[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.61-9]

[Page 44-45]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.61-9  Dividends.

    (a) In general. Except as otherwise specifically provided, dividends 
are included in gross income under sections 61 and 301. For the 
principal rules with respect to dividends includible in gross income, 
see section 316 and the regulations thereunder. As to distributions made 
or deemed to be made by regulated investment companies, see sections 851 
through 855, and the regulations thereunder. As to distributions made by 
real estate investment trusts, see sections 856 through 858, and the 
regulations thereunder. See section 116 for the exclusion from gross 
income of $100 ($50 for dividends received in taxable years beginning 
before January 1, 1964) of dividends received by an individual, except 
those from certain corporations. Furthermore, dividends may give rise to 
a credit against tax under section 34, relating to dividends received by 
individuals (for dividends received on or before December 31, 1964), and 
under section 37, relating to retirement income.
    (b) Dividends in kind; stock dividends; stock redemptions. Gross 
income includes dividends in property other than cash, as well as cash 
dividends. For amounts to be included in gross income when distributions 
of property are made, see section 301 and the regulations thereunder. A 
distribution of stock, or rights to acquire stock, in the corporation 
making the distribution is not a dividend except under the circumstances 
described in section 305(b). However, the term ``dividend'' includes a 
distribution of stock, or rights to acquire stock, in a corporation 
other than the corporation making the distribution. For determining when 
distributions in complete liquidation

[[Page 45]]

shall be treated as dividends, see section 333 and the regulations 
thereunder. For rules determining when amounts received in exchanges 
under section 354 or exchanges and distributions under section 355 shall 
be treated as dividends, see section 356 and the regulations thereunder.
    (c) Dividends on stock sold. When stock is sold, and a dividend is 
both declared and paid after the sale, such dividend is not gross income 
to the seller. When stock is sold after the declaration of a dividend 
and after the date as of which the seller becomes entitled to the 
dividend, the dividend ordinarily is income to the seller. When stock is 
sold between the time of declaration and the time of payment of the 
dividend, and the sale takes place at such time that the purchaser 
becomes entitled to the dividend, the dividend ordinarily is income to 
him. The fact that the purchaser may have included the amount of the 
dividend in his purchase price in contemplation of receiving the 
dividend does not exempt him from tax. Nor can the purchaser deduct the 
added amount he advanced to the seller in anticipation of the dividend. 
That added amount is merely part of the purchase price of the stock. In 
some cases, however, the purchaser may be considered to be the recipient 
of the dividend even though he has not received the legal title to the 
stock itself and does not himself receive the dividend. For example, if 
the seller retains the legal title to the stock as trustee solely for 
the purpose of securing the payment of the purchase price, with the 
understanding that he is to apply the dividends received from time to 
time in reduction of the purchase price, the dividends are considered to 
be income to the purchaser.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6777, 29 FR 
17807, Dec. 16, 1964]