SEC. 218 (redesignated 1964)—Continued Applicability: Taxable years ending after December 31, 1963. CH. 1, SUBCH. B, PART VIII-SPECIAL DEDUCTIONS FOR NOTE: The table of sections for Part VIII of Subchapter B of Chapter 1 reads as follows (68A Stat. 72): "Sec. 241. Allowance of special deductions. "Sec. 242. Partially tax-exempt interest. "Sec. 243. Dividends received by corporations. "Sec. 244. Dividends received on certain preferred stock. "Sec. 245. Dividends received from certain foreign corporations. "Sec. 247. Dividends paid on certain preferred stock of public utilities. This table has not been amended. SEC. 242. PARTIALLY TAX-EXEMPT INTEREST (68A Stat. 72–73): Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 123(c), 78 Stat. 30: (sen'ce added) 71 Amended Sec. 242(a) " by adding at the end thereof the following new sentence: "No deduction shall be allowed under this section for purposes of any surtax imposed by this subtitle." SEC. 243. DIVIDENDS RECEIVED BY CORPORATIONS (68A Stat. 73): (a). (in part) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 57(b) (1), 72 Stat. 1645: "In the case of a corporation" and inserting in lieu thereof― "In the case of a corporation (other than a small business investment company operating under the Small Business Investment Act of 1958)". 71 Section 242 originally read as follows (68A Stat. 72–73): "SEC. 242. PARTIALLY TAX-EXEMPT INTEREST. "(a) ALLOWANCE OF DEDUCTION.-There shall be allowed to a corporation as a deduction the amount received as interest on obligations of the United States or on obligations of corporations organized under Act of Congress which are instrumentalities of the United States, but only if— "(1) such interest is included in gross income; and "(2) such interest is exempt from normal tax under the Act authorizing the issuance of such obligations. "(b) CROSS REFERENCE. "For reduction of deduction under subsection (a) on account of amortizable bond premium, see section 171.” 72 Section 243 originally read as follows (68A Stat. 73): "SEC. 243 DIVIDENDS RECEIVED BY CORPORATIONS. “(a) GENERAL RULE.—In the case of a corporation, there shall be allowed as a deduction an amount equal to 85 percent of the amount received as dividends (other than dividends described in paragraph (1) of section 244, relating to dividends on the preferred stock of a public utility) from a domestic corporation which is subject to taxation under this chapter. "(b) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS. For purposes of subsection (a) "(1) Any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.) shall not be treated as a dividend. "(2) A dividend received from a regulated investment company shall be subject to the limitations prescribed in section 854." SEC. 243-Continued (a) (amended 1958)-Continued (b)____ added) (c)... (in part) Applicability: Taxable years beginning after the date of enactment (September 2, 1958). (Id., § 57(d), 72 Stat. 1646.) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 57(b) (2), 72 Stat. 1645: Amended Sec. 243 by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection (b): "(b) SMALL BUSINESS INVESTMENT COMPANIES.-In the case of a small business investment company operating under the Small Business Investment Act of 1958, there shall be allowed as a deduction an amount equal to 100 percent of the amount received as dividends (other than dividends described in paragraph (1) of section 244, relating to dividends on preferred stock of a public utility) from a domestic corporation which is subject to taxation under this chapter." Applicability: Taxable years beginning after September 2, 1958-the date of enactment. (Id., § 57 (d), 72 Stat. 1646.) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 57(b) (3), 72 Stat. 1646: Amended Sec. 243 (c) (former subsection (b) redesignated by P.L. 85-866, § 57(b) (2)) by striking out "subsection (a)" and inserting in lieu thereof "subsections (a) and (b)". Applicability: Taxable years beginning after September 2, 1958-the date of enactment. (Id., § 57(d), 72 Stat. 1646.) (c)(3)...------ Sept. 14, 1960, H.R. 10960, P.L. 86-779, § 10(g), 74 Stat. 1009: (added) (d). Amended Sec. 243 (c) (as redesignated by P.L. 85-866, § 57(b) (2) and amended by P.L. 85-866, § 57(b) (3)) by adding at the end thereof, after paragraph (2), the following new paragraph (3): "(3) Any dividend received from 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 (sec. 856 and following) shall not be treated as a dividend." Applicability: Taxable years of real estate investment trusts beginning after December 31, 1960. (Id., § 10(k), 74 Stat. 1009.) Sept. 14, 1960, H.R. 10960, P.L. 86-779, § 3(a), 74 Stat. 998: Amended Sec. 243 by adding after subsection (c) (as amended) the following new subsection (d): "(d) CERTAIN DIVIDENDS FROM FOREIGN CORPORATIONS.