
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: 26USC854]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
Subchapter M--Regulated Investment Companies and Real Estate Investment 
                                 Trusts
 
                 PART I--REGULATED INVESTMENT COMPANIES
 
Sec. 854. Limitations applicable to dividends received from 
        regulated investment company
        

(a) Capital gain dividend

    For purposes of section 243 (relating to deductions for dividends 
received by corporations), a capital gain dividend (as defined in 
section 852(b)(3)) received from a regulated investment company shall 
not be considered as a dividend.

(b) Other dividends

                   (1) Amount treated as dividend

        (A) Deduction under section 243

            In any case in which--
                (i) a dividend is received from a regulated investment 
            company (other than a dividend to which subsection (a) 
            applies), and
                (ii) such investment company meets the requirements of 
            section 852(a) for the taxable year during which it paid 
            such dividend,

        then, in computing any deduction under section 243, there shall 
        be taken into account only that portion of such dividend 
        designated under this subparagraph by the regulated investment 
        company and such dividend shall be treated as received from a 
        corporation which is not a 20-percent owned corporation.

        (B) Limitation

            The aggregate amount which may be designated as dividends 
        under subparagraph (A) shall not exceed the aggregate dividends 
        received by the company for the taxable year.

                     (2) Notice to shareholders

        The amount of any distribution by a regulated investment company 
    which may be taken into account as a dividend for purposes of the 
    deduction under section 243 shall not exceed the amount so 
    designated by the company in a written notice to its shareholders 
    mailed not later than 60 days after the close of its taxable year.

                       (3) Aggregate dividends

        For purposes of this subsection--

        (A) In general

            In computing the amount of aggregate dividends received, 
        there shall only be taken into account dividends received from 
        domestic corporations.

        (B) Dividends

            For purposes of subparagraph (A), the term ``dividend'' 
        shall not include any distribution from--
                (i) a corporation which, for the taxable year of the 
            corporation in which the distribution is made, or for the 
            next preceding taxable year of the corporation, is a 
            corporation exempt from tax under section 501 (relating to 
            certain charitable, etc., organizations) or section 521 
            (relating to farmers' cooperative associations), or
                (ii) 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).

        (C) Limitations on dividends from regulated investment companies

            In determining the amount of any dividend for purposes of 
        this paragraph, a dividend received from a regulated investment 
        company shall be subject to the limitations prescribed in this 
        section.

     (4) Special rule for computing deduction under section 243

        For purposes of subparagraph (A) of paragraph (1), an amount 
    shall be treated as a dividend for the purpose of paragraph (1) only 
    if a deduction would have been allowable under section 243 to the 
    regulated investment company determined--
            (A) as if section 243 applied to dividends received by a 
        regulated investment company,
            (B) after the application of section 246 (but without regard 
        to subsection (b) thereof), and
            (C) after the application of section 246A.

(Aug. 16, 1954, ch. 736, 68A Stat. 273; Pub. L. 88-272, title II, 
Secs. 201(d)(8)-(10), 229(a)(4), Feb. 26, 1964, 78 Stat. 32, 99; Pub. L. 
96-223, title IV, Sec. 404(b)(6), Apr. 2, 1980, 94 Stat. 307; Pub. L. 
97-34, title III, Sec. 302(c)(4), (d)(1), Aug. 13, 1981, 95 Stat. 272, 
274; Pub. L. 98-369, div. A, title I, Secs. 16(a), 52(a)-(c), July 18, 
1984, 98 Stat. 505, 564, 565; Pub. L. 99-514, title VI, Secs. 612(b)(6), 
655(a)(4), Oct. 22, 1986, 100 Stat. 2250, 2299; Pub. L. 100-203, title 
X, Sec. 10221(d)(3), Dec. 22, 1987, 101 Stat. 1330-409; Pub. L. 100-647, 
title I, Sec. 1006(b)(2), Nov. 10, 1988, 102 Stat. 3393.)


