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CHAN ROBLES VIRTUAL LAW LIBRARY : 26 C.F.R. § 1.995-2 Deemed distributions in qualified years.
United States> Code of Federal Regulations> Title 26 - Internal Revenue> PART 1--INCOME TAXES> § 1.995-2 Deemed distributions in qualified years.
26 C.F.R. § 1.995-2 Deemed distributions in qualified years.
§ 1.995-2 Deemed distributions in qualified years.
(1) An amount equal to the gross interest derived by the DISC during such year from producer's loans (as defined in §1.993–4).
(4) For taxable years beginning after December 31, 1975, an amount equal to 50 percent of the taxable income of the DISC for the taxable years attributable to military property (as defined in §1.995–6).
(5) For taxable years beginning after December 31, 1975, the taxable income for the taxable year attributable to base period export gross receipts (as defined in §1.995–7).
(i)(A) In the case of a corporate share holder, an amount equal to 57.5 percent of the excess (if any) (one-half for DISCs' taxable years beginning before January 1, 1983) of the taxable income of the DISC for such year (computed as provided in §1.991–1(b)(1)) over the sum of the amounts deemed distributed for the taxable year in accordance with subparagraphs (1), (2), (3), (4) and (5) of this paragraph, or
(B) In the case of a non-corporate share holder, an amount equal to one-half of the excess (if any) of the taxable income of the DISC for such year (computed as provided in §1.991–1(b)(1)) over the sum of the amounts deemed distributed for the taxable year in accordance with subparagraphs (1), (2), (3), (4), and (5) of this paragraph.
(7) The amount of foreign investment attributable to producer's loans of the DISC, as of the close of the “group taxable year” ending with such taxable year of the DISC, determined in accordance with §1.995–5. The amount of such foreign investment attributable to producer's loans so determined for any taxable year of a former DISC shall be deemed distributed as a dividend to the shareholders of such former DISC on the last day of such taxable year. See §1.995–3(e) for the effect that such deemed distribution has on scheduled installments of deemed distributions of accumulated DISC income under §1.995–3(a) upon disqualification.
(i) Increased by any DISC income of the corporation for such year as defined in §1.996–3(b)(2) (i.e., any excess of the DISC's earnings and profits for such year over the sum of the amounts described in paragraph (a)(1) through (a)(6) of this section), or
Thus, for example, if a DISC has a deficit in accumulated earnings and profits at the beginning of a taxable year of $10,000, current earnings and profits of $12,000, no amounts described in paragraphs (a)(1) through (a)(6) of this section for the year, and foreign investment attributable to producer's loans for the taxable year of $5,000, the DISC would have a deemed distribution described in paragraph (a)(7) of this section of $5,000 for the taxable year. On the other hand, suppose the DISC had accumulated earnings and profits of $13,000 at the beginning of the taxable year, accumulated DISC income of $10,000 at the beginning of the taxable year, a deficit in earnings and profits for the taxable year of $12,000, no amounts described in paragraphs (a)(1) through (a)(6) of this section for the taxable year, and foreign investment attributable to producer's loans for the taxable year of $5,000. Under these facts the DISC would have no deemed distribution described in paragraph (a)(7) of this section because the corporation had no DISC income for the taxable year and the current year's deficit in earnings and profits subtracted from the DISC's accumulated DISC income at the beginning of the year produces a negative amount. For rules relating to the carryover to a subsequent year of the $5,000 of foreign investment attributable to producer's loans, see §1.995–5(a)(6).
(1) Gross interest derived by Y in 1973 from producer's loans..   $7,000(2) Amount of gain on depreciable property (lower of Y's          20,000 recognized gain ($25,000) or X's gain not recognized on section 1245 property ($20,000))..............................(3) Amount of gain on stock (lower of X's gain not recognized      5,000 or Y's recognized gain ($8,000) ($5,000)).....................(4) One-half excess of taxable income for 1973 over the sum of    34,000 lines (1), (2), and (3) (1/2 of ($100,000 minus $32,000)).....                                                                --------(5) Limitation on lines (1) through (4):  (a) Sum of lines (1) through (4).............................   66,000  (b) Earnings and profits for 1973............................   72,000                                                                --------  (c) Lower of lines (a) and (b)...............................   66,000                                                                --------(6) Amount under paragraph (a)(5) of this section:    (a) Foreign investment attributable to producer's loans       10,000     under § 1.995-5......................................    (b) Sum of the lower of accumulated earnings and profits at   11,000     beginning of 1973 ($5,000) or accumulated DISC income at     beginning of 1973 ($6,000) and excess of earnings and     profits for 1973 over line (5)(c) ($72,000 minus $66,000).                                                                --------    (c) Lower of lines (a) and (b).............................   10,000                                                                --------(7) Total deemed distribution (sum of lines (5)(c) and (6)(c)).   76,000                                                                ========
(5) Limitation on lines (1) through (4):    (a) Line (5)(a) of example 1..............................   $66,000    (b) Earnings and profits for 1973.........................    60,000                                                               ---------    (c) Lower of lines (a) and (b)............................    60,000                                                               ---------(6) Amount under paragraph (a)(5) of this section:    (a) Line (6)(a) of example 1..............................    10,000    (b) Sum of the lower of accumulated earnings and profits       5,000     at beginning of 1973 ($5,000) or accumulated DISC income     at beginning of 1973 ($6,000) plus excess of earnings and     profits for 1973 over line (5)(c) ($60,000 minus $60,000)                                                               ---------    (c) Lower of lines (a) and (b)............................     5,000                                                               ---------(7) Total deemed distribution (sum of lines (5)(c) and (6)(c))    65,000                                                               =========
(5) Limitation on lines (1) through (4):  (a) Line (5)(a) of example 1................................   $66,000  (b) Earnings and profits for 1973...........................    72,000                                                               ---------  (c) Lower of lines (a) and (b)..............................    66,000                                                               ---------(6) Amount under paragraph (a)(5) of this section:  (a) Line (6)(a) of example 1................................    10,000  (b) Sum of accumulated earnings and profits at beginning of      6,000   1973 (not less than $0), and excess of earnings and profits   for 1973 over amount in line (5)(c) ($72,000 minus $66,000)                                                               ---------  (c) Lower of lines (a) and (b)..............................     6,000                                                               ---------(7) Total deemed distribution sum of lines (5)(c) and (6)(c)..    72,000                                                               =========
(e) Carry back of net operating loss and capital loss to prior DISC taxable year. For purposes of sections 991, 995, and 996, the amount of the deduction for the taxable year under section 172 for a net operating loss carryback or carryover or under section 1212 for a capital loss carryback or carryover shall be determined in the same manner as if the DISC were a domestic corporation which had not elected to be treated as a DISC. Thus, the amount of the deduction will be the same whether or not the corporation was a DISC in the year of the loss or in the year to which the loss is carried. For provisions setting forth adjustments to the DISC's, or former DISC's, deemed distributions, adjustments to its divisions of earnings and profits, and other tax consequences arising from such carrybacks, see §1.996–8.