26 USC 996 - Rules for allocation in the case of distributions and losses

U.S Code last checked for updates: May 16, 2024

§ 996.

Rules for allocation in the case of distributions and losses

(a)

Rules for actual distributions and certain deemed distributions

(1)

In general

Any actual distribution (other than a distribution described in paragraph (2) or to which section 995(c) applies) to a shareholder by a DISC (or former DISC) which is made out of earnings and profits shall be treated as made—

(A)

first, out of previously taxed income, to the extent thereof,

(B)

second, out of accumulated DISC income, to the extent thereof, and

(C)

finally, out of other earnings and profits.

(2)

Qualifying distributions

Any actual distribution made pursuant to section 992(c) (relating to distributions to meet qualification requirements), and any deemed distribution pursuant to section 995(b)(1)(G) (relating to foreign investment attributable to producer’s loans), shall be treated as made—

(A)

first, out of accumulated DISC income, to the extent thereof,

(B)

second, out of the earnings and profits described in paragraph (1)(C), to the extent thereof, and

(C)

finally, out of previously taxed income.

In the case of any amount of any actual distribution to a C corporation made pursuant to section 992(c) which is required to satisfy the condition of section 992(a)(1)(A), the preceding sentence shall apply to 16/17ths of such amount and paragraph (1) shall apply to the remaining 1/17th of such amount.

(3)

Exclusion from gross income

(b)

Ordering rules for losses

If for any taxable year a DISC, or a former DISC, incurs a deficit in earnings and profits, such deficit shall be chargeable—

(1)

first, to earnings and profits described in subsection (a)(1)(C), to the extent thereof,

(2)

second, to accumulated DISC income, to the extent thereof, and

(3)

finally, to previously taxed income, except that a deficit in earnings and profits shall not be applied against accumulated DISC income which has been determined is to be deemed distributed to the shareholders (pursuant to section 995(b)(2)(A)) as a result of a revocation of election or other disqualification.

(c)

Priority of distributions

(d)

Subsequent effect of previous disposition of DISC stock

(1)

Shareholder previously taxed income adjustment

If—

(A)

gain with respect to a share of stock of a DISC or former DISC is treated under section 995(c) as a dividend or as ordinary income, and

(B)

any person subsequently receives an actual distribution made out of accumulated DISC income, or a deemed distribution made pursuant to section 995(b)(2), with respect to such share,

such person shall treat such distribution in the same manner as a distribution from previously taxed income to the extent that (i) the gain referred to in subparagraph (A), exceeds (ii) any other amounts with respect to such share which were treated under this paragraph as made from previously taxed income. In applying this paragraph with respect to a share of stock in a DISC or former DISC, gain on the acquisition of such share by the DISC or former DISC or gain on a transaction prior to such acquisition shall not be considered gain referred to in subparagraph (A).

(2)

Corporate adjustment upon redemption

(e)

Adjustment to basis

(1)

Additions to basis

(2)

Reductions of basis

(f)

Definition of divisions of earnings and profits

For purposes of this part:

(1)

DISC income

(2)

Previously taxed income

(3)

Other earnings and profits

(g)

Effectively connected income

(Added Pub. L. 92–178, title V, § 501 Dec. 10, 1971, 85 Stat. 547; amended Pub. L. 94–455, title XI, § 1101(e), title XIX, §§ 1901(b)(3)(I), Oct. 4, 1976, 90 Stat. 1659, 1793; Pub. L. 95–600, title VII, § 703(i)(3), Nov. 6, 1978, 92 Stat. 2940; Pub. L. 98–369, div. A, title VIII, § 801(d)(10), July 18, 1984, 98 Stat. 997; Pub. L. 99–514, title XVIII, § 1876(k), Oct. 22, 1986, 100 Stat. 2900.)

cite as: 26 USC 996