[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.561-2]

[Page 296-297]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.561-2  When dividends are considered paid.

    (a) In general. (1) A dividend will be considered as paid when it is 
received by the shareholder. A deduction for dividends paid during the 
taxable year will not be permitted unless the shareholder receives the 
dividend during the taxable year for which the deduction is claimed. See 
section 563 for special rule with respect to dividends paid after the 
close of the taxable year.
    (2) If a dividend is paid by check and the check bearing a date 
within the taxable year is deposited in the mails, in a cover properly 
stamped and addressed to the shareholder at his last known address, at 
such time that in the ordinary handling of the mails the check would be 
received by the shareholder within the taxable year, a presumption 
arises that the dividend was paid to the shareholder in such year.
    (3) The payment of a dividend during the taxable year to the 
authorized agent of the shareholder will be deemed payment of the 
dividend to the shareholder during such year.
    (4) If a corporation, instead of paying the dividend directly to the 
shareholder, credits the account of the shareholder on the books of the 
corporation with the amount of the dividend, the deduction for a 
dividend paid will not be permitted unless it be shown to the 
satisfaction of the Commissioner that such crediting constituted payment 
of the dividend to the shareholder within the taxable year.
    (5) A deduction will not be permitted for the amount of a dividend 
credited during the taxable year upon an obligation of the shareholder 
to the corporation unless it is shown to the satisfaction of the 
Commissioner that such crediting constituted payment of the dividend to 
the shareholder within the taxable year.
    (6) If the dividend is payable in obligations of the corporation, 
they should be entered or registered in the taxable year on the books of 
the corporation, in the name of the shareholder (or his nominee or 
transferee), and, in the case of obligations payable to bearer, should 
be received in the taxable year by the shareholder (or his nominee or 
transferee) to constitute payment of the dividend within the taxable 
year.
    (7) In the case of a dividend from which the tax has been deducted 
and withheld as required by chapter 3 (section 1441 and following), of 
the Code

[[Page 297]]

the dividend is considered as paid when such deducting and withholding 
occur.
    (b) Methods of accounting. The determination of whether a dividend 
has been paid to the shareholder by the corporation during its taxable 
year is in no way dependent upon the method of accounting regularly 
employed by the corporation in keeping its books or upon the method of 
accounting upon the basis of which the taxable income of the corporation 
is computed.
    (c) Records. Every corporation claiming a deduction for dividends 
paid shall keep such permanent records as are necessary (1) to establish 
that the dividends with respect to which such deduction is claimed were 
actually paid during the taxable year and (2) to supply the information 
required to be filed with the income tax return of the corporation. Such 
corporation shall file with its return (i) a copy of the dividend 
resolution; and (ii) a concise statement of the pertinent facts relating 
to the payment of the dividend, clearly specifying (a) the medium of 
payment and (b) if not paid in money, the fair market value and adjusted 
basis (or face value, if paid in its own obligations) on the date of 
distribution of the property distributed and the manner in which such 
fair market value and adjusted basis were determined. Canceled dividend 
checks and receipts obtained from shareholders acknowledging payment of 
dividends paid otherwise than by check need not be filed with the return 
but shall be kept by the corporation as a part of its records.