[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: 26CFR1.564-1]

[Page 303-304]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.564-1  Dividend carryover.

    (a) General rule. The dividend carryover from the two preceding 
years, allowable only to personal holding companies, is includible in 
the dividends paid deduction under section 561. It is computed as 
follows:
    (1) If, for each of the preceding two years, the deduction for 
dividends paid under section 561 (determined without regard to the 
dividend carryover to each such year) exceeds the taxable income 
(adjusted as provided in section 545 for purposes of determining 
undistributed personal holding company income) then the dividend 
carryover to the taxable year is the sum of both such excess amounts.
    (2) If the deduction for dividends paid under section 561 for the 
second preceding year (determined without regard to the dividend 
carryover to such year) exceeds the taxable income for such year 
(adjusted as provided in section 545), and if the taxable income for the 
first preceding year (as so adjusted) exceeds the dividends paid 
deduction for such first preceding year (as so determined), then the 
dividend carryover to the taxable year shall be such excess amount for 
the second preceding year, less such excess amount for the first 
preceding year.
    (3) If for the first preceding year the deduction for dividends paid 
under section 561 (determined without regard to the dividend carryover 
to such year) exceeds the taxable income (adjusted as provided in 
section 545) for such year, and such excess is not present in the second 
preceding year, then the dividend carryover to the taxable year shall be 
such excess amount for the first preceding year.
    (b) Dividend carryover from year in which taxpayer was not a 
personal holding company. In computing the dividend carryover, the 
taxable income as adjusted under section 545 of any preceding taxable 
year shall be determined as if the corporation was, under the law 
applicable to such taxable year, a personal holding company.
    (c) Dividend carryover from year in which taxpayer was subject to 
1939 Code. In a case where the first or the second preceding taxable 
year began before the taxpayer's first taxable year under the Internal 
Revenue Code of 1954, the amount of the dividend carryover shall be 
determined under the Internal Revenue Code of 1939.
    (d) Statement to be filed with return. Every corporation claiming a 
dividend carryover for any taxable year shall file with its return for 
such year a concise statement setting forth the amount of the dividend 
carryover claimed and all material and pertinent facts relative thereto, 
including a detailed schedule showing the computation of the dividend 
carryover claimed.
    (e) Computation of dividend carryover. The computation of the 
dividend carryover may be illustrated by the following examples:

    Example 1. The X Corporation, which files its income tax returns on 
the calendar year basis, has taxable income, adjusted as required by 
section 545, in the amount of $110,000 and has a dividends paid 
deduction of $150,000 for the year 1954. For 1955, its taxable income, 
adjusted as required by section 545, is $200,000 and its dividends paid 
deduction is $300,000. The dividend carryover to the year 1956 is 
$140,000, computed as follows:

Dividends paid deduction for 1954...........................    $150,000
Taxable income for 1954.....................................     110,000
                                                             -----------
Dividend carryover from 1954................................      40,000
                                                             ===========
Dividends paid deduction for 1955...........................     300,000
Taxable income for 1955.....................................     200,000
                                                             -----------
Dividend carryover from 1955................................     100,000
                                                             ===========
Dividend carryover for 2 preceding taxable years, allowable      140,000
 as a deduction for the year 1956...........................


    Example 2. The Y Corporation, which files its income tax returns on 
the calendar year basis, has taxable income, adjusted as required by 
section 545, in the amount of $100,000 and has a dividends paid 
deduction of $150,000 for the year 1954. For 1955, its taxable income, 
adjusted as required by section 545, is $200,000 and its dividends paid 
deduction is

[[Page 304]]

$170,000. The dividend carryover to the year 1956 is $20,000 computed as 
follows:

Dividends paid deduction for 1954...........................    $150,000
Taxable income for 1954.....................................     100,000
                                                             -----------
Dividend carryover from 1954................................      50,000
                                                             ===========
Taxable income for 1955.....................................     200,000
Dividends paid deduction for 1955...........................     170,000
                                                             -----------
Excess of taxable income over dividends paid deduction......      30,000
                                                             ===========
Dividend carryover for second preceding taxable year,             20,000
 allowable as a deduction for the year 1956.................