[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.34-2]

[Page 104-105]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.34-2  Limitations on amount of credit.

    (a) Under section 34(b) the credit may not exceed the lesser of 
either--
    (1) The amount of the tax imposed by chapter 1 of the Code for the 
taxable year reduced by the foreign tax credit allowable under section 
33, or
    (2) Whichever of the following is applicable:
    (i) In the case of a taxable year ending before January 1, 1955, or 
beginning after December 31, 1963, 2 percent of the taxable income for 
such taxable year;
    (ii) In the case of a taxable year ending after December 31, 1954, 
and beginning before January 1, 1964, 4 percent of the taxable income 
for such taxable year. In the case of a taxpayer who computes his tax 
under section 3 or

[[Page 105]]

who uses the standard deduction provided by section 141, the taxable 
income for the taxable year is the adjusted gross income for the taxable 
year reduced by the standard deduction prescribed in section 141 and the 
deductions for personal exemptions provided in section 151. Where the 
alternative tax on capital gains is imposed under section 1201(b), the 
taxable income for such taxable year is the taxable income as defined in 
section 63, which includes 50 percent of the excess of net long-term 
capital gain over net short-term capital loss.
    (b) The application of the limitations in paragraph (a) of this 
section may be illustrated by the following example:

    Example. Assume the following facts in the case of an individual 
whose taxable year is the calendar year:

                                  1954

    Computation of tax liability without regard to the dividend received 
credit:

(1) Gross income............................................      $7,500
(2) Deductions..............................................       2,900
(3) Taxable income..........................................       4,600
(4) Income tax liability....................................         996
(5) Foreign tax credit......................................          16
(6) Income tax liability minus foreign tax credit...........         980


    Computation of limitation under section 34(b)(1):

(7) Dividends for which credit is allowable.................      $2,500
(8) Dividends received credit under section 34(a);                   100
 (2,500x0.04)...............................................
(9) Dividends received credit, as limited by section                 100
 34(b)(1); (item (6) or item (8) whichever is lesser).......


    Computation of limitation under section 34(b)(2):

(10) Taxable income.........................................      $4,600
(11) Dividends received credit under section 34(b)(2);                92
 (4,600x0.02)...............................................


    Dividends received credit allowable:

Item (6), item (9), or item (11), whichever is lesser.......         $92


                                  1955

    Computation of tax liability without regard to the dividend received 
credit:

(12) Gross income...........................................      $7,500
(13) Deductions.............................................       2,900
(14) Taxable income.........................................       4,600
(15) Income tax liability...................................         996
(16) Foreign tax credit.....................................         816
(17) Income tax liability minus foreign tax credit..........         180


    Computation of limitation under section 34(b)(1):




(18) Dividends for which credit is allowable................      $2,500
(19) Dividends received credit under section 34(a);                  100
 (2,500x0.04)...............................................
(20) Dividends received credit as limited by section                 100
 34(b)(1); (item (17) or item (19) whichever is lesser).....


    Computation of limitation under section 34(b)(2):




(21) Taxable income.........................................      $4,600
(22) Dividends received credit under section 34(b)(2);               184
 (4,600x0.04)...............................................


    Dividends received credit allowable:




Item (17), item (19), or item (22), whichever is lesser.....        $100



[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6777, 29 FR 
17807, Dec. 16, 1964]