Eligibility
Corporations receiving dividends from domestic corporations. Deduction is 50% for <20% ownership, 65% for 20-80% ownership, and 100% for affiliated group members (80% or more ownership).
Frequently Asked Questions
Who is eligible for the Dividends Received Deduction (DRD)?
Corporations receiving dividends from domestic corporations. Deduction is 50% for <20% ownership, 65% for 20-80% ownership, and 100% for affiliated group members (80% or more ownership).
How does the Dividends Received Deduction (DRD) work?
Allows corporations to deduct a percentage of dividends received from domestic taxable corporations to mitigate triple taxation.
What law authorizes the Dividends Received Deduction (DRD)?
The Dividends Received Deduction (DRD) is authorized under IRC §243 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §243
Source: Internal Revenue Code, Title 26, United States Code
§ 243. Dividends received by corporations(a) General ruleIn the case of a corporation, there shall be allowed as a deduction an amount equal to the following percentages of the amount received as dividends from a domestic corporation which is subject to taxation under this chapter:(1) 50 percent, in the case of dividends other than dividends described in paragraph (2) or (3);
(2) 100 percent, in the case of dividends received by a small business investment company operating under the Small Business Investment Act of 1958 (15 U.S.C. 661 and following); and
(3) 100 percent, in the case of qualifying dividends (as defined in subsection (b)(1)).
(b) Qualifying dividends(1) In generalFor purposes of this section, the term “qualifying dividend” means any dividend received by a corporation—(A) if at the close of the day on which such dividend is received, such corporation is a member of the same affiliated group as the corporation distributing such dividend, and
(B) if such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group.
(2) Affiliated groupFor purposes of this subsection:(A) In generalThe term “affiliated group” has the meaning given such term by section 1504(a), except that for such purposes sections 1504(b)(2) and 1504(c) shall not apply.
(B) Group must be consistent in foreign tax treatmentThe requirements of paragraph (1)(A) shall not be treated as being met with respect to any dividend received by a corporation if, for any taxable year which includes the day on which such dividend is received—(i) 1 or more members of the affiliated group referred to in paragraph (1)(A) choose to any extent to take the benefits of section 901, and
(ii) 1 or more other members of such group claim to any extent a deduction for taxes otherwise creditable under section 901.
(3) Special rule for groups which include life insurance companies(A) In generalIn the case of an affiliated group which includes 1 or more insurance companies under section 801, no dividend by any member of such group shall be treated as a qualifying dividend unless an election under this paragraph is in effect for the taxable year in which the dividend is received. The preceding sentence shall not apply in the case of a dividend described in paragraph (1)(B)(ii).
(B) Effect of electionIf an election under this paragraph is in effect with respect to any affiliated group—(i) part II of subchapter B of chapter 6 (relating to certain controlled corporations) shall be applied with respect to the members of such group without regard to sections 1563(a)(4) and 1563(b)(2)(D), and
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