[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.246-2]

[Page 406]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.246-2  Limitation on aggregate amount of deductions.

    (a) General rule. The sum of the deductions allowed by sections 
243(a)(1) (relating to dividends received by corporations), 244(a) 
(relating to dividends received on certain preferred stock), and 245 
(relating to dividends received from certain foreign corporations), 
except as provided in section 246(b)(2) and in paragraph (b) of this 
section, is limited to 85 percent of the taxable income of the 
corporation. The taxable income of the corporation for this purpose is 
computed without regard to the net operating loss deduction allowed by 
section 172, the deduction for dividends paid on certain preferred stock 
of public utilities allowed by section 247, any capital loss carryback 
under section 1212(a)(1), and the deductions provided in sections 
243(a)(1), 244(a), and 245. For definition of the term taxable income, 
see section 63.
    (b) Effect of net operating loss. If the shareholder corporation has 
a net operating loss (as determined under sec. 172) for a taxable year, 
the limitation provided in section 246(b)(1) and in paragraph (a) of 
this section is not applicable for such taxable year. In that event, the 
deductions provided in sections 243(a)(1), 244(a), and 245 shall be 
allowable for all tax purposes to the shareholder corporation for such 
taxable year without regard to such limitation. If the shareholder 
corporation does not have a net operating loss for the taxable year, 
however, the limitation will be applicable for all tax purposes for such 
taxable year. In determining whether the shareholder corporation has a 
net operating loss for a taxable year under section 172, the deductions 
allowed by sections 243(a)(1), 244(a), and 245 are to be computed 
without regard to the limitation provided in section 246(b)(1) and in 
paragraph (a) of this section.

[T.D. 6992, 34 FR 825, Jan. 18, 1969, as amended by T.D. 7301, 39 FR 
963, Jan. 4, 1974]