26 U.S.C. § 565 — Consent dividends
submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 546 words · no verdicts yet
A shareholder’s written consent can make an amount count as a dividend for the dividends-paid deduction, subject to limits and withholding rules. The section defines “consent stock” and “preferred dividends.”
(a) General rule. If a person owns “consent stock*” in a corporation* on the corporation’s last tax-year day and agrees in a consent filed with the corporation’s return, under the Secretary’s regulations, to treat a stated amount as a dividend, that amount is a consent dividend for section 561 unless subsection (b) applies.
(b) Limits. A consent dividend may not include (1) an amount that, if paid in money, would be all or part of a distribution disqualified under section 562(c) as a preferential dividend, or (2) an amount that would not be a dividend under section 316 if all amounts in the corporation’s consents had instead been paid in money to shareholders* on the last day of the tax year.
(c) Effect. For this title, a consent dividend is treated as (1) distributed by the corporation in money to the shareholder* on the last day of the corporation’s tax year and (2) contributed by the shareholder to the corporation’s capital on that day.
(d) Other distributions. If a corporation’s distribution includes consent dividends and money or other property, all consent amounts and the money or property are considered together under this title.
(e) Nonresident aliens and foreign corporations. If a consent dividend would be subject to section 1441 or 1442 withholding when paid in money, this section applies only if the consent includes money or another Secretary*-authorized payment medium equal to the required withholding. That payment is credited against the shareholder’s tax under this subtitle.
(f) Definitions. (1) “Consent stock” means a class or classes entitled, after preferred dividends, to share in distributions other than complete or partial liquidation of all remaining earnings and profits during the tax year, in the same proportion whatever the distribution amount. (2) “Preferred dividends” means a limited-amount distribution other than complete or partial liquidation that must be made on a class before another distribution of earnings and profits can be made during the tax year.
If any person owns consent stock* (as defined in subsection (f)(1)) in a corporation* on the last day of the taxable year* of such corporation, and such person agrees, in a consent filed with the return of such corporation in accordance with regulations prescribed by the Secretary*, to treat as a dividend the amount specified in such consent, the amount so specified shall, except as provided in subsection (b), constitute a consent dividend for purposes of section 561 (relating to the deduction for dividends paid).
A consent dividend shall not include—
an amount specified in a consent which, if distributed in money, would constitute, or be part of, a distribution which would be disqualified for purposes of the dividends paid deduction under section 562(c) (relating to preferential dividends), or
an amount specified in a consent which would not constitute a dividend (as defined in section 316) if the total amounts specified in consents filed by the corporation had been distributed in money to shareholders* on the last day of the taxable year of such corporation.
The amount of a consent dividend shall be considered, for purposes of this title—
as distributed in money by the corporation to the shareholder* on the last day of the taxable year of the corporation, and
as contributed to the capital of the corporation by the shareholder on such day.
If a distribution by a corporation consists in part of consent dividends and in part of money or other property, the entire amount specified in the consents and the amount of such money or other property shall be considered together for purposes of applying this title.
In the case of a consent dividend which, if paid in money would be subject to the provisions of section 1441 (relating to withholding of tax on nonresident aliens) or section 1442 (relating to withholding of tax on foreign corporations), this section shall not apply unless the consent is accompanied by money, or such other medium of payment as the Secretary may by regulations authorize, in an amount equal to the amount that would be required to be deducted and withheld under sections 1441 or 1442 if the consent dividend had been, on the last day of the taxable year of the corporation, paid to the shareholder in money as a dividend. The amount accompanying the consent shall be credited against the tax imposed by this subtitle on the shareholder.
Consent stock, for purposes of this section, means the class or classes of stock entitled, after the payment of preferred dividends, to a share in the distribution (other than in complete or partial liquidation) within the taxable year of all the remaining earnings and profits, which share constitutes the same proportion of such distribution regardless of the amount of such distribution.
Preferred dividends, for purposes of this section, means a distribution (other than in complete or partial liquidation), limited in amount, which must be made on any class of stock before a further distribution (other than in complete or partial liquidation) of earnings and profits may be made within the taxable year.
Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
- 1954Enacted · Act of Aug. 16, 1954, ch. 736
- 1976Amended · Pub. L. 94-455 · 90 Stat. 1834
A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.
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