§316 — Dividend defined
125 cases·12 followed·7 distinguished·2 limited·2 overruled·102 cited—10% support
Statute Text — 26 U.S.C. §316
For purposes of this subtitle, the term “dividend” means any distribution of property made by a corporation to its shareholders—
out of its earnings and profits accumulated after
February 28, 1913
, or
out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made.
Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits. To the extent that any distribution is, under any provision of this subchapter, treated as a distribution of property to which section 301 applies, such distribution shall be treated as a distribution of property for purposes of this subsection.
The definition in subsection (a) shall not apply to the term “dividend” as used in subchapter L in any case where the reference is to dividends of insurance companies paid to policyholders as such.
In the case of a corporation which—
under the law applicable to the taxable year in which the distribution is made, is a personal holding company (as defined in section 542), or
for the taxable year in respect of which the distribution is made under section 563(b) (relating to dividends paid after the close of the taxable year), or section 547 (relating to deficiency dividends), or the corresponding provisions of prior law, is a personal holding company under the law applicable to such taxable year,
the term “dividend” also means any distribution of property (whether or not a dividend as defined in subsection (a)) made by the corporation to its shareholders, to the extent of its undistributed personal holding company income (determined under section 545 without regard to distributions under this paragraph) for such year.
For purposes of subparagraph (A), the term “distribution of property” includes a distribution in complete liquidation occurring within 24 months after the adoption of a plan of liquidation, but—
only to the extent of the amounts distributed to distributees other than corporate shareholders, and
only to the extent that the corporation designates such amounts as a dividend distribution and duly notifies such distributees of such designation, under regulations prescribed by the Secretary, but
not in excess of the sum of such distributees’ allocable share of the undistributed personal holding company income for such year, computed without regard to this subparagraph or section 562(b).
The term “dividend” also means any distribution of property (whether or not a dividend as defined in subsection (a)) which constitutes a “deficiency dividend” as defined in section 860(f).
In the case of a regulated investment company that has a taxable year other than a calendar year, if the distributions by the company with respect to any class of stock of such company for the taxable year exceed the company’s current and accumulated earnings and profits which may be used for the payment of dividends on such class of stock, the company’s current earnings and profits shall, for purposes of subsection (a), be allocated first to distributions with respect to such class of stock made during the portion of the taxable year which precedes January 1.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.316-1 Dividends
- Treas. Reg. §Treas. Reg. §1.316-1(a) §1.316-1(a)
- Treas. Reg. §Treas. Reg. §1.316-1(b) §1.316-1(b)
- Treas. Reg. §Treas. Reg. §1.316-1(c) Except as provided in section 316(b)(1), the term dividend includes any distribution of property to shareholders to the extent made out of accumulated or current earnings and profits.
- Treas. Reg. §Treas. Reg. §1.316-1(d) In the case of a corporation which, under the law applicable to the taxable year in respect of which a distribution is made under section 860 (relating to deficiency dividends), was a regulated investment company (within the meaning of section 851), or a real estate investment trust (within the meaning of section 856), the term dividend, in addition to the meaning set forth in paragraphs (a) and (b) of section 316, means a distribution of property to its shareholders which constitutes a “deficie
- Treas. Reg. §Treas. Reg. §1.316-1(e) §1.316-1(e)
- Treas. Reg. §Treas. Reg. §1.316-1(i) §1.316-1(i)
- Treas. Reg. §Treas. Reg. §1.316-2 Sources of distribution in general
- Treas. Reg. §Treas. Reg. §1.316-2(a) For the purpose of income taxation every distribution made by a corporation is made out of earnings and profits to the extent thereof and from the most recently accumulated earnings and profits.
- Treas. Reg. §Treas. Reg. §1.316-2(b) If the earnings and profits of the taxable year (computed as of the close of the year without diminution by reason of any distributions made during the year and without regard to the amount of earnings and profits at the time of the distribution) are sufficient in amount to cover all the distributions made during that year, then each distribution is a taxable dividend.
- Treas. Reg. §Treas. Reg. §1.316-2(c) §1.316-2(c)
- Treas. Reg. §Treas. Reg. §1.316-2(d) Any distribution by a corporation out of earnings and profits accumulated before March 1, 1913, or out of increase in value of property accrued before March 1, 1913 (whether or not realized by sale or other disposition, and, if realized, whether before, on, or after March 1, 1913), is not a dividend within the meaning of subtitle A of the Code.
