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119th Congress

Title 26 — Internal Revenue Code

Part IV · Chapter 1 — Normal Taxes and Surtaxes

§ 1059. Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

Statutory text

(a)

General rule

If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—

(1)

Reduction in basis

The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends.

(2)

Amounts in excess of basis

If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received.

(b)

Nontaxed portion

For purposes of this section—

(1)

In general

The nontaxed portion of any dividend is the excess (if any) of—

(A)

the amount of such dividend, over

(B)

the taxable portion of such dividend.

(2)

Taxable portion

The taxable portion of any dividend is—

(A)

the portion of such dividend includible in gross income, reduced by

(B)

the amount of any deduction allowable with respect to such dividend under section 243 1 245, or 245A.

(c)

Extraordinary dividend defined

For purposes of this section—

(1)

In general

The term “extraordinary dividend” means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer’s adjusted basis in such share of stock.

(2)

Threshold percentage

The term “threshold percentage” means—

(A)

5 percent in the case of stock which is preferred as to dividends, and

(B)

10 percent in the case of any other stock.

(3)

Aggregation of dividends

(A)

Aggregation within 85-day period

All dividends—

(i)

which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and

(ii)

which have ex-dividend dates within the same period of 85 consecutive days,

shall be treated as 1 dividend.

(B)

Aggregation within 1 year where dividends exceed 20 percent of adjusted basis

All dividends—

(i)

which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and

(ii)

which have ex-dividend dates during the same period of 365 consecutive days,

shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer’s adjusted basis in such stock (determined without regard to this section).

(C)

Substituted basis transactions

In the case of any stock, a person is described in this subparagraph if—

(i)

the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or

(ii)

the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person.

(4)

Fair market value determination

If the taxpayer establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer’s adjusted basis.

(d)

Special rules

For purposes of this section—

(1)

Time for reduction

Any reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates.

(2)

Distributions in kind

To the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2).

(3)

Determination of holding period

For purposes of determining the holding period of stock under subsection (a), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.

(4)

Ex-dividend date

The term “ex-dividend date” means the date on which the share of stock becomes ex-dividend.

(5)

Dividend announcement date

The term “dividend announcement date” means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the amount or payment of such dividend, whichever is the earliest.

(6)

Exception where stock held during entire existence of corporation

(A)

In general

Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—

(i)

such stock was held by the taxpayer during the entire period such corporation was in existence, and

(ii)

except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation.

(B)

Qualified corporation

For purposes of subparagraph (A), the term “qualified corporation” means any corporation (including a predecessor corporation)—

(i)

with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation’s existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and

(ii)

which has no earnings and profits—

(I)

which were earned by, or

(II)

which are attributable to gain on property which accrued during a period the corporation holding the property was,

 a corporation not described in clause (i).

(C)

Application of paragraph

This paragraph shall not apply to any extraordinary dividend to the extent such application is inconsistent with the purposes of this section.

(e)

Special rules for certain distributions

(1)

Treatment of partial liquidations and certain redemptions

Except as otherwise provided in regulations—

(A)

Redemptions

In the case of any redemption of stock—

(i)

which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation,

(ii)

which is not pro rata as to all shareholders, or

(iii)

which would not have been treated (in whole or in part) as a dividend if—

(I)

any options had not been taken into account under section 318(a)(4), or

(II)

section 304(a) had not applied,

any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a).

(B)

Reorganizations, etc.

An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A).

(2)

Qualifying dividends

(A)

In general

Except as provided in regulations, the term “extraordinary dividend” does not include any qualifying dividend (within the meaning of section 243).

(B)

Exception

Subparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which—

(i)

were earned by a corporation during a period it was not a member of the affiliated group, or

(ii)

are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group.

(3)

Qualified preferred dividends

(A)

In general

In the case of 1 or more qualified preferred dividends with respect to any share of stock—

(i)

this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and

(ii)

if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of—

(I)

the qualified preferred dividends paid with respect to such stock during the period the taxpayer held such stock, over

(II)

the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return.

(B)

Rate of return

For purposes of this paragraph—

(i)

Actual rate of return

The actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined—

(I)

by only taking into account dividends during such period, and

(II)

by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock.

(ii)

Stated rate of return

The stated rate of return shall be the annual rate of the qualified preferred dividend payable with respect to any share of stock (expressed as a percentage of the amount described in clause (i)(II)).

(C)

Definitions and special rules

For purposes of this paragraph—

(i)

Qualified preferred dividend

The term “qualified preferred dividend” means any fixed dividend payable with respect to any share of stock which—

(I)

provides for fixed preferred dividends payable not less frequently than annually, and

(II)

is not in arrears as to dividends at the time the taxpayer acquires the stock.

 Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.

(ii)

Holding period

In determining the holding period for purposes of subparagraph (A)(ii), subsection (d)(3) shall be applied by substituting “5 years” for “2 years”.

(f)

Treatment of dividends on certain preferred stock

(1)

In general

Any dividend with respect to disqualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held the stock.

(2)

Disqualified preferred stock

For purposes of this subsection, the term “disqualified preferred stock” means any stock which is preferred as to dividends if—

(A)

when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future,

(B)

the issue price of such stock exceeds its liquidation rights or its stated redemption price, or

(C)

such stock is otherwise structured—

(i)

to avoid the other provisions of this section, and

(ii)

to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.

(g)

Regulations

The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations—

(1)

providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions, in the case of stock held by pass-thru entities, and in the case of consolidated groups, and

(2)

providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.

Footnotes

  1. 1 So in original. Probably should be followed by a comma.

