§ 246A. Dividends received deduction reduced where portfolio stock is debt financed
(a)
General rule
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,
244, or
245
(a) a percentage equal to the product of—
(b)
Section not to apply to dividends for which 100 percent dividends received deduction allowable
Subsection (a) shall not apply to—
(c)
Debt financed portfolio stock
For purposes of this section—
(1)
In general
The term “debt financed portfolio stock” means any portfolio stock if at some time during the base period there is portfolio indebtedness with respect to such stock.
(2)
Portfolio stock
The term “portfolio stock” means any stock of a corporation unless—
(3)
Special rule for stock in a bank or bank holding company
(A)
In general
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.
(d)
Average indebtedness percentage
For purposes of this section—
(1)
In general
Except as provided in paragraph (2), the term “average indebtedness percentage” means the percentage obtained by dividing—
(2)
Special rule where stock not held throughout base period
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.
(3)
Portfolio indebtedness
(e)
Reduction in dividends received deduction not to exceed allocable interest
Under regulations prescribed by the Secretary, any reduction under this section in the amount allowable as a deduction under section
243,
244, 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.
(f)
Regulations
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.