§ 246. Rules applying to deductions for dividends received
(a)
Deduction not allowed for dividends from certain corporations
(1)
In general
The deductions allowed by sections
243,
244, and
245 shall not apply to any dividend from a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section
501 (relating to certain charitable, etc., organizations) or section
521 (relating to farmers’ cooperative associations).
(2)
Subsection not to apply to certain dividends of Federal Home Loan Banks
(A)
Dividends out of current earnings and profits
In the case of any dividend paid by any FHLB out of earnings and profits of the FHLB for the taxable year in which such dividend was paid, paragraph (1) shall not apply to that portion of such dividend which bears the same ratio to the total dividend as—
(B)
Dividends out of accumulated earnings and profits
In the case of any dividend which is paid out of any accumulated earnings and profits of any FHLB, paragraph (1) shall not apply to that portion of the dividend which bears the same ratio to the total dividend as—
(i)
the amount of dividends received by such FHLB from the FHLMC which are out of earnings and profits of the FHLMC—
For purposes of clause (ii), the accumulated earnings and profits of the FHLB as of January 1, 1985, shall be treated as equal to its retained earnings as of such date.
(D)
Definitions
For purposes of this paragraph—
(iii)
Taxable year of FHLB
The taxable year of an FHLB shall, except as provided in regulations prescribed by the Secretary, be treated as the calendar year.
(b)
Limitation on aggregate amount of deductions
(1)
General rule
Except as provided in paragraph (2), the aggregate amount of the deductions allowed by sections
243
(a)(1),
244
(a), and subsection (a) or (b) of section
245 shall not exceed the percentage determined under paragraph (3) of the taxable income computed without regard to the deductions allowed by sections
172,
199,
243
(a)(1),
244
(a), subsection (a) or (b) of section
245, and 247, without regard to any adjustment under section
1059, and without regard to any capital loss carryback to the taxable year under section
1212
(a)(1).
(2)
Effect of net operating loss
Paragraph (1) shall not apply for any taxable year for which there is a net operating loss (as determined under section
172).
(c)
Exclusion of certain dividends
(1)
In general
No deduction shall be allowed under section
243,
244, or
245, in respect of any dividend on any share of stock—
(2)
90-day rule in the case of certain preference dividends
In the case of stock having preference in dividends, if the taxpayer receives dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A) shall be applied—
(3)
Determination of holding periods
For purposes of this subsection, in determining the period for which the taxpayer has held any share of stock—
(4)
Holding period reduced for periods where risk of loss diminished
The holding periods determined for purposes of this subsection shall be appropriately reduced (in the manner provided in regulations prescribed by the Secretary) for any period (during such periods) in which—
(A)
the taxpayer has an option to sell, is under a contractual obligation to sell, or has made (and not closed) a short sale of, substantially identical stock or securities,
(C)
under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.
The preceding sentence shall not apply in the case of any qualified covered call (as defined in section
1092
(c)(4) but without regard to the requirement that gain or loss with respect to the option not be ordinary income or loss), other than a qualified covered call option to which section
1092
(f) applies.
(d)
Dividends from a DISC or former DISC
No deduction shall be allowed under section
243 in respect of a dividend from a corporation which is a DISC or former DISC (as defined in section
992
(a)) to the extent such dividend is paid out of the corporation’s accumulated DISC income or previously taxed income, or is a deemed distribution pursuant to section
995
(b)(1).