other than in complete or partial liquidation), 
    limited in amount, which must be made on any class of stock before a 
    further distribution (other than in complete or partial liquidation) 
    of earnings and profits may be made within the taxable year.

(Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94-455, title XIX, 
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)


                               Amendments

    1976--Subsecs. (a), (e). Pub. L. 94-455 struck out ``or his 
delegate'' after ``Secretary''.

                  Section Referred to in Other Sections

    This section is referred to in sections 543, 561 of this title.