- Treas. Reg. §Treas. Reg. §1.316-2(e) A reserve set up out of gross income by a corporation and maintained for the purpose of making good any loss of capital assets on account of depletion or depreciation is not a part of surplus out of which ordinary dividends may be paid.
125 Citing Cases
Therefore, we hold that the diverted gross receipts from BCO of$195,359, $132,584, and $215,580 are taxable to petitioners as constructive dividends for 2003, 2004, and 2005, respectively.
Therefore, we hold that the diverted gross receipts from BCO of$195,359, $132,584, and $215,580 are taxable to petitioners as constructive dividends for 2003, 2004, and 2005, respectively.
rsonally. We hold petitioner must include the payment in his income as a constructive dividend.15 15 Petitioners neither argued nor proved that Midwest did not have sufficient earnings and profits for us to categorize the payment as a dividend under sec. 316. - 25 - Section 6662(a) The Muhichs Respondent determined the Muhichs are liable for the accuracy-related penalty under section 6662(a) and (b)(1) for both years in issue. This section imposes a penalty equal to 20 percent of the portion of
12Courts sometimes speak colloquially of a corporate distribution to a shareholder with respect to his stock as a “dividend” without considering that section 316 accords the term a technical meaning.
"A constructive dividend arises '[w]here a corporation confers an economic benefit on a shareholder without the expectation of repayment, * * * even though neither the corporation nor the shareholder intended a dividend.'" Hood v. Commissioner, 115 T.C. 172, 179 (2000) (quoting Magnon v. Commissioner, 73 T.C. 980, 993-994 (1980)). A. Cons
Section 301(c)(1) provides that the portion ofa distribution "which is a dividend (as defined in section 316) shall be included in gross income." Section 316(a) provides that "the term 'dividend' means any distribution ofproperty made by a corporation to its shareholders" out ofcurrent E&P or out ofE&P "accumulated after February 28, 1913." The parties agree that CSE had no current or accumulated E&P for the year in which i
- 98 - underpayment oftax attributable to any substantial understatement ofincome tax or negligence or disregard ofrules or regulations. Sec. 6662(a) and (b)(1) and (2). Negligence includes any failure to make a reasonable attempt to comply with the provisions ofthe Code; and disregard includes any careless, reckless, or intentional disr
- 98 - underpayment oftax attributable to any substantial understatement ofincome tax or negligence or disregard ofrules or regulations. Sec. 6662(a) and (b)(1) and (2). Negligence includes any failure to make a reasonable attempt to comply with the provisions ofthe Code; and disregard includes any careless, reckless, or intentional disr
e Meridien Hotels, Inc. v. LHO Fin. P'ship I, L.P., 255 S.W.3d 807, 816 (Tex. App.--Dallas 2008). Extrinsic evidence, also known as "parol evidence", is "evidence not contained in the body ofan agreement or other instrument". 36 Tex. Jur., Evidence, sec. 316. Extrinsic evidence ofthe parties' intent includes: ¹°For example, in Furmanite Worldwide, Inc. v. NextCorp., Ltd., 339 S.W.3d 326, 333 (Tex. App.--Dallas 2011), one provision ofa contract provided that the date ofthe agreement was August 31
ustments that would result from the primary adjustments * * * had Taxpayer and the Commissioner not entered into this agreement." ¹#The closing agreement states that the payments and prepayments ofthe accounts shall not be treated as dividends under sec. 316 or for any other Federal income tax purpose and are therefore not eligible for a foreign tax credit under secs. 901-902 or a DRD under secs. 241-247. - 13 - The IRS subsequently issued a notice ofdeficiency dated April 19, 2012, determining
t, the Vlachs must include those payments in income as constructive dividends.38 "See supra p. 11. 38Petitioners did not address whether the corporations had sufficient earnings and profits for the Court to categorize the payments as dividends under sec. 316. See, e.g., Truesdell v. Commissioner, 89 T.C. 1280, 1295-1296 (1987) (holding that because neither party introduced evidence regarding earnings and profits, taxpayer (continued...) - 34 - [*34] Section 61(a)(1) also provides that gross inco
Section 316 (a) defines a dividend as "any distribution of property made by a corporation to its shareholders--(1) out ofits earnings and 8(...continued) Charles Schwab declined to issue one. -.10 - profits accumiilated after February 28, 1913, or (2) out ofits earnings and profits ofthe taxable ear".9. Ifall or.part ofthe distribution is not a di
