{"identifier":"/us/usc/t26/s246A","title":26,"num":"\u00a7\u202f246A.","heading":"Dividends received deduction reduced where portfolio stock is debt financed","text":"\u00a7\u202f246A.\nDividends received deduction reduced where portfolio stock is debt financed\n(a)\nGeneral rule\nIn the case of any dividend on debt-financed portfolio stock, there shall be substituted for the percentage which (but for this subsection) would be used in determining the amount of the deduction allowable under section 243 or 245(a) a percentage equal to the product of\u2014\n(1) 50 percent (65 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2)), and\n(2) 100 percent minus the average indebtedness percentage.\n(b)\nSection not to apply to dividends for which 100 percent dividends received deduction allowable\nSubsection (a) shall not apply to\u2014\n(1) qualifying dividends (as defined in section 243(b)), and\n(2) dividends received by a small business investment company operating under the Small Business Investment Act of 1958.\n(c)\nDebt financed portfolio stock\nFor purposes of this section\u2014\n(1)\nIn general\nThe term \u201cdebt financed portfolio stock\u201d means any portfolio stock if at some time during the base period there is portfolio indebtedness with respect to such stock.\n(2)\nPortfolio stock\nThe term \u201cportfolio stock\u201d means any stock of a corporation unless\u2014\n(A) as of the beginning of the ex-dividend date, the taxpayer owns stock of such corporation\u2014\n(i) possessing at least 50 percent of the total voting power of the stock of such corporation, and\n(ii) having a value equal to at least 50 percent of the total value of the stock of such corporation, or\n(B) as of the beginning of the ex-dividend date\u2014\n(i) the taxpayer owns stock of such corporation which would meet the requirements of subparagraph (A) if \u201c20 percent\u201d were substituted for \u201c50 percent\u201d each place it appears in such subparagraph, and\n(ii) stock meeting the requirements of subparagraph (A) is owned by 5 or fewer corporate shareholders.\n(3)\nSpecial rule for stock in a bank or bank holding company\n(A)\nIn general\nIf, as of the beginning of the ex-dividend date, the taxpayer owns stock of any bank or bank holding company having a value equal to at least 80 percent of the total value of the stock of such bank or bank holding company, for purposes of paragraph (2)(A)(i), the taxpayer shall be treated as owning any stock of such bank or bank holding company which the taxpayer has an option to acquire.\n(B)\nDefinitions\nFor purposes of subparagraph (A)\u2014\n(i)\nBank\nThe term \u201cbank\u201d has the meaning given such term by section 581.\n(ii)\nBank holding company\nThe term \u201cbank holding company\u201d means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).\n(4)\nTreatment of certain preferred stock\nFor purposes of determining whether the requirements of subparagraph (A) or (B) of paragraph (2) or of subparagraph (A) of paragraph (3) are met, stock described in section 1504(a)(4) shall not be taken into account.\n(d)\nAverage indebtedness percentage\nFor purposes of this section\u2014\n(1)\nIn general\nExcept as provided in paragraph (2), the term \u201caverage indebtedness percentage\u201d means the percentage obtained by dividing\u2014\n(A) the average amount (determined under regulations prescribed by the Secretary) of the portfolio indebtedness with respect to the stock during the base period, by\n(B) the average amount (determined under regulations prescribed by the Secretary) of the adjusted basis of the stock during the base period.\n(2)\nSpecial rule where stock not held throughout base period\nIn the case of any stock which was not held by the taxpayer throughout the base period, paragraph (1) shall be applied as if the base period consisted only of that portion of the base period during which the stock was held by the taxpayer.\n(3)\nPortfolio indebtedness\n(A)\nIn general\nThe term \u201cportfolio indebtedness\u201d means any indebtedness directly attributable to investment in the portfolio stock.\n(B)\nCertain amounts received from short sale treated as indebtedness\nFor purposes of subparagraph (A), any amount received from a short sale shall be treated as indebtedness for the period beginning on the day on which such amount is received and ending on the day the short sale is closed.\n(4)\nBase period\nThe term \u201cbase period\u201d means, with respect to any dividend, the shorter of\u2014\n(A) the period beginning on the ex-dividend date for the most recent previous dividend on the stock and ending on the day before the ex-dividend date for the dividend involved, or\n(B) the 1-year period ending on the day before the ex-dividend date for the dividend involved.\n(e)\nReduction in dividends received deduction not to exceed allocable interest\nUnder regulations prescribed by the Secretary, any reduction under this section in the amount allowable as a deduction under section 243 or 245 with respect to any dividend shall not exceed the amount of any interest deduction (including any deductible short sale expense) allocable to such dividend.\n(f)\nRegulations\nThe regulations prescribed for purposes of this section under section 7701(f) shall include regulations providing for the disallowance of interest deductions or other appropriate treatment (in lieu of reducing the dividend received deduction) where the obligor of the indebtedness is a person other than the person receiving the dividend.","url":"https://projectusc.org/usc/t26/s246A.html","content":[{"t":"sec","id":"/us/usc/t26/s246A","children":[{"t":"num","text":"\u00a7\u202f246A."},{"t":"heading","text":"Dividends received deduction reduced where portfolio stock is debt financed"},{"t":"subsec","id":"/us/usc/t26/s246A/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"General rule"},{"t":"chapeau","text":"In the case of any dividend on debt-financed portfolio stock, there shall be substituted for the percentage which (but for this subsection) would be used in determining the amount of the deduction allowable under section 243 or 245(a) a percentage equal to the product of\u2014"},{"t":"para","id":"/us/usc/t26/s246A/a/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" 50 percent (65 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2)), and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/a/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" 100 percent minus the average indebtedness percentage.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s246A/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Section not to apply to dividends for which 100 percent dividends received deduction allowable"},{"t":"chapeau","text":"Subsection (a) shall not apply to\u2014"},{"t":"para","id":"/us/usc/t26/s246A/b/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" qualifying dividends (as defined in section 243(b)), and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/b/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" dividends received by a small business investment company operating under the Small Business Investment Act of 1958.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s246A/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Debt financed portfolio stock"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s246A/c/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"The term \u201cdebt financed portfolio stock\u201d means any portfolio stock if at some time during the base period there is portfolio indebtedness with respect to such stock.