Deduction for dividends paid on certain employer securities
(1) General rule
(1)General rule#
In the case of a C corporation, there shall be allowed as a deduction for a taxable year the amount of any applicable dividend paid in cash by such corporation with respect to applicable employer securities. Such deduction shall be in addition to the deductions allowed under subsection (a).
(2)Applicable dividend#
For purposes of this subsection—
(A) In general The term “applicable dividend” means any dividend which, in accordance with the plan provisions— (i) is paid in cash to the participants in the plan or their beneficiaries, (ii) is paid to the plan and is distributed in cash to participants in the plan or their beneficiaries not later than 90 days after the close of the plan year in which paid, (iii) is, at the election of such participants or their beneficiaries— (I) payable as provided in clause (i) or (ii), or (II) paid to the plan and reinvested in qualifying employer securities, or (iv) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.
(B) Limitation on certain dividends A dividend described in subparagraph (A)(iv) which is paid with respect to any employer security which is allocated to a participant shall not be treated as an applicable dividend unless the plan provides that employer securities with a fair market value of not less than the amount of such dividend are allocated to such participant for the year which (but for subparagraph (A)) such dividend would have been allocated to such participant.
(2)(A)In general#
The term “applicable dividend” means any dividend which, in accordance with the plan provisions—
(i) is paid in cash to the participants in the plan or their beneficiaries,
(ii) is paid to the plan and is distributed in cash to participants in the plan or their beneficiaries not later than 90 days after the close of the plan year in which paid,
(iii) is, at the election of such participants or their beneficiaries— (I) payable as provided in clause (i) or (ii), or (II) paid to the plan and reinvested in qualifying employer securities, or
(iv) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.
(3)Applicable employer securities#
For purposes of this subsection, the term “applicable employer securities” means, with respect to any dividend, employer securities which are held on the record date for such dividend by an employee stock ownership plan which is maintained by—
(A) the corporation paying such dividend, or
(B) any other corporation which is a member of a controlled group of corporations (within the meaning of section 409( l )(4)) which includes such corporation.
(3)(A)#
the corporation paying such dividend, or
(3)(B)#
any other corporation which is a member of a controlled group of corporations (within the meaning of section 409( l )(4)) which includes such corporation.
(4)Time for deduction#
(A) In general The deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which the dividend is paid or distributed to a participant or his beneficiary.
(B) Reinvestment dividends For purposes of subparagraph (A), an applicable dividend reinvested pursuant to clause (iii)(II) of paragraph (2)(A) shall be treated as paid in the taxable year of the corporation in which such dividend is reinvested in qualifying employer securities or in which the election under clause (iii) of paragraph (2)(A) is made, whichever is later.
(C) Repayment of loans In the case of an applicable dividend described in clause (iv) of paragraph (2)(A), the deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which such dividend is used to repay the loan described in such clause.
(4)(A)In general#
The deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which the dividend is paid or distributed to a participant or his beneficiary.
(4)(B)Reinvestment dividends#
For purposes of subparagraph (A), an applicable dividend reinvested pursuant to clause (iii)(II) of paragraph (2)(A) shall be treated as paid in the taxable year of the corporation in which such dividend is reinvested in qualifying employer securities or in which the election under clause (iii) of paragraph (2)(A) is made, whichever is later.
(5)Other rules#
For purposes of this subsection—
(A) Disallowance of deduction The Secretary may disallow the deduction under paragraph (1) for any dividend if the Secretary determines that such dividend constitutes, in substance, an avoidance or evasion of taxation.
(B) Plan qualification A plan shall not be treated as violating the requirements of section 401, 409, or 4975(e)(7), or as engaging in a prohibited transaction for purposes of section 4975(d)(3), merely by reason of any payment or distribution described in paragraph (2)(A).
(5)(A)Disallowance of deduction#
The Secretary may disallow the deduction under paragraph (1) for any dividend if the Secretary determines that such dividend constitutes, in substance, an avoidance or evasion of taxation.
(5)(B)Plan qualification#
A plan shall not be treated as violating the requirements of section 401, 409, or 4975(e)(7), or as engaging in a prohibited transaction for purposes of section 4975(d)(3), merely by reason of any payment or distribution described in paragraph (2)(A).
(6)Definitions#
For purposes of this subsection—
(A) Employer securities The term “employer securities” has the meaning given such term by section 409( l ).
(B) Employee stock ownership plan The term “employee stock ownership plan” has the meaning given such term by section 4975(e)(7). Such term includes a tax credit employee stock ownership plan (as defined in section 409).
(6)(A)Employer securities#
The term “employer securities” has the meaning given such term by section 409( l ).
(6)(B)Employee stock ownership plan#
The term “employee stock ownership plan” has the meaning given such term by section 4975(e)(7). Such term includes a tax credit employee stock ownership plan (as defined in section 409).
(7)Full vesting#
In accordance with section 411, an applicable dividend described in clause (iii)(II) of paragraph (2)(A) shall be subject to the requirements of section 411(a)(1).