section 302(b), if the ESOP is treated as the owner of the redeemed preferred stock, then the redemptions did not result in a meaningful reduction in the ESOP's proportionate interest in petitioner and thus would qualify for dividend treatment under section 316. The Court of Appeals concluded that the ESOP was the owner of the stock; this established the status of the stock redemption payments as dividends. The court then had to determine whether this dividend ran afoul of section 162(k). Sectio
section 302(b), if the ESOP is treated as the owner of the redeemed preferred stock, then the redemptions did not result in a meaningful reduction in the esop’s proportionate interest in petitioner and thus would qualify for dividend treatment under section 316. The Court of Appeals concluded that the ESOP was the owner of the stock; this established the status of the stock redemption payments as dividends. The court then had to determine whether this dividend ran afoul of section 162(k). Sectio
benefit, or income to the owner-taxpayer.’” P.R. Farms, Inc. v. Commissioner, 820 F.2d 1084, 1088 (9th Cir. 1987) (quoting Meridian Wood Prods. Co. v. United States, 725 F.2d 3The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 10 - 1183, 1191 (9th Cir. 1984)), affg. T.C. Memo. 1984-549). “The crucial concept in a finding that there is a constructive dividend is that the corporation has conferred a benefit on the shareh
benefit, or income to the owner-taxpayer.’” P.R. Farms, Inc. v. Commissioner, 820 F.2d 1084, 1088 (9th Cir. 1987) (quoting Meridian Wood Prods. Co. v. United States, 725 F.2d 3The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 10 - 1183, 1191 (9th Cir. 1984)), affg. T.C. Memo. 1984-549). “The crucial concept in a finding that there is a constructive dividend is that the corporation has conferred a benefit on the shareh
Section 61(a) provides that gross income includes all income from whatever source derived, unless excludable by a specific provision of the Code.
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
vidends. DiZenzo v. Commissioner, 348 F.2d 122, 125-127 (2d Cir. 1965) (burden is on taxpayers to establish corporation did not have sufficient E&P), revg. T.C. Memo. 1964-121; Truesdell v. 47The determination of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 39 - Commissioner, supra; Zalewski v. Commissioner, T.C. Memo. 1988- 340; Delgado v. Commissioner, T.C. Memo. 1988-66; see Price v. United States, 335 F.2d at 677 (“It is the burden of the taxpaye
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
61(a); in the absence of better proof by respondent, we decline to do so and hold that the taxation of the amounts at issue is governed by section 301(c). Under section 301, the distribution is treated as a dividend if it meets the requirements of section 316. Under section 316(a), dividends are taxable to the shareholder as ordinary income to the extent of the earnings and profits of the corporation, and any amount received by the shareholder in excess of earnings and profits is considered a n
Section 316 and its regulations provide that distributions to shareholders with respect to their stock must be treated as dividends to the extent of both current and accumulated earnings and profits. “To the extent that a corporation has current earnings and profits as of the close of its taxable year, any distribution made in that year will be pre
* * * * * * * (c) Amount Taxable.--In the case of a distribution to which subsection (a) applies-- (1) Amount constituting dividend.--That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income.
In Hagaman, 958 F.2d at 694, we stated that "[b]ecause dividends can only be distributed to the extent of a corporation's earnings and profits under IRC § 316, a court can only find a constructive dividend to be taxable as ordinary income to the extent of the corporation's earnings and profits." Another opinion recognizes that "[o]therwise, a distribution to the stockholder is merely a recovery from his basis in his shares to the extent that he has such a basis; to the extent that the payments e
— That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income.
Petitioners cite section 316, which generally defines a dividend as a distribution out of a corporation’s earnings and profits.
23, 1985), provides that "gross income includes compensation for services".
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
For the principal rules with respect to dividends includible in gross income, see section 316 and the regulations thereunder.
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). In addition, the
First, the distributions are dividends, as determined under section 316, to the extent of the corporation’s earnings and profits.
316.127 (1993); Or. Admin. R. 150-316.127-(A)(3)(a)(A). Mr. Cummings and two employees testified that Mr. Cummings spent a little more than 1 day a week in Portland. However, Mr. Cummings did not file Oregon income tax returns in 1989 and 1990. That suggests that he did not perform services for petitioner in Oregon during those years. Mrs. Cum