
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: 26USC860]

 
                     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 III--PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT COMPANIES 
                    AND REAL ESTATE INVESTMENT TRUSTS
 
Sec. 860. Deduction for deficiency dividends


(a) General rule

    If a determination with respect to any qualified investment entity 
results in any adjustment for any taxable year, a deduction shall be 
allowed to such entity for the amount of deficiency dividends for 
purposes of determining the deduction for dividends paid (for purposes 
of section 852 or 857, whichever applies) for such year.

(b) Qualified investment entity defined

    For purposes of this section, the term ``qualified investment 
entity'' means--
        (1) a regulated investment company, and
        (2) a real estate investment trust.

(c) Rules for application of section

    (1) Interest and additions to tax determined with respect to 
             the amount of deficiency dividend deduction allowed

        For purposes of determining interest, additions to tax, and 
    additional amounts--
            (A) the tax imposed by this chapter (after taking into 
        account the deduction allowed by subsection (a)) on the 
        qualified investment entity for the taxable year with respect to 
        which the determination is made shall be deemed to be increased 
        by an amount equal to the deduction allowed by subsection (a) 
        with respect to such taxable year,
            (B) the last date prescribed for payment of such increase in 
        tax shall be deemed to have been the last date prescribed for 
        the payment of tax (determined in the manner provided by section 
        6601(b)) for the taxable year with respect to which the 
        determination is made, and
            (C) such increase in tax shall be deemed to be paid as of 
        the date the claim for the deficiency dividend deduction is 
        filed.

                        (2) Credit or refund

        If the allowance of a deficiency dividend deduction results in 
    an overpayment of tax for any taxable year, credit or refund with 
    respect to such overpayment shall be made as if on the date of the 
    determination 2 years remained before the expiration of the period 
    of limitations on the filing of claim for refund for the taxable 
    year to which the overpayment relates.

(d) Adjustment

    For purposes of this section--

     (1) Adjustment in the case of regulated investment company

        In the case of any regulated investment company, the term 
    ``adjustment'' means--
            (A) any increase in the investment company taxable income of 
        the regulated investment company (determined without regard to 
        the deduction for dividends paid (as defined in section 561)),
            (B) any increase in the amount of the excess described in 
        section 852(b)(3)(A) (relating to the excess of the net capital 
        gain over the deduction for capital gain dividends paid), and
            (C) any decrease in the deduction for dividends paid (as 
        defined in section 561) determined without regard to capital 
        gains dividends.

     (2) Adjustment in the case of real estate investment trust

        In the case of any real estate investment trust, the term 
    ``adjustment'' means--
            (A) any increase in the sum of--
                (i) the real estate investment trust taxable income of 
            the real estate investment trust (determined without regard 
            to the deduction for dividends paid (as defined in section 
            561) and by excluding any net capital gain), and
                (ii) the excess of the net income from foreclosure 
            property (as defined in section 857(b)(4)(B)) over the tax 
            on such income imposed by section 857(b)(4)(A),

            (B) any increase in the amount of the excess described in 
        section 857(b)(3)(A)(ii) (relating to the excess of the net 
        capital gain over the deduction for capital gains dividends 
        paid), and
            (C) any decrease in the deduction for dividends paid (as 
        defined in section 561) determined without regard to capital 
        gains dividends.

(e) Determination

    For purposes of this section, the term ``determination'' means--
        (1) a decision by the Tax Court, or a judgment, decree, or other 
    order by any court of competent jurisdiction, which has become 
    final;
        (2) a closing agreement made under section 7121; or
        (3) under regulations prescribed by the Secretary, an agreement 
    signed by the Secretary and by, or on behalf of, the qualified 
    investment entity relating to the liability of such entity for tax.

(f) Deficiency dividends

                           (1) Definition

        For purposes of this section, the term ``deficiency dividends'' 
    means a distribution of property made by the qualified investment 
    entity on or after the date of the determination and before filing 
    claim under subsection (g), which would have been includible in the 
    computation of the deduction for dividends paid under section 561 
    for the taxable year with respect to which the liability for tax 
    resulting from the determination exists if distributed during such 
    taxable year. No distribution of property shall be considered as 
    deficiency dividends for purposes of subsection (a) unless 
    distributed within 90 days after the determination, and unless a 
    claim for a deficiency dividend deduction with respect to such 
    distribution is filed pursuant to subsection (g).

