Preferential Rates on RIC Qualified Dividend Income

§ 854. Limitations applicable to dividends received from regulated investment company(a) Capital gain dividendFor purposes of section 1(h)(11) (relating to maximum rate of tax on dividends) and section 243 (relating to deductions for dividends received by corporations), a capital gain dividend (as defined in section 852(b)(3)) received from a regulated investment company shall not be considered as a dividend. (b) Other dividends(1) Amount treated as dividend(A) Deduction under section 243In any case in which—(i) a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies), and (ii) such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, then, in computing any deduction under section 243, there shall be taken into account only that portion of such dividend reported by the regulated investment company as eligible for such deduction in written statements furnished to its shareholders and such dividend shall be treated as received from a corporation which is not a 20-percent owned corporation. (B) Maximum rate under section 1(h)(i) In generalIn any case in which—(I) a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies), (II) such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, and (III) the qualified dividend income of such investment company for such taxable year is less than 95 percent of its gross income,  then, in computing qualified dividend income, there shall be taken into account only that portion of such dividend reported by the regulated investment company as qualified dividend income in written statements furnished to its shareholders. (ii) Gross incomeFor purposes of clause (i), in the case of 1 or more sales or other dispositions of stock or securities, the term “gross income” includes only the excess of—(I) the net short-term capital gain from such sales or dispositions, over (II) the net long-term capital loss from such sales or dispositions. (C) Limitations(i) Subparagraph (a)The aggregate amount which may be reported as dividends under subparagraph (A) shall not exceed the aggregate dividends received by the company for the taxable year. (ii) Subparagraph (b)The aggregate amount which may be reported as qualified dividend income under subparagraph (B) shall not exceed the sum of—(I) the qualified dividend income of the company for the taxable year, and (II) the amount of any earnings and profits which were distributed by the company for such taxable year and accumulated in a taxable year with respect to which this part did not apply. (2) Aggregate dividendsFor purposes of this subsection—(A) In generalIn computing the amount of aggregate dividends received, there shall only be taken into account dividends received from domestic corporations.