[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: 26CFR1.596-1]

[Page 371]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.596-1  Limitation on dividends received deduction.

    (a) In general. For taxable years beginning after July 11, 1969, in 
the case of mutual savings banks, domestic building and loan 
associations, and cooperative banks, if the addition to the reserve for 
losses on qualifying real property loans for the taxable year is 
determined under section 593(b)(2) (relating to the percentage of 
taxable income method), the total amount allowed as a deduction with 
respect to dividends received under part VIII, subchapter B, chapter 1, 
subtitle A of the Code (section 241 et seq.) (determined without regard 
to section 596 and this section) for such taxable year is reduced as 
provided by this section. In such case, the dividends received deduction 
otherwise determined under part VIII, subchapter B, chapter 1, subtitle 
A of the Code, is reduced by an amount equal to the applicable 
percentage for such year (determined solely under subparagraphs (A) and 
(B) of section 593(b)(2) and the regulations thereunder) of such total 
amount. For the rule under which a mutual savings bank, domestic 
building and loan association, or cooperative bank is deemed to have 
determined the addition to its reserve for losses on qualifying real 
property loans for the taxable year under section 593(b)(2), see Sec. 
1.593-6A(a)(2).
    (b) Example. The provisions of this section may be illustrated by 
the following example:

    Example. X Corporation, a domestic building and loan association, 
determines the addition to its reserve for losses on qualifying real 
property loans under section 593(b)(2) for its taxable year beginning in 
1971. During that taxable year, X Corporation received a total of 
$100,000 as dividends from domestic corporations subject to tax under 
chapter 1 of the Code. X Corporation received no other dividends during 
the taxable year. Under part VIII, subchapter B, chapter 1, subtitle A 
of the Code, a deduction, determined without regard to section 596 and 
this section, of $85,000 would be allowed with respect to the dividends. 
For the taxable year, the applicable percentage, determined under 
subparagraphs (A) and (B) of section 593(b)(2), is 54 percent. Under 
section 596 and this section, the amount allowed as a deduction under 
section 243 and the regulations thereunder is reduced by $45,900 (54 
percent of $85,000) to $39,100 ($85,000 less $45,900).

    (c) Dividends received by members of a controlled group. If a thrift 
institution that computes a deduction under section 593(b)(2) is a 
member of a controlled group of corporations (within the meaning of 
section 1563(a), determined by substituting 50 percent for 80 percent 
each place it appears therein) and if the thrift institution, without a 
bona fide business purpose, transfers stock, directly or indirectly, to 
another member of the group, the Commissioner may allocate any dividends 
with respect to the stock to the thrift institution. If the Commissioner 
allocates a dividend to a thrifty institution under this paragraph (c), 
the Commissioner will also make appropriate correlative adjustments to 
the income of any other member of the group involved in the allocation, 
at a time and in a manner consistent with the procedures of Sec. 1.482-
1(d)(2). This paragraph (c) applies to taxable years ending on or after 
August 30, 1975.

[T.D. 7149, 36 FR 20944, Nov. 2, 1971, as amended by T.D. 7631, 44 FR 
40496, July 11, 1979]