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

  1. Tax Reform Act of 1984

    Pub. L. 98–369 div. A title I § 53(a) · 98 Stat. 494

    Enacted · 26 U.S.C. § 1059

    Added Pub. L. 98–369, div. A, title I, § 53(a), July 18, 1984, 98 Stat. 565

    Source evidence

    Code source credit
    Added Pub. L. 98–369, div. A, title I, § 53(a), July 18, 1984, 98 Stat. 565

    Enacted provision · exact public law section
    (a) General Rule.— Part IV of subchapter O of chapter 1 (relating to special rules for gain or loss on disposition of property) is amended by redesignating section 1059 as section 1060 and by 26 USC 1060. inserting after section 1058 the following new section: “SEC. 1059. CORPORATE SHAREHOLDER’S BASIS IN STOCK REDUCED BY NONTAXED PORTION OF EXTRAORDINARY DIVIDENDS. “(a) General Rule.— If any corporation— “(1) receives an extraordinary dividend with respect to any share of stock, and “(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year, the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock. “(b) Nontaxed Portion.— For purposes of this section— “(1) In general.— The nontaxed portion of any dividend is the excess (if any) of— “(A) the amount of such dividend, over “(B) the taxable portion of such dividend. “(2) Taxable portion.— The taxable portion of any dividend is— “(A) the portion of such dividend includible in gross income, reduced by “(B) the amount of any deduction allowable with respect to such dividend under section 243, 244, or 245. “(c) Extraordinary Dividend Defined.— For purposes of this section— “(1) In general.— The term ‘extraordinary dividend’ means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer’s adjusted basis in such share of stock (determined without regard to this section). “(2) Threshold percentage.— The term ‘threshold percentage’ means— “(A) 5 percent in the case of stock which is preferred as to dividends, and “(B) 10 percent in the case of any other stock. “(3) Aggregation of dividends.— “(A) Aggregation within 85-day period.— All dividends— “(i) which are received by the taxpayer (or a person described in subparagraph (O) with respect to any share of stock, and “(ii) which have ex-dividend dates within the same period of 85 consecutive days, shall be treated as 1 dividend. “(B) Aggregation within i year where dividends exceed 20 percent of adjusted basis.— All dividends— “(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and “(ii) which have ex-dividend dates during the same period of 365 consecutive days, shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer’s adjusted basis in such stock (determined without regard to this section). “(C) Substituted basis transactions.— In the case of any stock, a person is described in this subparagraph if— “(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or “(ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person. “(d) Special Rules.— For purposes of this section— “(1) Time for reduction.— Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution. “(2) Distributions in kind.— To the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2). “(3) Determination of holding period.— For purposes of determining the holding period of stock under subsection (a)(2), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply; except that ‘1 year’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3). “(4) Ex-dividend date.— The term ‘ex-dividend date’ means the date on which the share of stock becomes ex-dividend. “(5) Extension to certain property distributions.— In the case of any distribution of property (other than cash) to which section 301 applies— “(A) such distribution shall be treated as a dividend without regard to whether the corporation has earnings and profits, and “(B) the amount so treated shall be reduced by the amount of any reduction in basis under section 301(c)(2) by reason of such distribution. “(e) Regulations.— The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions.”

  2. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(a)(1) · 100 Stat. 2085

    Amended · 26 U.S.C. § 1059(a)

    Pub. L. 99–514, § 614(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “If any corporation—

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 99–514, § 614(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “If any corporation—

    “(1) receives an extraordinary dividend with respect to any share of stock, and “(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year, the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock.”

    Enacted provision · exact public law section
    (1) In general.— Section 1059(a) (relating to corporate share-holder’s basis in stock reduced by nontaxed portion of extraordinary dividends) is amended to read as follows: “(a) General Rule.— If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date— “(1) Reduction in basis.— The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends. “(2) Recognition upon sale or disposition in certain cases.— In addition to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs tm amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero.”

  3. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(c)(2) · 100 Stat. 2085

    Struck · 26 U.S.C. § 1059(c)(1)

    Pub. L. 99–514, § 614(c)(2), struck out “(determined without regard to this section)” after “such share of stock”

    Source evidence

    Code amendment note
    Subsec. (c)(1). Pub. L. 99–514, § 614(c)(2), struck out “(determined without regard to this section)” after “such share of stock”.

    Enacted provision · exact public law section
    (2) Conforming amendment.— Section 1059(c)(1) is amended by striking out “(determined without regard to this section)”.

  4. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(b) · 100 Stat. 2085

    Added · 26 U.S.C. § 1059(c)(4)

    Pub. L. 99–514, § 614(b), added par. (4)

    Source evidence

    Code amendment note
    Subsec. (c)(4). Pub. L. 99–514, § 614(b), added par. (4).

    Enacted provision · exact public law section
    (b) Extraordinary Dividend May Be Determined by Reference to Fair Market Value.— Section 1059(c) (defining extraordinary dividend) is amended by adding at the end thereof the following new paragraph: “(4) Fair market value determination.— If the taxpayer establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer’s adjusted basis.”

  5. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(c)(1) · 100 Stat. 2085

    Amended · 26 U.S.C. § 1059(d)(1)

    Pub. L. 99–514, § 614(c)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution.”

    Source evidence

    Code amendment note
    Subsec. (d)(1). Pub. L. 99–514, § 614(c)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution.”

    Enacted provision · exact public law section
    (1) In general.— Paragraph (1) of section 1059(d) (relating to time for reduction) is amended to read as follows: “(1) Time for reduction.— “(A) In general.— Except as provided in subparagraph (B), any reduction in basis under subsection (a)(1) shall occur immediately before any sale or disposition of the stock. “(B) Special rule for computing extraordinary dividend.— In determining a taxpayer’s adjusted basis for purposes of subsection (c)(D, any reduction in basis under subsection (a)(1) by reason of a prior distribution which was an extraordinary dividend shall be treated as occurring at the beginning of the ex-dividend date for such distribution.”

