§ 535. Accumulated taxable income
(a)
Definition
For purposes of this subtitle, the term “accumulated taxable income” means the taxable income, adjusted in the manner provided in subsection (b), minus the sum of the dividends paid deduction (as defined in section
561) and the accumulated earnings credit (as defined in subsection (c)).
(b)
Adjustments to taxable income
For purposes of subsection (a), taxable income shall be adjusted as follows:
(1)
Taxes
There shall be allowed as a deduction Federal income and excess profits taxes and income, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section
275
(a)(4)), accrued during the taxable year or deemed to be paid by a domestic corporation under section
902
(a) or
960
(a)(1) for the taxable year, but not including the accumulated earnings tax imposed by section
531, the personal holding company tax imposed by section
541, or the taxes imposed by corresponding sections of a prior income tax law.
(4)
Net operating loss
The net operating loss deduction provided in section
172 shall not be allowed.
(5)
Capital losses
(A)
In general
Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)).
(B)
Recapture of previous deductions for capital gains
The aggregate amount allowable as a deduction under subparagraph (A) for any taxable year shall be reduced by the lesser of—
(6)
Net capital gains
(A)
In general
There shall be allowed as a deduction—
(7)
Capital loss carryovers
(A)
Unlimited carryforward
The net capital loss for any taxable year shall be treated as a short-term capital loss in the next taxable year.
(B)
Section
1212 inapplicable
No allowance shall be made for the capital loss carryback or carryforward provided in section
1212.
(8)
Special rules for mere holding or investment companies
In the case of a mere holding or investment company—
(B)
Deduction for certain offsets
There shall be allowed as a deduction the net short-term capital gain for the taxable year to the extent such gain does not exceed the amount of any capital loss carryover to such taxable year under section
1212 (determined without regard to paragraph (7)(B)).
(9)
Special rule for capital gains and losses of foreign corporations
In the case of a foreign corporation, paragraph (6) shall be applied by taking into account only gains and losses which are effectively connected with the conduct of a trade or business within the United States and are not exempt from tax under treaty.
(10)
Controlled foreign corporations
There shall be allowed as a deduction the amount of the corporation’s income for the taxable year which is included in the gross income of a United States shareholder under section
951
(a). In the case of any corporation the accumulated taxable income of which would (but for this sentence) be determined without allowance of any deductions, the deduction under this paragraph shall be allowed and shall be appropriately adjusted to take into account any deductions which reduced such inclusion.
(c)
Accumulated earnings credit
(1)
General rule
For purposes of subsection (a), in the case of a corporation other than a mere holding or investment company the accumulated earnings credit is
(A)
an amount equal to such part of the earnings and profits for the taxable year as are retained for the reasonable needs of the business, minus
(B)
the deduction allowed by subsection (b)(6). For purposes of this paragraph, the amount of the earnings and profits for the taxable year which are retained is the amount by which the earnings and profits for the taxable year exceed the dividends paid deduction (as defined in section
561) for such year.
(2)
Minimum credit
(A)
In general
The credit allowable under paragraph (1) shall in no case be less than the amount by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
(B)
Certain service corporations
In the case of a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, subparagraph (A) shall be applied by substituting “$150,000” for “$250,000”.
(3)
Holding and investment companies
In the case of a corporation which is a mere holding or investment company, the accumulated earnings credit is the amount (if any) by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
(d)
Income distributed to United States-owned foreign corporation retains United States connection
(1)
In general
For purposes of this part, if 10 percent or more of the earnings and profits of any foreign corporation for any taxable year—
any distribution out of such earnings and profits (and any interest payment) received (directly or through 1 or more other entities) by a United States-owned foreign corporation shall be treated as derived by such corporation from sources within the United States.