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TITLE 26-INTERNAL REVENUE CODE same ratio to such percent of such dividends received out of such earnings and profits as the gross income of such foreign corporation for the taxable year which is effectively con- nected with the conduct of a trade or business within the United States bears to its gross income from all sources for such taxable year, and (2) An amount equal to the percent (speci- fied in section 243 for the taxable year) of the dividends received out of that part of its earn. ings and profits specified in paragraph (1) of the first sentence of section 316(a) accumulat- ed after the beginning of such uninterrupted period, but such amount shall not exceed an amount which bears the same ratio to such percent of such dividends received out of such accumulated earnings and profits as the gross income of such foreign corporation, which is effectively connected with the conduct of a trade or business within the United States, for the portion of such uninterrupted period ending at the beginning of such taxable year bears to its gross income from all sources for such portion of such uninterrupted period. For purposes of this subsection, the gross income of the foreign corporation for any period before the first taxable year beginning after December 31, 1966, which is effectively connected with the conduct of a trade or busi- ness within the United States is an amount equal to the gross income for such period from sources within the United States. For purposes of paragraph (2), there shall not be taken into account any taxable year within such uninter- rupted period if, with respect to dividends paid out of the earnings and profits of such year, the deduction provided by subsection (b) would be allowable. (b) Certain dividends received from wholly owned foreign subsidiaries (1) In general In the case of dividends described in para- graph (2) received from a foreign corporation by a domestic corporation which, for its tax- able year in which such dividends are re- ceived, owns (directly or indirectly) all of the outstanding stock of such foreign corpora- tion, there shall be allowed as a deduction (in lieu of the deduction provided by subsection (a)) an amount equal to 100 percent of such dividends. (2) Eligible dividends Paragraph (1) shall apply only to dividends which are paid out of the earnings and profits of a foreign corporation for a taxable year during which- (A) all of its outstanding stock is owned (directly or indirectly) by the domestic cor- poration to which such dividends are paid; and (B) all of its gross income from all sources Is effectively connected with the conduct of a trade or business within the United States. (3) Exception Paragraph (1) shall not apply to any divi- dends if an election under section 1562 is ef- fective for either- (A) the taxable year of the domestic cor- poration in which such dividends are re- ceived, or (B) the taxable year of the foreign corpo- ration out of the earnings and profits of which such dividends are paid. (c) Property distributions For purposes of subsections (a) and (b), the amount of any distribution of property other than money shall be the amount determined by applying section 301(b)(1)(B). (Aug. 16, 1954, ch. 736, 68A Stat. 73; Oct. 16, 1962, Pub. L. 87-834, § 5(c), 76 Stat. 977; Nov. 13, 1966, Pub. L. 89-809, title I, § 104(d), (e), 80 Stat. 1558.) AMENDMENTS 1966-Subsec, (a). Pub. L. 89-809. § 104(d), (e)(2), substituted "and if 50 percent or more of the gross income of such corporation from all sources for such period Is effectively connected with the conduct of a trade or business within the United States" for "and has derived 50 percent or more of its gross income from sources within the United States" in the material preceding par. (1), "which Is effectively connected with the conduct of a trade or business within the United States" for "from sources within the United States" in par. (1), ", which is effectively connected with the conduct of a trade or business within the United States," for "from sources within the United States" in par. (2), and added material following par. (2). Subsec. (b). Pub. L. 89-809, § 104(e)(1), added subsec. (b) and redesignated former subsec. (b) as (c). Subsec. (c). Pub. L. 89-809, § 104(e)(1), (3), redesig- nated former subsec. (b) as (c), and substituted therein "subsections (a) and (b)" for "subsection (a)". 1962-Pub. L. 87-834 designated existing provisions as subsec. (a), inserting therein the subsection catch- line, and added subsec. (b). EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89-809 applicable with re- spect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-809, set out as an Ef- fective Date of 1966 Amendment note under section 11 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by Pub. L. 87-834 applicable to distribu- tions made after Dec. 31, 1962, see section 5(d) of Pub. L. 87-834, set out as an Effective Date of 1962 Amend- ment note under section 301 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 78, 172, 243, 246, 277, 301, 512, 596, 804, 809, 812, 815, 861, 1244 of this title. § 246. Rules applying to deductions for dividends re- ceived (a) Deduction not allowed for dividends from cectain corporations The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from 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 charita- ble, etc., organizations) or section 521 (relating to farmers' cooperative associations). § 246 Page 206