  6. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(a)(3) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 1059(d)(3)

    Pub. L. 99–514, § 614(a)(3), substituted “2 years” for “1 year”

    Source evidence

    Code amendment note
    Subsec. (d)(3). Pub. L. 99–514, § 614(a)(3), substituted “2 years” for “1 year”.

    Enacted provision · exact public law section
    (3) Conforming Amendment.— Section 1059(d)(3) (relating to determination of holding period) is amended by striking out “1 year” and inserting in lieu t hereof “2 years”.

  7. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(a)(2) · 100 Stat. 2085

    Added · 26 U.S.C. § 1059(d)(6)

    Pub. L. 99–514, § 614(a)(2), added par. (6)

    Source evidence

    Code amendment note
    Subsec. (d)(6). Pub. L. 99–514, § 614(a)(2), added par. (6).

    Enacted provision · exact public law section
    (2) Dividend announcement date.— Section 1059(d) (relating to special rules) is amended by adding at the end thereof the following new paragraph: “(6) Dividend announcement date.— The term ‘dividend announcement date’ means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the payment of such dividend, whichever is the earliest.”

  8. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(d) · 100 Stat. 2085

    Added · 26 U.S.C. § 1059(d)(7)

    Pub. L. 99–514, § 614(d), added par. (7)

    Source evidence

    Code amendment note
    Subsec. (d)(7). Pub. L. 99–514, § 614(d), added par. (7).

    Enacted provision · exact public law section
    (d) No Extraordinary Dividend Where Stock Held During Entire Existence of Corporation.— Section 1059(d) (relating to special rules) is amended by adding at the end thereof the following new paragraph: “(7) Exception where stock held during entire existence of corporation.— Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if— “(A) such stock was held by the taxpayer during the entire period such corporation (and any precedessor corporation) was in existence, “(B) except as provided in regulations, the only earnings and profits of such corporation were earnings and profits accumulated by such corporation (or any predecessor corporation) during such period, and “(C) the application of this paragraph to such dividend is not inconsistent with the purposes of this section.”

  9. Tax Reform Act of 1986

    Pub. L. 99–514 § 614(e) · 100 Stat. 2085

    1. Added · 26 U.S.C. § 1059(e); 26 U.S.C. § 1059(f)

      Pub. L. 99–514, § 614(e), added subsec. (e)

    2. Redesignated · 26 U.S.C. § 1059(e); 26 U.S.C. § 1059(f)

      Pub. L. 99–514, § 614(e), redesignated former subsec. (e) as (f)

    Source evidence

    Code amendment note
    Subsecs. (e), (f). Pub. L. 99–514, § 614(e), added subsec. (e) and redesignated former subsec. (e) as (f).

    Enacted provision · exact public law section
    (e) Certain Liquidations and Redemptions Treated As Extraordinary Dividends; Qualifying Dividends Not Treated as Extraordinary Dividends; Special Rule for Preferred Dividends.— Section 1059 (relating to extraordinary dividends) is amended by redesignating subsection (e) as subsection (f) and by adding after subsection (d) the following new subsection: “(e) Special Rules for Certain Distributions.— “(1) Treatment of partial liquidations and non-pro rata redemptions.—Except as otherwise provided in regulations, in the case of any redemption of stock which is— “(A) part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, or “(B) not pro rata as to all shareholders, any amount treated as a dividend under section 301 with respect to such redemption shall be treated as an extraordinary dividend for purposes of this section (without regard to the holding period of the stock). “(2) Qualifying dividends.— Except as provided in regulations. the term ‘extraordinary dividend’ shall not include any qualifying dividend (within the meaning of section 243(b)(1)). “(3) Qualified preferred dividends.— “(A) In general.— A qualified preferred dividend shall be treated as an extraordinary dividend— “(i) only if the actual rate of return of the taxpayer on the stock with respect to which such dividend was paid exceeds 15 percent, or “(ii) if clause (i) does not apply, and the taxpayer disposes of such stock before the taxpayer has held such stock for more than 5 years, only to the extent the actual rate of return exceeds the stated rate of return. “(B) Rate of return.— For purposes of subparagraph (A)— “(i) Actual rate of return.— The actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined— “(I) by only taking into account dividends during such period, and “(II) by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock. “(ii) Stated rate of return.— The stated rate of return shall be the annual rate of the qualified preferred dividend payable with respect to any share of stock (expressed as a percentage of the amount described in subparagraph (B)(i)(II)). “(C) Definitions and special rules.— For purposes of this paragraph— “(i) Qualified preferred dividend.— The term ‘qualified preferred dividend’ means any dividend payable with respect to any share of stock which— “(I) provides for fixed preferred dividends pay-able not less frequently than annually, and “(II) is not in arrears as to dividends at the time the taxpayer acquires the stock. “(ii) Holding period.— In determining the holding period for purposes of subparagraph (A)(ii), subsection (d)(3) shall be applied by substituting ‘5 years’ for ’2 years’.”

  10. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(2) · 102 Stat. 3342

    Inserted · 26 U.S.C. § 1059(d)(5)

    Pub. L. 100–647, § 1006(c)(2), inserted “amount or” after “agrees to the”

    Source evidence

    Code amendment note
    Subsec. (d)(5). Pub. L. 100–647, § 1006(c)(2), inserted “amount or” after “agrees to the”.

    Enacted provision · exact public law section
    (2) Section 1059(d)(5) of the 1986 Code (defining dividend announcement date), as redesignated by paragraph (1), is amended by inserting “amount or” before “payment”.

  11. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(1) · 102 Stat. 3342

    1. Redesignated · 26 U.S.C. § 1059(d)(5)

      Pub. L. 100–647, § 1006(c)(1), redesignated par. (6) as (5)

    2. Struck · 26 U.S.C. § 1059(d)(5)

      Pub. L. 100–647, § 1006(c)(1), struck out former par. (5) which related to extension to certain property distributions

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 100–647, § 1006(c)(1), redesignated par. (6) as (5) and struck out former par. (5) which related to extension to certain property distributions.