-For purposes of subsections (a) and (b) of this section and for purposes of section 245, any dividend from a foreign corporation from earnings and profits accumulated by a domestic corporation during a period with respect to which such domestic corporation was subject to taxation under this chapter (or corresponding provisions of prior law) shall be treated as a dividend from a domestic corporation which is subject to taxation under this chapter." SEC. 243-Continued (d) (added 1960)—Continued Applicability: Dividends received after December 31, 1959, in taxable years ending after such date. (Id., § 3(c), 74 Stat. 998.) Revised... Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 214(a), 78 Stat. 52-55: Amended Sec. 243 (as amended by P.L. 85-866 and by P.L. 86-779) to read as follows: "SEC. 243. DIVIDENDS RECEIVED BY CORPORATIONS. "(a) GENERAL RULE.-In the case of a corporation, there shall be allowed as a deduction an amount equal to the following percentages of the amount received as dividends from a domestic corporation which is subject to taxation under this chapter: "(1) 85 percent, in the case of dividends other than dividends described in paragraph (2) or (3); "(2) 100 percent, in the case of dividends received by a small business investment company operating under the Small Business Investment Act of 1958; and "(3) 100 percent, in the case of qualifying dividends (as defined in subsection (b)(1)). "(b) QUALIFYING DIVIDENDS.— the "(1) DEFINITION. For purposes of subsection (a)(3), term 'qualifying dividends' means dividends received by a corporation which, at the close of the day the dividends are received, is a member of the same affiliated group of corporations (as defined in paragraph (5)) as the corporation distributing the dividends, if "(A) such affiliated group has made an election under paragraph (2) which is effective for the taxable years of its members which include such day, and "(B) such dividends are distributed out of earnings and profits of a taxable year of the distributing corporation ending after December 31, 1963 "(i) on each day of which the distributing corporation and the corporation receiving the dividends were members of such affiliated group, and "(ii) for which an election under section 1562 (relating to election of multiple surtax exemptions) is not effective. "(2) ELECTION.-An election under this paragraph shall be made for an affiliated group by the common parent corporation, and shall be made for any taxable year of the common parent corporation at such time and in such manner as the Secretary or his delegate by regulations prescribes. Such election may not be made for an affiliated group for any taxable year of the common parent corporation for which an election under section 1562 is effective. Each corporation which is a member of such group at any time during its taxable year which includes the last day of such taxable year of the common parent corporation must consent to such election at such time and in such manner as the Secretary or his delegate by regulations prescribes. An election under this paragraph shall be effective "(A) for the taxable year of each member of such affiliated group which includes the last day of the taxable year of the common parent corporation with respect to which the election is made (except that in the case of a taxable year of a member beginning in 1963 and ending in 1964, if the elec SEC. 243 (revised 1964)-Continued tion is effective for the taxable year of the common parent corporation which includes the last day of such taxable year of such member, such election shall be effective for such taxable year of such member, if such member consents to such election with respect to such taxable year), and "(B) for the taxable year of each member of such affiliated group which ends after the last day of such taxable year of the common parent corporation but which does not include such date, unless the election is terminated under paragraph (4). "(3) EFFECT OF ELECTION.