An IRS regulation dealing with investment companies and real estate investment trusts that avoid double taxation by distributing interest, dividends, and capital gains directly to shareholders, who are taxed individually.
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In American tax, an IRS regulation dealing with ways by which a publicly-traded company and its shareholders can avoid double taxation. Generally speaking, a publicly-traded company must pay corporate tax on its profits. If it paid taxes on its profits before passing along those profits to shareholders, the company's income is effectively taxed twice. Subchapter M allows these companies to deduct dividends and certain interest and capital gains paid to shareholders from its taxable income. See also: Conduit theory.
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The portion of the Internal Revenue Service Code that addresses the ways by which investment companies and investment trusts may pass income through to owners in order to avoid double taxation.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.