                               Amendments

    1988--Subsec. (b)(3). Pub. L. 100-647 substituted ``Aggregate 
dividends'' for ``Definitions'' in heading and amended text generally, 
substituting subpars. (A) to (C) for former subpars. (A) and (B).
    1987--Subsec. (b)(1)(A). Pub. L. 100-203 inserted ``and such 
dividend shall be treated as received from a corporation which is not a 
20-percent owned corporation'' before period at end.
    1986--Subsec. (a). Pub. L. 99-514, Sec. 612(b)(6)(A), which directed 
that ``section 116 (relating to an exclusion for dividends received by 
individuals), and'' be struck out, was executed by striking out 
``section 116 (relating to an exclusion for dividends received by 
individuals) and'' before ``section 243'' as the probable intent of 
Congress.
    Subsec. (b)(1)(B), (C). Pub. L. 99-514, Sec. 612(b)(6)(B)(i), (ii), 
redesignated subpar. (C) as (B), struck out ``or (B)'' before ``shall 
not exceed'', and struck out former subpar. (B), exclusion under section 
116, which read as follows: ``If the aggregate dividends received by a 
regulated investment company during any taxable year are less than 95 
percent of its gross income, then, in computing the exclusion under 
section 116, rules similar to the rules of subparagraph (A) shall 
apply.''
    Subsec. (b)(2). Pub. L. 99-514, Sec. 655(a)(4), substituted ``60 
days'' for ``45 days''.
    Pub. L. 99-514, Sec. 612(b)(6)(B)(iii), struck out ``the exclusion 
under section 116 and'' before ``the deduction under section 243''.
    Subsec. (b)(3)(B). Pub. L. 99-514, Sec. 612(b)(6)(B)(iv), amended 
subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: 
``The term `aggregate dividends received' includes only dividends 
received from domestic corporations other than dividends described in 
section 116(b) (relating to dividends excluded from gross income). In 
determining the amount of any dividend for purposes of this 
subparagraph, the rules provided in section 116(c) (relating to certain 
distributions) shall apply.''
    1984--Subsec. (b). Pub. L. 98-369, Sec. 16(a), repealed amendments 
made by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment note below.
    Subsec. (b)(1). Pub. L. 98-369, Sec. 52(a), increased the required 
amount of dividends by substituting provisions directing that in any 
case in which (i) a dividend is received from a regulated investment 
company (other than a dividend to which subsection (a) applies), and 
(ii) such investment company meets the requirements of section 852(a) 
for the taxable year during which it paid such dividend, then, in 
computing any deduction under section 243, there shall be taken into 
account only that portion of such dividend thus designated by the 
regulated investment company, that if the aggregate dividends received 
by a regulated investment company during any taxable year are less than 
95 percent of its gross income, then, in computing the exclusion under 
section 116, similar rules applied, and that the aggregate amount which 
may be designated thus dividends shall not exceed the aggregate 
dividends received by the company for the taxable year for provisions 
which had directed that in the case of a dividend received from a 
regulated investment company (other than a dividend to which subsection 
(a) applied) (A) if such investment company met the requirements of 
section 852(a) for the taxable year during which it paid such dividend; 
and (B) the aggregate dividends received by such company during such 
taxable year were less than 75 percent of its gross income, then, in 
computing the exclusion under section 116 and the deduction under 
section 243, there was taken into account only that portion of the 
dividend which bore the same ratio to the amount of such dividend as the 
aggregate dividends received by such company during such taxable year to 
its gross income for such taxable year.
    Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 52(c), substituted 
provisions directing that in the case of 1 or more sales or other 
dispositions of stock and securities, the term ``gross income'' include 
only the excess of (i) the net short-term capital gain from such sales 
or dispositions, over (ii) the net long-term capital loss from such 
sales or dispositions for provisions which had directed that the term 
``gross income'' not include gain from the sale or other disposition of 
stock or securities.
    Subsec. (b)(4). Pub. L. 98-369, Sec. 52(b), added par. (4).
    1981--Subsec. (b). Pub. L. 97-34, Sec. 302(c)(4), (d)(1), provided 
for general amendment of subsec. (b) so as to include provisions 
relating to taxable interest described in section 128 of this title, 
applicable to taxable years beginning after Dec. 31, 1984. Section 16(a) 
of Pub. L. 98-369, repealed section 302(c) of Pub. L. 97-34, and 
provided that this title shall be applied and administered as if section 
302(c), and the amendments made by section 302(c), had not been enacted.
    1980--Subsec. (b). Pub. L. 96-223, Sec. 404(b)(6), temporarily 
substituted ``Other dividends and taxable interest'' for ``Other 
dividends'' in heading, substituted ``Deduction under section 243'' for 
``General rule'' in heading for par. (1), struck out ``the exclusion 
under section 116 and'' after ``in computing'' in text of par. (1) 
following subpar. (B), added par. (2), redesignated former pars. (2) and 
(3) as (3) and (4), respectively, and, in par. (4) as so redesignated, 
substituted ``116(b)(2)'' for ``116(b)'' and ``116(c)(2)'' for 
``116(c)'' in subpar. (B) and added subpar. (C).
    1964--Subsec. (a). Pub. L. 88-272, Sec. 201(d)(8), struck out 
``section 34(a) (relating to credit for dividends received by 
individuals),'' before ``section 116'' and the comma before ``and''.
    Subsec. (b). Pub. L. 88-272, Secs. 201(d)(9), (10), 229(a)(4), 
substituted ``45 days'' for ``30 days'' in par. (2), and struck out 
``the credit under section 34(a),'' before ``the exclusion'' in par. 
(1), and ``the credit under section 34,'' before ``the exclusion'' in 
par. (2).


                    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

    Amendment by Pub. L. 100-203 applicable to dividends received or 
accrued after Dec. 31, 1987, in taxable years ending after such date, 
see section 10221(e)(1) of Pub. L. 100-203, set out as a note under 
section 243 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 612(b)(6) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 612(c) of Pub. 
L. 99-514, set out as a note under section 301 of this title.
    Amendment by section 655(a)(4) of Pub. L. 99-514 applicable to 
taxable years beginning after Oct. 22, 1986, see section 655(b) of Pub. 
L. 99-514, set out as a note under section 852 of this title.


                    Effective Date of 1984 Amendment

    Amendment by section 16(a) of Pub. L. 98-369 applicable to taxable 
years ending after Dec. 31, 1983, see section 18(a) of Pub. L. 98-369, 
set out as a note under section 48 of this title.
    Section 52(d) of Pub. L. 98-369 provided that: ``The amendments made 
by this section [amending this section] shall apply to taxable years of 
regulated investment companies beginning after the date of the enactment 
of this Act [July 18, 1984].''


            Effective and Termination Dates of 1980 Amendment

    Amendment by Pub. L. 96-223 applicable with respect to taxable years 
beginning after Dec. 31, 1980, and before Jan. 1, 1982, see section 
404(c) of Pub. L. 96-223, set out as a note under section 265 of this 
title.


                    Effective Date of 1964 Amendment

    Amendment by section 201(d)(8)-(10) of Pub. L. 88-272 applicable to 
dividends received after Dec. 31, 1964, in taxable years ending after 
such date, see section 201(e) of Pub. L. 88-272, set out as a note under 
section 22 of this title.
    Amendment by section 229(a)(4) of Pub. L. 88-272 applicable to 
taxable years of regulated investment companies ending on or after Feb. 
26, 1964, see section 229(c) of Pub. L. 88-272, set out as a note under 
section 852 of this title.

                  Section Referred to in Other Sections

    This section is referred to in section 243 of this title.
