§ 316. Dividend defined
(a)
General rule
For purposes of this subtitle, the term “dividend” means any distribution of property made by a corporation to its shareholders—
(2)
out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made.
Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits. To the extent that any distribution is, under any provision of this subchapter, treated as a distribution of property to which section
301 applies, such distribution shall be treated as a distribution of property for purposes of this subsection.
(b)
Special rules
(1)
Certain insurance company dividends
The definition in subsection (a) shall not apply to the term “dividend” as used in subchapter L in any case where the reference is to dividends of insurance companies paid to policyholders as such.
(2)
Distributions by personal holding companies
(A)
In the case of a corporation which—
(i)
under the law applicable to the taxable year in which the distribution is made, is a personal holding company (as defined in section
542), or
(ii)
for the taxable year in respect of which the distribution is made under section
563
(b) (relating to dividends paid after the close of the taxable year), or section
547 (relating to deficiency dividends), or the corresponding provisions of prior law, is a personal holding company under the law applicable to such taxable year,
the term “dividend” also means any distribution of property (whether or not a dividend as defined in subsection (a)) made by the corporation to its shareholders, to the extent of its undistributed personal holding company income (determined under section
545 without regard to distributions under this paragraph) for such year.
(B)
For purposes of subparagraph (A), the term “distribution of property” includes a distribution in complete liquidation occurring within 24 months after the adoption of a plan of liquidation, but—
(i)
only to the extent of the amounts distributed to distributees other than corporate shareholders, and
(3)
Deficiency dividend distributions by a regulated investment company or real estate investment trust
(4)
Certain distributions by regulated investment companies in excess of earnings and profits
In the case of a regulated investment company that has a taxable year other than a calendar year, if the distributions by the company with respect to any class of stock of such company for the taxable year exceed the company’s current and accumulated earnings and profits which may be used for the payment of dividends on such class of stock, the company’s current earnings and profits shall, for purposes of subsection (a), be allocated first to distributions with respect to such class of stock made during the portion of the taxable year which precedes January 1.