    Enacted provision · exact public law section
    (1) Section 1059(d) of the 1986 Code (relating to extension to certain property distributions) is amended by striking out para-graph (5) and redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.

  12. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(3) · 102 Stat. 3342

    Amended · 26 U.S.C. § 1059(d)(6)

    Pub. L. 100–647, § 1006(c)(3), amended par. (6) generally. Prior to amendment, par. (6) read as follows: “Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—

    Source evidence

    Code amendment note
    Subsec. (d)(6). Pub. L. 100–647, § 1006(c)(3), amended par. (6) generally. Prior to amendment, par. (6) read as follows: “Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—

    “(A) such stock was held by the taxpayer during the entire period such corporation (and any precedessor [sic] corporation) was in existence, “(B) except as provided in regulations, the only earnings and profits of such corporation were earnings and profits accumulated by such corporation (or any predecessor corporation) during such period, and “(C) the application of this paragraph to such dividend is not inconsistent with the purposes of this section.”

    Enacted provision · exact public law section
    (3) Section 1059(d)(6) of the 1986 Code (relating to exception where stock held during entire existence of corporation), as redesignated by paragraph (1), is amended to read as follows: “(6) Exception where stock held during entire existence of corporation.— “(A) In general.— Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if— “(i) such stock was held by the taxpayer during the entire period such corporation was in existence, and “(ii) except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation. “(B) Qualified corporation.— For purposes of subparagraph (A), the term ‘qualified corporation’ means any corporation (including a predecessor corporation)— “(i) with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation’s existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and “(ii) which has no earnings and profits— “(I) which were earned by, or “(II) which are attributable to gain on property which accrued during a period the corporation holding the property was, a corporation not described in clause (i). “(C) Appucation of paragraph— This paragraph shall not apply to any extraordinary dividend to the extent such application is inconsistent with the purposes of this section.”

  13. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(1) · 102 Stat. 3342

    Redesignated · 26 U.S.C. § 1059(d)(6)

    Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6). Former par. (6) redesignated (5)

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6). Former par. (6) redesignated (5).

    Enacted provision · exact public law section
    (1) Section 1059(d) of the 1986 Code (relating to extension to certain property distributions) is amended by striking out para-graph (5) and redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.

  14. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(1) · 102 Stat. 3342

    Redesignated · 26 U.S.C. § 1059(d)(7)

    Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6)

    Source evidence

    Code amendment note
    Subsec. (d)(7). Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6).

    Enacted provision · exact public law section
    (1) Section 1059(d) of the 1986 Code (relating to extension to certain property distributions) is amended by striking out para-graph (5) and redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.

  15. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(4) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 1059(e)(1)

    Pub. L. 100–647, § 1006(c)(4), substituted “to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock” for “for purposes of this section (without regard to the holding period of the stock)”

    Source evidence

    Code amendment note
    Subsec. (e)(1). Pub. L. 100–647, § 1006(c)(4), substituted “to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock” for “for purposes of this section (without regard to the holding period of the stock)”.

    Enacted provision · exact public law section
    (4) Paragraph (1) of section 1059(e) of the 1986 Code (relating to treatment of partial liquidation) is amended by striking out “for purposes of this section (without regard to the holding period of the stock)” and inserting in lieu thereof: “to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock”.

  16. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(5) · 102 Stat. 3342

    Amended · 26 U.S.C. § 1059(e)(2)

    Pub. L. 100–647, § 1006(c)(5), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “Except as provided in regulations, the term ‘extraordinary dividend’ shall not include any qualifying dividend (within the meaning of section 243(b)(1)).”

    Source evidence

    Code amendment note
    Subsec. (e)(2). Pub. L. 100–647, § 1006(c)(5), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “Except as provided in regulations, the term ‘extraordinary dividend’ shall not include any qualifying dividend (within the meaning of section 243(b)(1)).”

    Enacted provision · exact public law section
    (5) Paragraph (2) of section 1059(e) of the 1986 Code (relating to qualifying dividends) is amended to read as follows: “(12) Qualifying dividends.— “(A) In general.— Except as provided in regulations, the term ‘extraordinary dividend’ does not include any qualifying dividend (within the meaning of section 243). “(B) Exception.— Subparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which— “(i) were earned by a corporation during a period it was not a member of the affiliated group, or “(ii) are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group.”

  17. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(6) · 102 Stat. 3342

    Amended · 26 U.S.C. § 1059(e)(3)(A)

    Pub. L. 100–647, § 1006(c)(6), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “A qualified preferred dividend shall be treated as an extraordinary dividend—

    Source evidence

    Code amendment note
    Subsec. (e)(3)(A). Pub. L. 100–647, § 1006(c)(6), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “A qualified preferred dividend shall be treated as an extraordinary dividend—

    “(i) only if the actual rate of return of the taxpayer on the stock with respect to which such dividend was paid exceeds 15 percent, or “(ii) if clause (i) does not apply, and the taxpayer disposes of such stock before the taxpayer has held such stock for more than 5 years, only to the extent the actual rate of return exceeds the stated rate of return.”

    Enacted provision · exact public law section
    (6) Subparagraph (A) of section 1059(e)(3) of the 1986 Code (relating to qualified preferred dividends) is amended to read as follows: “(A) In general.— In the case of 1 or more qualified preferred dividends with respect to any share of stock— “(i) this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and “(ii) if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of— “(I) the qualified preferred dividends paid with respect to such stock during the period the tax-payer held such stock, over “(II) the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return.”