                           (2) Limitations

        (A) Ordinary dividends

            The amount of deficiency dividends (other than deficiency 
        dividends qualifying as capital gain dividends) paid by a 
        qualified investment entity for the taxable year with respect to 
        which the liability for tax resulting from the determination 
        exists shall not exceed the sum of--
                (i) the excess of the amount of increase referred to in 
            subparagraph (A) of paragraph (1) or (2) of subsection (d) 
            (whichever applies) over the amount of any increase in the 
            deduction for dividends paid (computed without regard to 
            capital gain dividends) for such taxable year which results 
            from such determination, and
                (ii) the amount of decreased \1\ referred to in 
            subparagraph (C) of paragraph (1) or (2) of subsection (d) 
            (whichever applies).
---------------------------------------------------------------------------
    \1\ So in original. Probably should be ``decrease''.
---------------------------------------------------------------------------

        (B) Capital gain dividends

            The amount of deficiency dividends qualifying as capital 
        gain dividends paid by a qualified investment entity for the 
        taxable year with respect to which the liability for tax 
        resulting from the determination exists shall not exceed the 
        amount by which (i) the increase referred to in subparagraph (B) 
        of paragraph (1) or (2) of subsection (d) (whichever applies), 
        exceeds (ii) the amount of any dividends paid during such 
        taxable year which are designated as capital gain dividends 
        after such determination.

               (3) Effect on dividends paid deduction

        (A) For taxable year in which paid

            Deficiency dividends paid in any taxable year shall not be 
        included in the amount of dividends paid for such year for 
        purposes of computing the dividends paid deduction for such 
        year.

        (B) For prior taxable year

            Deficiency dividends paid in any taxable year shall not be 
        allowed for purposes of section 855(a) or 858(a) in the 
        computation of the dividends paid deduction for the taxable year 
        preceding the taxable year in which paid.

(g) Claim required

    No deficiency dividend deduction shall be allowed under subsection 
(a) unless (under regulations prescribed by the Secretary) claim 
therefore is filed within 120 days after the date of the determination.

(h) Suspension of statute of limitations and stay of collection

                (1) Suspension of running of statute

        If the qualified investment entity files a claim as provided in 
    subsection (g), the running of the statute of limitations provided 
    in section 6501 on the making of assessments, and the bringing of 
    distraint or a proceeding in court for collection, in respect of the 
    deficiency established by a determination under this section, and 
    all interest, additions to tax, additional amounts, or assessable 
    penalties in respect thereof, shall be suspended for a period of 2 
    years after the date of the determination.

                       (2) Stay of collection

        In the case of any deficiency established by a determination 
    under this section--
            (A) the collection of the deficiency, and all interest, 
        additions to tax, additional amounts, and assessable penalties 
        in respect thereof, shall, except in cases of jeopardy, be 
        stayed until the expiration of 120 days after the date of the 
        determination, and
            (B) if claim for a deficiency dividend deduction is filed 
        under subsection (g), the collection of such part of the 
        deficiency as is not reduced by the deduction for deficiency 
        dividends provided in subsection (a) shall be stayed until the 
        date the claim is disallowed (in whole or in part), and if 
        disallowed in part collection shall be made only with respect to 
        the part disallowed.

    No distraint or proceeding in court shall be begun for the 
    collection of an amount the collection of which is stayed under 
    subparagraph (A) or (B) during the period for which the collection 
    of such amount is stayed.

(i) Deduction denied in case of fraud

    No deficiency dividend deduction shall be allowed under subsection 
(a) if the determination contains a finding that any part of any 
deficiency attributable to an adjustment with respect to the taxable 
year is due to fraud with intent to evade tax or to willfull \2\ failure 
to file an income tax return within the time prescribed by law or 
prescribed by the Secretary in pursuance of law.
---------------------------------------------------------------------------
    \2\ So in original. Probably should be ``willful''.
---------------------------------------------------------------------------

(j) Penalty

            For assessable penalty with respect to liability for tax of 
        a regulated investment company which is allowed a deduction 
        under subsection (a), see section 6697.

(Added Pub. L. 95-600, title III, Sec. 362(a), Nov. 6, 1978, 92 Stat. 
2848; amended Pub. L. 96-222, title I, Sec. 103(a)(11)(B), (C), Apr. 1, 
1980, 94 Stat. 213; Pub. L. 99-514, title VI, Sec. 667(b)(1), Oct. 22, 
1986, 100 Stat. 2306.)


                            Prior Provisions

    A prior section 860 was renumbered section 859 of this title.


                               Amendments

    1986--Subsec. (j). Pub. L. 99-514 substituted ``regulated investment 
company'' for ``qualified investment entity''.
    1980--Subsec. (f). Pub. L. 96-222 substituted in heading 
``Deficiency'' for ``Efficiency'' and in par. (2)(A)(i) ``(computed 
without regard'' for ``computed without regard''.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as a 
note under section 856 of this title.


                             Effective Date

    Section 362(e) of Pub. L. 95-600, as amended by Pub. L. 96-222, 
title I, Sec. 103(a)(11)(A), Apr. 1, 1980, 94 Stat. 212; Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendments 
made by this section [enacting this section, amending sections 316, 381, 
852, 857, 6422, 6503, 6515, and 6697 of this title, repealing section 
859 of this title, and redesignating prior section 860 as 859 of this 
title] shall apply with respect to determinations (as defined in section 
860(e) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) 
after the date of the enactment of this Act [Nov. 6, 1978].''

                  Section Referred to in Other Sections

    This section is referred to in sections 316, 381, 852, 857, 4981, 
4982, 6422, 6503, 6515, 6697 of this title.
