U.S. Releases Regulations on Dividends Received Deduction Limitation

; posted on
June 20th, 2019

Final temporary regulations from the U.S. IRS and Treasury on the Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception were published in the U.S. Federal Register. The regulations were published and are effective on 18 June 2019, and also serve as the text of proposed regulations published the same date.


The U.S. tax law enacted in December 2017- (Pub. L. No. 115-97) the law that is at times referred to as the “Tax Cuts and Jobs Act” (TCJA) - added new section 245A to establish a participation exemption system for the taxation of foreign income. Section 245A allows a domestic corporation that is a U.S. shareholder of a specified 10% foreign corporation a 100% dividends received deduction (DRD) for the foreign-source portion of dividends received from the foreign corporation (a 100% DRD). The 100% DRD is available only to domestic C corporations that are neither real estate investment trusts nor regulated investment companies.


The new temporary regulation contains temporary regulations under section 245A of the Internal Revenue Code that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations.

In addition the released regulation also contains temporary regulations that limit the applicability of the exception to foreign personal holding company income for certain dividends received by upper-tier controlled foreign corporations from lower-tier controlled foreign corporations and temporary regulations to facilitate administration of certain rules in the temporary regulations.

The temporary regulations affect certain U.S. persons that are domestic corporations that receive certain dividends from current or former controlled foreign corporations or are United States shareholders of upper-tier controlled foreign corporations that receive certain dividends from lower-tier controlled foreign corporations. The text of the temporary regulations also serves as the text of the proposed regulations set forth in a notice of proposed rulemaking published in the Proposed Rules section of this issue of the Federal Register.

Source: US Government

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