  18. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(8)(A) · 102 Stat. 3342

    Struck and inserted · 26 U.S.C. § 1059(e)(3)(B)

    Pub. L. 100–647, § 1006(c)(8)(A), which directed the amendment of subpar. (B) “by striking out ‘subparagraph (A)’ and the material preceding clause (i) and inserting in lieu thereof ‘this paragraph’ ”, was executed by striking out “subparagraph (A)” in the material preceding clause (i) and inserting in lieu thereof “this paragraph”, to reflect the probable intent of Congress

    Source evidence

    Code amendment note
    Subsec. (e)(3)(B). Pub. L. 100–647, § 1006(c)(8)(A), which directed the amendment of subpar. (B) “by striking out ‘subparagraph (A)’ and the material preceding clause (i) and inserting in lieu thereof ‘this paragraph’ ”, was executed by striking out “subparagraph (A)” in the material preceding clause (i) and inserting in lieu thereof “this paragraph”, to reflect the probable intent of Congress.

    Enacted provision · exact public law section
    (A) by striking out “subparagraph (A)” and the material preceding clause (i) and inserting in lieu thereof “this paragraph”, and

  19. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(8)(B) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 1059(e)(3)(B)(ii)

    Pub. L. 100–647, § 1006(c)(8)(B), substituted “clause (i)(II)” for “subparagraph (B)(i)(II)”

    Source evidence

    Code amendment note
    Subsec. (e)(3)(B)(ii). Pub. L. 100–647, § 1006(c)(8)(B), substituted “clause (i)(II)” for “subparagraph (B)(i)(II)”.

    Enacted provision · exact public law section
    (B) by striking out “subparagraph (B)(i)(II)” in clause (ii) and inserting in lieu thereof “clause (i)(II)”.

  20. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(7) · 102 Stat. 3342

    1. Inserted · 26 U.S.C. § 1059(e)(3)(C)(i)

      Pub. L. 100–647, § 1006(c)(7), inserted “fixed” before “dividend payable” in introductory provisions

    2. Inserted · 26 U.S.C. § 1059(e)(3)(C)(i)

      Pub. L. 100–647, § 1006(c)(7), inserted at end “Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.”

    Source evidence

    Code amendment note
    Subsec. (e)(3)(C)(i). Pub. L. 100–647, § 1006(c)(7), inserted “fixed” before “dividend payable” in introductory provisions and inserted at end “Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.”

    Enacted provision · exact public law section
    (7) Clause (i) of section 1059(e)(3)(C) of the 1986 Code is amended— (A) by striking out “any dividend payable” and inserting in lieu thereof “any fixed dividend payable”, and (B) by adding at the end thereof the following new sentence: “Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.”

  21. Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1006(c)(9) · 102 Stat. 3342

    Inserted · 26 U.S.C. § 1059(f)

    Pub. L. 100–647, § 1006(c)(9), inserted “and in the case of stock held by pass-thru entities” after “other similar transactions”

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 100–647, § 1006(c)(9), inserted “and in the case of stock held by pass-thru entities” after “other similar transactions”.

    Enacted provision · exact public law section
    (9) Subsection (f) of section 1059 of the 1986 Code is amended by inserting before the period at the end thereof the following: “and in the case of stock held by pass-thru entities”.

  22. Revenue Reconciliation Act of 1989

    Pub. L. 101–239 title VII § 7206(a) · 103 Stat. 2106

    1. Added · 26 U.S.C. § 1059(f); 26 U.S.C. § 1059(g)

      Pub. L. 101–239 added subsecs. (f) and (g)

    2. Struck · 26 U.S.C. § 1059(f); 26 U.S.C. § 1059(g)

      Pub. L. 101–239 struck out former subsec. (f) which read as follows: “Regulations.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities.”

    Source evidence

    Code amendment note
    Subsecs. (f), (g). Pub. L. 101–239 added subsecs. (f) and (g) and struck out former subsec. (f) which read as follows: “Regulations.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities.”

    Enacted provision · exact public law section
    (a) General Rule.— Section 1059 (relating to corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends) is amended by striking subsection (f) and inserting the following: “(f) Treatment of Dividends on Certain Preferred Stock.— “(1) In general.— Any dividend with respect to disqualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held the stock. “(2) Disqualified preferred stock.— For purposes of this subsection, the term ‘disqualified preferred stock’ means any stock which is preferred as to dividends if— “(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future, “(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or “(C) such stock is otherwise structured— “(i) to avoid the other provisions of this section, and “(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock. “(g) Regulations.— The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations— “(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities, and “(2) providing that the rules of subsection (0 shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.”

  23. Pub. L. 105–34 § 1011(a) · 111 Stat. 788

    Amended · 26 U.S.C. § 1059(a)(2)

    Pub. L. 105–34, § 1011(a), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “In addition to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs an amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero.”

    Source evidence

    Code amendment note
    Subsec. (a)(2). Pub. L. 105–34, § 1011(a), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “In addition to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs an amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero.”

    Enacted provision · exact public law section
    (a) Treatment of Extraordinary Dividends in Excess of Basis.— Paragraph (2) of section 1059(a) (relating to corporate shareholder’s recognition of gain attributable to nontaxed portion of extraordinary dividends) is amended to read as follows: “(2) Amounts in excess of basis.— If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received.”.

  24. Pub. L. 105–34 § 1011(c) · 111 Stat. 788

    Amended · 26 U.S.C. § 1059(d)(1)

    Pub. L. 105–34, § 1011(c), amended heading and text of par. (1) generally. Prior to amendment, text read as follows:

    Source evidence

    Code amendment note
    Subsec. (d)(1). Pub. L. 105–34, § 1011(c), amended heading and text of par. (1) generally. Prior to amendment, text read as follows:

    “(A) In general.—Except as provided in subparagraph (B), any reduction in basis under subsection (a)(1) shall occur immediately before any sale or disposition of the stock. “(B) Special rule for computing extraordinary dividend.—In determining a taxpayer’s adjusted basis for purposes of subsection (c)(1), any reduction in basis under subsection (a)(1) by reason of a prior distribution which was an extraordinary dividend shall be treated as occurring at the beginning of the ex-dividend date for such distribution.”

