[Code of Federal Regulations]
[Title 26, Volume 10]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.926(a)-1]

[Page 106-107]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.926(a)-1  Distributions to shareholders.

    (a) Treatment of distributions. [Reserved] For guidance, see Sec. 
1.926(a)-1T(a).
    (b) Order of distribution--(1) In general--(i) Distributions by a 
FSC received by a shareholder in a taxable year of the shareholder 
beginning before January 1, 1990. Any actual distribution to a 
shareholder by a FSC (all references to a FSC in this section shall 
include a small FSC and a former FSC) that is received by the 
shareholder in a taxable year of the shareholder beginning before 
January 1, 1990, and made out of earnings and profits shall be treated 
as made in the following order, to the extent thereof--
    (A) Out of earnings and profits attributable to exempt foreign trade 
income determined solely because of operation of section 923(a)(4),
    (B) Out of earnings and profits attributable to other exempt foreign 
trade income,
    (C) Out of earnings and profits attributable to non-exempt foreign 
trade income determined under either of the administrative pricing 
methods of section 925(a)(1) or (2),
    (D) Out of earnings and profits attributable to section 923(a)(2) 
non-exempt income, and
    (E) Out of other earnings and profits.
    (ii) Distributions by a FSC received by a shareholder in a taxable 
year of the shareholder beginning after December 31, 1989. Any actual 
distribution to a shareholder by a FSC that is received by the 
shareholder in a taxable year beginning after December 31, 1989, and 
that is made out of earnings and profits shall be treated as made in the 
following order, to the extent thereof--
    (A) Out of earnings and profits attributable to exempt foreign trade 
income determined solely because of the operation of section 923(a)(4),
    (B) Out of earnings and profits attributable to foreign trade income 
(other

[[Page 107]]

than exempt foreign trade income determined solely because of the 
operation of section 923(a)(4)) allocable to the marketing of 
agricultural or horticultural products (or the providing of related 
services) by a qualified cooperative which is a shareholder of the FSC,
    (C) Out of earnings and profits attributable to non-exempt foreign 
trade income and other exempt foreign trade income determined under 
either of the administrative pricing methods of section 925(a)(1) and 
(2). Distributions out of this classification will be made on a pro rata 
basis so that 15/23 (16/23 with regard to distribution to a non-
corporate shareholder) of each distribution will be out of earnings and 
profits attributable to exempt foreign trade income and the remainder 
will be out of earnings and profits attributable to non-exempt foreign 
trade income. To the extent the distributions are out of earnings and 
profits attributable to the disposition of, or services related to, 
military property, 7.5/23 (8/23 with regard to distributions to a non-
corporate shareholder) of each distribution will be out of earnings and 
profits attributable to exempt foreign trade income and the remainder 
will be out of earnings and profits attributable to non-exempt foreign 
trade income,
    (D) Out of earnings and profits attributable to other exempt foreign 
trade income determined under the transfer pricing method of section 
925(a)(3),
    (E) Out of earnings and profits attributable to section 923(a)(2) 
non-exempt income,
    (F) Out of earnings and profits attributable to effectively 
connected income, as defined in section 245(c)(4)(B), and
    (G) Out of other earnings and profits.
    (2) Determination of earnings and profits. [Reserved] For guidance, 
see Sec. 1.926(a)-1T(b)(1).
    (c) Definition of ``former FSC''. [Reserved] For guidance, see Sec. 
1.926(a)-1T(c).
    (d) Personal holding company income. [Reserved] For guidance, see 
Sec. 1.926(a)-1T(d).
    (e) Sale of stock if section 1248 applies. [Reserved] For guidance, 
see Sec. 1.926(a)-1T(e).

[T.D. 8340, 56 FR 11093, Mar. 15, 1991]