Category: Deductions & Credits; International;
Corporations
Subject: Dividends Received Deduction
Title: DividendsAttributable to a Foreign Sales Corporation
IRC Sections: 245, 246(b), 172(d)(5)
Filename: 1154.html
Date Produced: 5/96 Copyright 1998, The Tax Resource Group. All rights reserved. Telephone
800-578-3498. Internet: www.taxresourcegroup.com Question
What happens to the dividends received deduction (DRD) attributable to a
Foreign Sales Corporation (FSC) dividend if the DRD exceeds (or partly exceeds)
taxable income before consideration of the DRD. Answer
The excess DRD simply gets included in the net operating loss carryforward. Discussion
The DRD with respect to FSC's is provided for by IRC Section 245(c). Section
246(b) imposes taxable-income-based limitations on various kinds of dividends
received deductions including the one provided under Sections 245(a) and
245(b), which are not related to FSC's. A limitation with respect to the
DRD for FSC's is conspicuously missing. This leads me to conclude that there
is no such limitation. I have reviewed commentary regarding this matter
from several sources. There is no mention of a taxable income limitation
for the FSC DRD. Even if there were a taxable income limitation on the DRD from FSC's,
the excess not deducted currently would not be lost and would simply increase
the net operating loss carryforward. Section 172 controls the computation
of the net operating loss. Section 172(d)(5) provides that any income limitation
imposed by Section 246(b) on the DRD's derived from various sources (including
Section 245) is ignored for purposes of computing the net operating loss
for a given tax year. In essence, for purposes of determining how much NOL
is generated in a given tax year, the entire DRD is counted, not just the
portion allowed against current income. | 