    Enacted provision · exact public law section
    (c) Time for Reduction.— Paragraph (1) of section 1059(d) is amended to read as follows: “(1) Time for reduction.— Any reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates”.

  25. Pub. L. 105–34 § 1604(d)(1) · 111 Stat. 788

    Substituted · 26 U.S.C. § 1059(d)(3)

    Pub. L. 105–34, § 1604(d)(1), substituted “subsection (a)” for “subsection (a)(2)”

    Source evidence

    Code amendment note
    Subsec. (d)(3). Pub. L. 105–34, § 1604(d)(1), substituted “subsection (a)” for “subsection (a)(2)”.

    Enacted provision · exact public law section
    (1) Paragraph (3) of section 1059(d) is amended by striking “subsection (a)(2)” and inserting “subsection (a)”.

  26. Pub. L. 105–34 § 1011(b) · 111 Stat. 788

    Amended · 26 U.S.C. § 1059(e)(1)

    Pub. L. 105–34, § 1011(b), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Except as otherwise provided in regulations, in the case of any redemption of stock which is—

    Source evidence

    Code amendment note
    Subsec. (e)(1). Pub. L. 105–34, § 1011(b), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Except as otherwise provided in regulations, in the case of any redemption of stock which is—

    “(A) part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, or “(B) not pro rata as to all shareholders, any amount treated as a dividend under section 301 with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock.”

    Enacted provision · exact public law section
    (b) Treatment of Redemptions Where Options Involved.— Paragraph (1) of section 1059(e) (relating to treatment of partial liquidations and non-pro rata redemptions) is amended to read as follows: “(1) Treatment of partial liquidations and certain redemptions.— Except as otherwise provided in regulations— “(A) Redemptions.— In the case of any redemption of stock— “(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, “(ii) which is not pro rata as to all shareholders, or “(iii) which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4), any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a). “(B) Reorganizations, etc.— An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A).”.

  27. Pub. L. 105–34 § 1013(b) · 111 Stat. 788

    Amended · 26 U.S.C. § 1059(e)(1)(A)(iii)

    Pub. L. 105–34, § 1013(b), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4).”

    Source evidence

    Code amendment note
    Subsec. (e)(1)(A)(iii). Pub. L. 105–34, § 1013(b), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4).”

    Enacted provision · exact public law section
    (b) Coordination With Section 1059.— Clause (iii) of section 1059(e)(1)(A), as amended by this title, is amended to read as follows: “(iii) which would not have been treated (in whole or in part) as a dividend if— “(I) any options had not been taken into account under section 318(a)(4), or “(II) section 304(a) had not applied,”.

  28. Internal Revenue Service Restructuring and Reform Act of 1998

    Pub. L. 105–206 title VI § 6010(b) · 112 Stat. 685

    Substituted · 26 U.S.C. § 1059(g)(1)

    Pub. L. 105–206 substituted “, in the case of stock held by pass-thru entities, and in the case of consolidated groups” for “and in the case of stock held by pass-thru entities”

    Source evidence

    Code amendment note
    Subsec. (g)(1). Pub. L. 105–206 substituted “, in the case of stock held by pass-thru entities, and in the case of consolidated groups” for “and in the case of stock held by pass-thru entities”.

    Enacted provision · exact public law section
    (b) Amendment Related to Section 1011 of 1997 Act.— Paragraph (1) of section 1059(g) of the 1986 Code is amended by striking “and in the case of stock held by pass-thru entities” and inserting “, in the case of stock held by pass-thru entities, and in the case of consolidated groups”.

  29. Tax Technical Corrections Act of 2014

    Pub. L. 113–295 div. A title II § 221(a)(41)(G) · 128 Stat. 4010

    Struck · 26 U.S.C. § 1059(b)(2)(B)

    Pub. L. 113–295 struck out “, 244,” after “243”

    Source evidence

    Code amendment note
    Subsec. (b)(2)(B). Pub. L. 113–295 struck out “, 244,” after “243”.

    Enacted provision · exact public law section
    (G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and (D) of section 805(a)(4), 805(b)(5), 812(e)(2)(A), 815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E), and 1059(b)(2)(B) are each amended by striking “, 244,” each place it appears.

  30. Pub. L. 115–97 title I § 14101(c)(2) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 1059(b)(2)(B)

    Pub. L. 115–97 substituted “245, or 245A” for “or 245”

    Source evidence

    Code amendment note
    Subsec. (b)(2)(B). Pub. L. 115–97 substituted “245, or 245A” for “or 245”.

    Enacted provision · exact public law section
    (2) Coordination with section 1059.— Subparagraph (B) of section 1059(b)(2) is amended by striking “or 245” and inserting “245, or 245A”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to distributions made after Dec. 31, 2017, see section 14101(f) of Pub. L. 115–97, set out as an Effective Date note under section 245A of this title.

  31. Energy and Water Development and Related Agencies Appropriations Act, 2018

    Pub. L. 115–141 div. U title IV § 401(a)(169) · 132 Stat. 348

    Substituted · 26 U.S.C. § 1059(d)(3)

    Pub. L. 115–141 substituted “and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.” for “; except that ‘2 years’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).”

    Source evidence

    Code amendment note
    Subsec. (d)(3). Pub. L. 115–141 substituted “and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.” for “; except that ‘2 years’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).”

    Enacted provision · exact public law section
    Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

35 of 35 references resolved to an enrolled provision

Editorial Notes

Prior Provisions

A prior section 1059 was renumbered section 1063 of this title.

