Dividends Received Deduction from 10-Percent Owned Foreign Corporations

§ 245. Dividends received from certain foreign corporations(a) Dividends from 10-percent owned foreign corporations(1) In generalIn the case of dividends received by a corporation from a qualified 10-percent owned foreign corporation, there shall be allowed as a deduction an amount equal to the percent (specified in section 243 for the taxable year) of the U.S.-source portion of such dividends. (2) Qualified 10-percent owned foreign corporationFor purposes of this subsection, the term “qualified 10-percent owned foreign corporation” means any foreign corporation (other than a passive foreign investment company) if at least 10 percent of the stock of such corporation (by vote and value) is owned by the taxpayer. (3) U.S.-source portionFor purposes of this subsection, the U.S.-source portion of any dividend is an amount which bears the same ratio to such dividend as—(A) the post-1986 undistributed U.S. earnings, bears to (B) the total post-1986 undistributed earnings. (4) Post-1986 undistributed earningsThe term “post-1986 undistributed earnings” means the amount of the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986—(A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. (5) Post-1986 undistributed U.S. earningsFor purposes of this subsection, the term “post-1986 undistributed U.S. earnings” means the portion of the post-1986 undistributed earnings which is attributable to—(A) income of the qualified 10-percent owned foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or (B) any dividend received (directly or through a wholly owned foreign corporation) from a domestic corporation at least 80 percent of the stock of which (by vote and value) is owned (directly or through such wholly owned foreign corporation) by the qualified 10-percent owned foreign corporation. (6) Special ruleIf the 1st day on which the requirements of paragraph (2) are met with respect to any foreign corporation is in a taxable year of such corporation beginning after December 31, 1986, the post-1986 undistributed earnings and the post-1986 undistributed U.S. earnings of such corporation shall be determined by only taking into account periods beginning on and after the 1st day of the 1st taxable year in which such requirements are met. (7) Coordination with subsection (b)Earnings and profits of any qualified 10-percent owned foreign corporation for any taxable year shall not be taken into account under this subsection if the deduction provided by subsection (b) would be allowable with respect to dividends paid out of such earnings and profits.