[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.381(c)(17)-1]

[Page 429-431]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.381(c)(17)-1  Deficiency dividend of personal holding company.

    (a) Carryover requirement. If a determination (as defined in section 
547(c)) establishes that a distributor or transferor corporation in a 
transaction to which section 381(a) applies is liable for personal 
holding company tax imposed by section 541 (or by a corresponding 
provision of prior income tax law) for any taxable year ending on or 
before the date of distribution or transfer,

[[Page 430]]

then in computing such tax the deduction described in section 547 shall 
be allowed pursuant to section 381(c)(17) to such corporation for the 
amount of deficiency dividends paid by the acquiring corporation with 
respect to the distributor or transferor corporation. Except as 
otherwise provided in this section, the provisions of section 547 and 
the regulations thereunder apply with respect to a deficiency dividend 
deduction allowable pursuant to section 381(c)(17).
    (b) Deficiency dividends paid by the acquiring corporation with 
respect to the distributor or transferor corporation. A deficiency 
dividend paid by the acquiring corporation with respect to the 
distributor or transferor corporation is a distribution that would 
satisfy the definition of a deficiency dividend under section 547(d)(1) 
if paid by the distributor or transferor corporation to its own 
shareholders except that it shall be paid by the acquiring corporation 
to its own shareholders and shall be paid after the date of distribution 
or transfer and on, or within 90 days after, the date of the 
determination but before the acquiring corporation files claim under 
paragraph (c) of this section.
    (c) Claim for deduction. A claim for a deduction under this section 
shall be made by the acquiring corporation on Form 976, and shall be 
filed within 120 days after the date of the determination. The form 
shall contain, or be accompanied by, the information required under 
paragraph (b)(2) of Sec. 1.547-2 in sufficient detail to properly 
identify the facts with the distributor or transferor corporation and 
the acquiring corporation. The statement required with respect to the 
shareholders on the date of payment of the deficiency dividend shall 
relate to the shareholders of the acquiring corporation, and the 
required certified copy of the resolution authorizing the payment of the 
dividend shall be that of the board of directors, or other authority, of 
the acquiring corporation. Necessary changes may be made in Form 976 in 
order to carry out the provisions of this paragraph. The claim shall be 
filed with the district director for the internal revenue district in 
which the return of the distributor or transferor corporation to which 
such claim relates was filed.
    (d) Effect on dividends paid deduction. A deficiency dividend paid 
by the acquiring corporation, which is allowable as a deduction to a 
distributor or transferor corporation pursuant to section 381(c)(17), 
shall not become a part of the dividends paid deduction of the acquiring 
corporation under section 561 for any taxable year.
    (e) Successive transactions to which section 381(a) applies. The 
provisions of this section shall apply in the case of successive 
transactions to which section 381(a) applies. Thus, if X Corporation 
transfers its assets to Y Corporation in a transaction to which section 
381(a) applies and if Y Corporation transfers its assets to Z 
Corporation in a subsequent transaction to which section 381(a) applies, 
then, subject to the provisions of this section, X Corporation may take 
a deficiency dividend deduction for the amount of deficiency dividends 
paid by Z Corporation with respect to X Corporation.
    (f) Example. The provisions of this section may be illustrated by 
the following example:

    Example. M Corporation, a personal holding company, computes its 
taxable income on the basis of the calendar year. On December 31, 1956, 
N Corporation acquires the assets of M Corporation in a transaction to 
which section 381(a) applies. On July 31, 1958, a determination (as 
defined in section 547(c)) establishes that M Corporation is liable for 
the taxable year 1955 for personal holding company tax in the amount of 
$35,500 based on undistributed personal holding company income of 
$42,000 for such taxable year. N Corporation complies with the 
provisions of this section and on September 30, 1958, distributes 
$42,000 to its shareholders as deficiency dividends with respect to M 
Corporation's taxable year 1955. The distribution of $42,000 by N 
Corporation is a taxable dividend under section 316(b)(2) regardless of 
whether N Corporation is a personal holding company for the taxable year 
1958 or whether it had any current or accumulated earnings and profits. 
See Example (3) in paragraph (e) of Sec. 1.316-1. Because N Corporation 
has paid deficiency dividends of $42,000 in accordance with this 
section, M Corporation is entitled to a deficiency dividend deduction of 
$42,000 for the taxable year 1955 and is thus relieved of its liability 
for personal holding company tax of $35,500 for such taxable year. To 
prevent a duplication of deductions, the amount distributed by N 
Corporation in 1958 does not

[[Page 431]]

become a part of N Corporation's dividends paid deduction under section 
561 for any taxable year.

[T.D. 6532, 26 FR 409, Jan. 19, 1961, as amended by T.D. 7604, 44 FR 
18661, Mar. 29, 1979; T.D. 7767, 45 FR 11264, Feb. 6, 1981]