Amendments1986–2018 · 8 rounds

2018

Subsec. (d)(3). Pub. L. 115–141 substituted “and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.” for “; except that ‘2 years’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).”

2017

Subsec. (b)(2)(B). Pub. L. 115–97 substituted “245, or 245A” for “or 245”.

2014

Subsec. (b)(2)(B). Pub. L. 113–295 struck out “, 244,” after “243”.

1998

Subsec. (g)(1). Pub. L. 105–206 substituted “, in the case of stock held by pass-thru entities, and in the case of consolidated groups” for “and in the case of stock held by pass-thru entities”.

1997

Subsec. (a)(2). Pub. L. 105–34, § 1011(a), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “In addition to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs an amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero.”

Subsec. (d)(1). Pub. L. 105–34, § 1011(c), amended heading and text of par. (1) generally. Prior to amendment, text read as follows:

“(A) In general.—Except as provided in subparagraph (B), any reduction in basis under subsection (a)(1) shall occur immediately before any sale or disposition of the stock.

“(B) Special rule for computing extraordinary dividend.—In determining a taxpayer’s adjusted basis for purposes of subsection (c)(1), any reduction in basis under subsection (a)(1) by reason of a prior distribution which was an extraordinary dividend shall be treated as occurring at the beginning of the ex-dividend date for such distribution.”

Subsec. (d)(3). Pub. L. 105–34, § 1604(d)(1), substituted “subsection (a)” for “subsection (a)(2)”.

Subsec. (e)(1). Pub. L. 105–34, § 1011(b), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Except as otherwise provided in regulations, in the case of any redemption of stock which is—

“(A) part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, or

“(B) not pro rata as to all shareholders,

any amount treated as a dividend under section 301 with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock.”

Subsec. (e)(1)(A)(iii). Pub. L. 105–34, § 1013(b), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4).”

1989

Subsecs. (f), (g). Pub. L. 101–239 added subsecs. (f) and (g) and struck out former subsec. (f) which read as follows: “Regulations.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities.”

1988

Subsec. (d)(5). Pub. L. 100–647, § 1006(c)(2), inserted “amount or” after “agrees to the”.

Pub. L. 100–647, § 1006(c)(1), redesignated par. (6) as (5) and struck out former par. (5) which related to extension to certain property distributions.

Subsec. (d)(6). Pub. L. 100–647, § 1006(c)(3), amended par. (6) generally. Prior to amendment, par. (6) read as follows: “Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—

“(A) such stock was held by the taxpayer during the entire period such corporation (and any precedessor [sic] corporation) was in existence,

“(B) except as provided in regulations, the only earnings and profits of such corporation were earnings and profits accumulated by such corporation (or any predecessor corporation) during such period, and

“(C) the application of this paragraph to such dividend is not inconsistent with the purposes of this section.”

Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6). Former par. (6) redesignated (5).

Subsec. (d)(7). Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6).

Subsec. (e)(1). Pub. L. 100–647, § 1006(c)(4), substituted “to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock” for “for purposes of this section (without regard to the holding period of the stock)”.

Subsec. (e)(2). Pub. L. 100–647, § 1006(c)(5), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “Except as provided in regulations, the term ‘extraordinary dividend’ shall not include any qualifying dividend (within the meaning of section 243(b)(1)).”

Subsec. (e)(3)(A). Pub. L. 100–647, § 1006(c)(6), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “A qualified preferred dividend shall be treated as an extraordinary dividend—

“(i) only if the actual rate of return of the taxpayer on the stock with respect to which such dividend was paid exceeds 15 percent, or

“(ii) if clause (i) does not apply, and the taxpayer disposes of such stock before the taxpayer has held such stock for more than 5 years, only to the extent the actual rate of return exceeds the stated rate of return.”

Subsec. (e)(3)(B). Pub. L. 100–647, § 1006(c)(8)(A), which directed the amendment of subpar. (B) “by striking out ‘subparagraph (A)’ and the material preceding clause (i) and inserting in lieu thereof ‘this paragraph’ ”, was executed by striking out “subparagraph (A)” in the material preceding clause (i) and inserting in lieu thereof “this paragraph”, to reflect the probable intent of Congress.

Subsec. (e)(3)(B)(ii). Pub. L. 100–647, § 1006(c)(8)(B), substituted “clause (i)(II)” for “subparagraph (B)(i)(II)”.

Subsec. (e)(3)(C)(i). Pub. L. 100–647, § 1006(c)(7), inserted “fixed” before “dividend payable” in introductory provisions and inserted at end “Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.”

Subsec. (f). Pub. L. 100–647, § 1006(c)(9), inserted “and in the case of stock held by pass-thru entities” after “other similar transactions”.

1986

Subsec. (a). Pub. L. 99–514, § 614(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “If any corporation—

“(1) receives an extraordinary dividend with respect to any share of stock, and

“(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year,

the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock.”

Subsec. (c)(1). Pub. L. 99–514, § 614(c)(2), struck out “(determined without regard to this section)” after “such share of stock”.

Subsec. (c)(4). Pub. L. 99–514, § 614(b), added par. (4).

Subsec. (d)(1). Pub. L. 99–514, § 614(c)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution.”

Subsec. (d)(3). Pub. L. 99–514, § 614(a)(3), substituted “2 years” for “1 year”.

Subsec. (d)(6). Pub. L. 99–514, § 614(a)(2), added par. (6).

Subsec. (d)(7). Pub. L. 99–514, § 614(d), added par. (7).

Subsecs. (e), (f). Pub. L. 99–514, § 614(e), added subsec. (e) and redesignated former subsec. (e) as (f).

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Pub. L. 115–97 applicable to distributions made after , see section 14101(f) of Pub. L. 115–97, set out as an Effective Date note under section 245A of this title.

