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TITLE 26-INTERNAL REVENUE CODE (B) paragraph (2) shall not apply unless the percentage arrived at for purposes of applying paragraph (1) when multiplied by the percentage of voting stock owned by the second foreign corporation in the third for- eign corporation is equal to at least 5 per- cent. (c) Applicable rules (1) Accumulated profits defined For purposes of this section, the term "ac- cumulated profits" means, with respect to any foreign corporation, the amount of its gains, profits, or income computed without reduction by the amount of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by any foreign country or by any possession of the United States. The Secretary shall have full power to determine from the accumulat- ed profits of what year or years such divi- dends were paid, treating dividends paid in the first 60 days of any year as having been paid from the accumulated profits of the pre- ceding year or years (unless to his satisfaction shown otherwise), and in other respects treat- ing dividends as having been paid from the most recently accumulated gains, profits, or earnings. (2) Accounting periods In the case of a foreign corporation, the income, war profits, and excess profits taxes of which are determined on the basis of an ac- counting period of less than 1 year, the word "year" as used in this subsection shall be con- strued to mean such accounting period. (d) Cross references (1) For inclusion in gross income of an amount equal to taxes deemed paid under subsection (a)(1), see section 78. (2) For application of subsections (a) and b) with re- spect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 960. (3) For reduction of credit with respect to dividends paid out of accumulated profits for years for which cer- tain information is not furnished, see section 6038. (Aug. 16, 1954, ch. 736, 68A Stat. 286; Sept. 14, 1960, Pub. L. 86-780, § 6(b)(2), 74 Stat. 1016; Oct. 16, 1962, Pib. L, 87-834, § 9(a), 76 Stat. 999; Jan. 12, 1971, Pub. L. 91-684, §§ 1, 2, 84 Stat. 2068, 2069; Mar. 29, 1975, Pub. L. 94-12, title VI, § 602(c)(6), 89 Stat. 59; Oct. 4, 1976, Pub. L. 94- 455, title X, § 1033(a), 90 Stat. 1626.) AMENDMENTS 1976-Pub. L. 94-455, § 1033(a), struck out provisions by which dividends from less developed country corpo- rations are not grossed-up by the amount of foreign taxes paid on the underlying income and the deemed- paid foreign tax credits attributable to those dividends are reduced proportionately, struck out subsec. (d) which defined less developed country corporations, and redesignated subsec. (e) as (d). 1975-Subsec. (d). Pub. L. 94-12 substituted "para- graph (3) or (4)", "paragraph (3)", "paragraph (3)(A)", and "paragraph (3)(B)" for "section 955(c)(1) or (2)", "section 955(c)(1)", "section 955(c)(1)(A)", and "sec- tion 955(c)(1)(B)", respectively, in existing provisions and added pars. (3), (4), and (5) and provisions follow- ing par. (5). 1971-Subsec. (b). Pub. L. 91-684, § 1, in the subsec- tion catchline substituted "Foreign subsidiary of first and second foreign corporation" for "Foreign subsid- iary of foreign corporation", designated existing provi- sions as par. (1), and, as so designated, added terminol. ogy denominating corporations involved as first for- eign corporation and second foreign corporation, and reduced the ownership percentage requirement in voting stock from 50 percent to 10 percent between the first and second foreign corporations, and added pars. (2), and (3). Subsec. (c(1)(A). Pub. L. 91-684, § 2(1), substituted "(b)(1)(A), and (b)(2)(A)" for "and (b)(1)". Subsec. (c)(1)(B). Pub. L. 91-684, § 2(2), substituted "(b)(1)(B), and (b)(2)(B)" for "and (b)(2)". 1962-Subsec. (a). Pub. L. 87-834 limited provisions which required a domestic corporation owning at least 10 per cent of the voting stock of a foreign corporation from which it receives dividends in any taxable year to be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States which the amount of such dividends bears to the amount of accumulated profits to those cases where a foreign corporation paid such dividends out of accumulated profits of a year for which such foreign corporation is a less developed country corporation, and inserted provisions requiring, in the case of a do- mestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in a taxable year, to the extent such dividends are paid by such foreign corporation out of accumulated profits of a year for which such foreign corporation is not a less developed country corpora- tion, to be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States on or with respect to such accumulated profits, which the amount of such dividends (determined with- out regard to section 78) bears to the amount of such accumulated profits in excess of such income, war profits, and excess profits taxes (other than those deemed paid). Subsec. (b). Pub. L. 87-834 substituted "from which such dividends were paid which- "(1) for purposes of applying subsection (a)(1), the amount of such dividends bears to the amount of the accumulated profits (as defined in subsection (c)(1)(A)) of such other foreign corporation from which such dividends were paid in excess of such income, war profits, and excess profits taxes, or "(2) for purposes of applying subsection (a)(2), the amount of such dividends bears to the amoulnt of the accumulated profits (as defined in subsect.on (c)(1)(B)) of such other foreign corporation from which such dividends were paid" for "from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits". Subsec. (c). Pub. L. 87-834 defined "accumulated profits" for purposes of subsec. (a)(1) and (b)(1) as meaning the amount of its gains, profits, or income computed without reduction by the amount of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by and foreign country or any possession of the United States, and limited the provisions defining "accumu- lated profits" as the amount of its gains, profits, or income in excess of the income, war profits, and excess profits taxes imposed on or with respect to such prof- its or income to subsecs. (a)(2) and (b)(2). Subsec. (d). Pub. L. 87-834 substituted provisions de- fining "less developed country corporation" for provi- sions which established special rules for certain wholly-owned foreign corporations. Subsec. (e). Pub. L. 87-834 designated existing provi- sions as par. (3) and added pars, (1) and (2). 1960-Subsec. (e). Pub. L. 86-780 added subsec. (e). EFFECTivE DATE OF 1976 AMENDMENT Section 1033(c) of Pub. L. 94-455 provided that: Page 579 § 902