-If an election by an affiliated group is effective with respect to a taxable year of the common parent corporation, then under regulations prescribed by the Secretary or his delegate "(A) no member of such affiliated group may consent to an election under section 1562 for such taxable year, "(B) the members of such affiliated group shall be treated as one taxpayer for purposes of making the elections under section 901(a) (relating to allowance of foreign tax credit) and section 904(b)(1) (relating to election of overall limitation), and "(C) the members of such affiliated group shall be limited to one "(i) $100,000 minimum accumulated earnings credit under section 535(c) (2) or (3), "(ii) $100,000 limitation for exploration expenditures under section 615 (a) and (b), "(iii) $400,000 limitation for exploration expenditures under section 615(c)(1), "(iv) $25,000 limitation on small business deduction of life insurance companies under sections 804 (a) (4) and 809 (d) (10), and "(v) $100,000 exemption for purposes of estimated tax filing requirements under section 6016 and the addition to tax under section 6655 for failure to pay estimated tax. "(4) TERMINATION.-An election by an affiliated group under paragraph (2) shall terminate with respect to the taxable year of the common parent corporation and with respect to the taxable years of the members of such affiliated group which include the last day of such taxable year of the common parent corporation if "(A) CONSENT OF MEMBERS.-Such affiliated group files a termination of such election (at such time and in such manner as the Secretary or his delegate by regulations prescribes) with respect to such taxable year of the common parent corporation, and each corporation which is a member of such affiliated group at any time during its taxable year which includes the last day of such taxable year of the common parent corporation consents to such termination, or "(B) REFUSAL BY NEW MEMBER TO CONSENT.-During such taxable year of the common parent corporation such affiliated group includes a member which "(i) was not a member of such group during such common parent corporation's immediately preceding taxable year, and SEC. 243 (revised 1964)-Continued "(ii) such member files a statement that it does not consent to the election at such time and in such manner as the Secretary or his delegate by regulations prescribes. "(5) DEFINITION OF AFFILIATED GROUP.-For purposes of this subsection, the term 'affiliated group' has the meaning assigned to it by section 1504 (a), except that for such purposes sections. 1504(b)(2) and 1504(c) shall not apply. "(6) SPECIAL RULES FOR INSURANCE COMPANIES.-If an election under this subsection is effective for the taxable year of an insurance company subject to taxation under section 802 or 821— "(A) part II of subchapter B of chapter 6 (relating to certain controlled corporations) shall be applied without regard to section 1563 (a) (4) (relating to certain insurance companies) and section 1563(b)(2) (D) (relating to certain excluded members) with respect to such company and the other corporations which are members of the controlled group of corporations (as determined under section 1563 without regard to subsections (a) (4) and (b) (2) (D)) of which such company is a member, and "(B) for purposes of paragraph (1), a distribution by such company out of earnings and profits of a taxable year for which an election under this subsection was not effective, and for which such company was not a component member of a controlled group of corporations within the meaning of section 1563 solely by reason of section 1563 (b) (2) (D), shall not be a qualifying dividend. "(c) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS.-For purposes of subsection (a) "(1) Any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.) shall not be treated as a dividend. (2) A dividend received from a regulated investment company shall be subject to the limitations prescribed in section 854. "(3) Any dividend received from 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) shall not be treated as a dividend. "(4) Any dividend received which is described in section 241 (relating to dividends received on preferred stock of a public utility) shall not be treated as a dividend. "(d) CERTAIN DIVIDENDS FROM FOREIGN CORPORATIONS.-For purposes of subsection (a) and for purposes of section 245, any dividend from a foreign corporation from earnings and profits accumulated by a domestic corporation during a period with respect to which such domestic corporation was subject to taxation under this chapter (or corresponding provisions of prior law) shall be treated as a dividend from a domestic corporation which is subject to taxation under this chapter." Applicability: Dividends received in taxable years ending after December 31, 1963. (Id., § 214 (c), 78 Stat. 55.) |