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/c/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Portfolio stock"},{"t":"chapeau","text":"The term \u201cportfolio stock\u201d means any stock of a corporation unless\u2014"},{"t":"subpara","id":"/us/usc/t26/s246A/c/2/A","children":[{"t":"num","text":"(A)"},{"t":"chapeau","text":" as of the beginning of the ex-dividend date, the taxpayer owns stock of such corporation\u2014"},{"t":"clause","id":"/us/usc/t26/s246A/c/2/A/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" possessing at least 50 percent of the total voting power of the stock of such corporation, and","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s246A/c/2/A/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" having a value equal to at least 50 percent of the total value of the stock of such corporation, or","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s246A/c/2/B","children":[{"t":"num","text":"(B)"},{"t":"chapeau","text":" as of the beginning of the ex-dividend date\u2014"},{"t":"clause","id":"/us/usc/t26/s246A/c/2/B/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" the taxpayer owns stock of such corporation which would meet the requirements of subparagraph (A) if \u201c20 percent\u201d were substituted for \u201c50 percent\u201d each place it appears in such subparagraph, and","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s246A/c/2/B/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" stock meeting the requirements of subparagraph (A) is owned by 5 or fewer corporate shareholders.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/c/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Special rule for stock in a bank or bank holding company"},{"t":"subpara","id":"/us/usc/t26/s246A/c/3/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"If, as of the beginning of the ex-dividend date, the taxpayer owns stock of any bank or bank holding company having a value equal to at least 80 percent of the total value of the stock of such bank or bank holding company, for purposes of paragraph (2)(A)(i), the taxpayer shall be treated as owning any stock of such bank or bank holding company which the taxpayer has an option to acquire.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s246A/c/3/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Definitions"},{"t":"chapeau","text":"For purposes of subparagraph (A)\u2014"},{"t":"clause","id":"/us/usc/t26/s246A/c/3/B/i","children":[{"t":"num","text":"(i)"},{"t":"heading","text":"Bank"},{"t":"content","children":[{"t":"p","text":"The term \u201cbank\u201d has the meaning given such term by section 581.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s246A/c/3/B/ii","children":[{"t":"num","text":"(ii)"},{"t":"heading","text":"Bank holding company"},{"t":"content","children":[{"t":"p","text":"The term \u201cbank holding company\u201d means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/c/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Treatment of certain preferred stock"},{"t":"content","children":[{"t":"p","text":"For purposes of determining whether the requirements of subparagraph (A) or (B) of paragraph (2) or of subparagraph (A) of paragraph (3) are met, stock described in section 1504(a)(4) shall not be taken into account.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s246A/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Average indebtedness percentage"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s246A/d/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"Except as provided in paragraph (2), the term \u201caverage indebtedness percentage\u201d means the percentage obtained by dividing\u2014"},{"t":"subpara","id":"/us/usc/t26/s246A/d/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" the average amount (determined under regulations prescribed by the Secretary) of the portfolio indebtedness with respect to the stock during the base period, by","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s246A/d/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the average amount (determined under regulations prescribed by the Secretary) of the adjusted basis of the stock during the base period.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/d/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Special rule where stock not held throughout base period"},{"t":"content","children":[{"t":"p","text":"In the case of any stock which was not held by the taxpayer throughout the base period, paragraph (1) shall be applied as if the base period consisted only of that portion of the base period during which the stock was held by the taxpayer.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/d/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Portfolio indebtedness"},{"t":"subpara","id":"/us/usc/t26/s246A/d/3/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"The term \u201cportfolio indebtedness\u201d means any indebtedness directly attributable to investment in the portfolio stock.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s246A/d/3/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Certain amounts received from short sale treated as indebtedness"},{"t":"content","children":[{"t":"p","text":"For purposes of subparagraph (A), any amount received from a short sale shall be treated as indebtedness for the period beginning on the day on which such amount is received and ending on the day the short sale is closed.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s246A/d/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Base period"},{"t":"chapeau","text":"The term \u201cbase period\u201d means, with respect to any dividend, the shorter of\u2014"},{"t":"subpara","id":"/us/usc/t26/s246A/d/4/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" the period beginning on the ex-dividend date for the most recent previous dividend on the stock and ending on the day before the ex-dividend date for the dividend involved, or","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s246A/d/4/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the 1-year period ending on the day before the ex-dividend date for the dividend involved.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s246A/e","children":[{"t":"num","text":"(e)"},{"t":"heading","text":"Reduction in dividends received deduction not to exceed allocable interest"},{"t":"content","children":[{"t":"p","text":"Under regulations prescribed by the Secretary, any reduction under this section in the amount allowable as a deduction under section 243 or 245 with respect to any dividend shall not exceed the amount of any interest deduction (including any deductible short sale expense) allocable to such dividend.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s246A/f","children":[{"t":"num","text":"(f)"},{"t":"heading","text":"Regulations"},{"t":"content","children":[{"t":"p","text":"The regulations prescribed for purposes of this section under section 7701(f) shall include regulations providing for the disallowance of interest deductions or other appropriate treatment (in lieu of reducing the dividend received deduction) where the obligor of the indebtedness is a person other than the person receiving the dividend.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}