§ 854. Limitations applicable to dividends received from regulated investment company

• (a) For 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)
  • (1)
    • (A) In 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,
    • (B)
      • (i) In 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,
      • (ii) For 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)
      • (i) 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) 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) For purposes of this subsection—
    • (A) In computing the amount of aggregate dividends received, there shall only be taken into account dividends received from domestic corporations.
    • (B) For purposes of subparagraph (A), the term “dividend” shall not include any distribution from—
      • (i) a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers’ cooperative associations), or
      • (ii) a real estate investment trust which, for the taxable year of the trust in which the dividend is paid, qualifies under part II of subchapter M (section 856 and following).
    • (C) In determining the amount of any dividend for purposes of this paragraph, a dividend received from a regulated investment company shall be subject to the limitations prescribed in this section.
  • (3) For purposes of subparagraph (A) of paragraph (1), an amount shall be treated as a dividend for the purpose of paragraph (1) only if a deduction would have been allowable under section 243 to the regulated investment company determined—
    • (A) as if section 243 applied to dividends received by a regulated investment company,
    • (B) after the application of section 246 (but without regard to subsection (b) thereof), and
    • (C) after the application of section 246A.
  • (4) For purposes of this subsection, the term “qualified dividend income” has the meaning given such term by section 1(h)(11)(B).