Effective Date of 2014 Amendment

Amendment by Pub. L. 113–295 not applicable to preferred stock issued before (determined in the same manner as under section 247 of this title as in effect before its repeal by Pub. L. 113–295), see section 221(a)(41)(K) of Pub. L. 113–295, set out as a note under section 172 of this title.

Except as otherwise provided in section 221(a) of Pub. L. 113–295, amendment by Pub. L. 113–295 effective , subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 1998 Amendment

Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

Effective Date of 1997 Amendment

Pub. L. 105–34, title X, § 1011(d), , 111 Stat. 913, provided that:

“(1)

In general.—

The amendments made by this section [amending this section] shall apply to distributions after .

“(2)

Transition rule.—

The amendments made by this section shall not apply to any distribution made pursuant to the terms of—

“(A)

a written binding contract in effect on , and at all times thereafter before such distribution, or

“(B)

a tender offer outstanding on .

“(3)

Certain dividends not pursuant to certain redemptions.—

In determining whether the amendment made by subsection (a) applies to any extraordinary dividend other than a dividend treated as an extraordinary dividend under section 1059(e)(1) of the Internal Revenue Code of 1986 (as amended by this Act), paragraphs (1) and (2) shall be applied by substituting ‘’ for ‘’.”

Amendment by section 1013(b) of Pub. L. 105–34 applicable to distributions and acquisitions after , with certain exceptions, see section 1013(d) of Pub. L. 105–34, set out as a note under section 304 of this title.

Effective Date of 1989 Amendment

Pub. L. 101–239, title VII, § 7206(b), , 103 Stat. 2337, provided that:

“(1)

In general.—

Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to stock issued after , in taxable years ending after such date.

“(2)

Binding contract.—

The amendment made by subsection (a) shall not apply to any stock issued pursuant to a written binding contract in effect on , and at all times thereafter before the stock is issued.”

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 1986 Amendment

Pub. L. 99–514, title VI, § 614(f), , 100 Stat. 2254, provided that:

“(1)

In general.—

Except as provided in this subsection, the amendments made by this section [amending this section] shall apply to dividends declared after , in taxable years ending after such date.

“(2)

Aggregation.—

For purposes of section 1059(c)(3) of the Internal Revenue Code of 1986, dividends declared after , shall not be aggregated with dividends declared on or before .

“(3)

Redemptions.—

Section 1059(e)(1) of the Internal Revenue Code of 1986 (as added by subsection (e)) shall apply to dividends declared after the date of the enactment of this Act [], in taxable years ending after such date.”

Effective Date

Pub. L. 98–369, div. A, title I, § 53(e), , 98 Stat. 568, as amended by Pub. L. 99–514, § 2, title XVIII, § 1804(b)(2), , 100 Stat. 2095, 2798, provided that:

“(1)

In general.—

Except as provided in this subsection, the amendments made by this section [enacting this section and amending sections 246, 1016, and 7701 of this title] shall apply to distributions after , in taxable years ending after such date.

“(2)

Subsection (b).—

The amendments made by subsection (b) [amending section 246 of this title] shall apply to stock acquired after the date of the enactment of this Act [] in taxable years ending after such date.

“(3)

Related person provisions.—

“(A)

In general.—

Except as otherwise provided in subparagraph (B), the amendment made by subsection (c) [amending section 7701 of this title] shall take effect on .

“(B)

Special rule for purposes of section 265(2).—

The amendment made by subsection (c) insofar as it relates to section 265(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall apply to—

“(i)

term loans made after , and

“(ii)

demand loans outstanding after (other than any loan outstanding on , and repaid before ).

“(C)

Treatment of renegotiations, etc.—

For purposes of this paragraph, any loan renegotiated, extended, or revised after , shall be treated as a loan made after such date.

“(D)

Definition of term and demand loans.—

For purposes of this paragraph, the terms ‘demand loan’ and ‘term loan’ have the respective meanings given such terms by paragraphs (5) and (6) of section 7872(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], except that the second sentence of such paragraph (5) shall not apply.”

Credits

1984–2018 · 9 acts
  1. 1984Added Pub. L. 98–369, div. A, title I, § 53(a), , 98 Stat. 565
  2. 1986amended Pub. L. 99–514, title VI, § 614(a)–(e), , 100 Stat. 2251–2253
  3. 1988Pub. L. 100–647, title I, § 1006(c), , 102 Stat. 3393
  4. 1989Pub. L. 101–239, title VII, § 7206(a), , 103 Stat. 2336
  5. 1997Pub. L. 105–34, title X, §§ 1011(a)–(c), 1013(b), title XVI, § 1604(d)(1), , 111 Stat. 912, 913, 918, 1098
  6. 1998Pub. L. 105–206, title VI, § 6010(b), , 112 Stat. 813
  7. 2014Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), , 128 Stat. 4044
  8. 2017Pub. L. 115–97, title I, § 14101(c)(2), , 131 Stat. 2191
  9. 2018Pub. L. 115–141, div. U, title IV, § 401(a)(169), , 132 Stat. 1192.
Show as published

(Added Pub. L. 98–369, div. A, title I, § 53(a), , 98 Stat. 565; amended Pub. L. 99–514, title VI, § 614(a)–(e), , 100 Stat. 2251–2253; Pub. L. 100–647, title I, § 1006(c), , 102 Stat. 3393; Pub. L. 101–239, title VII, § 7206(a), , 103 Stat. 2336; Pub. L. 105–34, title X, §§ 1011(a)–(c), 1013(b), title XVI, § 1604(d)(1), , 111 Stat. 912, 913, 918, 1098; Pub. L. 105–206, title VI, § 6010(b), , 112 Stat. 813; Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), , 128 Stat. 4044; Pub. L. 115–97, title I, § 14101(c)(2), , 131 Stat. 2191; Pub. L. 115–141, div. U, title IV, § 401(a)(169), , 132 Stat. 1192.)

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