Economic Reality Problem With the Dividends-Received Deduction
THE OBAMA ADMINISTRATION is calling in its 2012 budget for a new tax on corporate-owned-life insurance (COLi), a cut in the dividends-received deduction
for variable life and variable annuity products, and many other provisions of interest to life and health insurers.
67) The REIT utilized the dividends-paid deduction to deduct the amount distributed to MLC, while MLC utilized the dividends-received deduction
to deduct the amount it received from the REIT.
To that end it passed IRC section 246A, which prevents corporations from claiming a dividends-received deduction
against dividends from stock purchased using debt that generates an interest expense deduction.
For the dividends to qualify for the repatriation dividends-received deduction
(repatriation DRD), they must be invested in the United States under a properly approved domestic reinvestment plan [IRC section 965(b)(4)].
These rules are quite harsh, and may have serious adverse consequences for taxpayers that filled their base period amounts with high-taxed CFC dividends, while claiming the section 965 dividends-received deduction
(DRD) with respect to low-taxed dividends.
To address this, the AJCA creates an 85% temporary dividends-received deduction
(TDRD) for dividends paid to U.
Once the amount of foreign earnings eligible for the dividends-received deduction
is determined, the U.
Take advantage of the dividends-received deduction
The exceptions also extend to relationships that provide for 100% of dividends-received deduction
and the 80% dividend-received deduction allowed when the taxpayer owns 20% of the outstanding stock of the investee.
The surge in financial innovation that occurred during the 1980s produced a family of securities that were designed to lower the cost of preferred stock financing by widening the availability of the Internal Revenue Code Section 246(c) dividends-received deduction
Illinois Court Rejects Dividends-Received Deduction