Reg. § 1.1502-26 Consolidated dividends received deduction.
(a) In general The consolidated dividends received deduction for the taxable year is the lesser of—
(1) The aggregate of the deduction of the members of the group allowable under sections , and (b), and 250 (computed without regard to the limitations provided in section ), or
(2) The aggregate amount described in section , determined by substituting, wherever it appears—
(i) The term consolidated taxable income for taxable income,
(ii) The term consolidated net operating loss for net operating loss, and
(iii) The term consolidated net capital loss for capital loss.
(b) Intercompany dividends The deduction determined under of this section is determined without taking into account intercompany dividends to the extent that, under , they are not included in gross income. See for additional rules relating to intercompany dividends.
(c) Examples The provisions of this section may be illustrated by the following examples:
(1) Example 1
(i) Corporations P, S, and S-1 filed a consolidated return for the calendar year 2023 showing consolidated taxable income of $100,000 (determined without regard to the consolidated net operating loss deduction, and the consolidated dividends received deduction). These corporations received dividends during such year from less than 20-percent owned domestic corporations as follows:
| Corporation | Dividends |
|---|---|
| P | $6,000 |
| S | 10,000 |
| S-1 | 34,000 |
| Total | 50,000 |
(ii) The dividends received deduction allowable to each member under section (computed without regard to the limitation in section ) is as follows: P has $3,000 (50 percent of $6,000), S has $5,000 (50 percent of $10,000), and S-1 has $17,000 (50 percent of $34,000), or a total of $25,000. Since $25,000 is less than $50,000 (50 percent of $100,000), the consolidated dividends received deduction is $25,000.
(2) Example 2 Assume the same facts as in of this section (Example 1), except that consolidated taxable income (computed without regard to the consolidated net operating loss deduction and the consolidated dividends received deduction) was $40,000. The aggregate of the dividends received deductions, $42,500, computed without regard to section , results in a consolidated net operating loss of $2,500. See section . Therefore, of this section does not apply and the consolidated dividends received deduction is $42,500.
[T.D. 6894, 31 FR 11794, Sept. 8, 1966, as amended by T.D. 7631, 44 FR 40497, July 11, 1979; T.D. 8597, 60 FR 36710, July 18, 1995; T.D. 8677, 61 FR 33323, June 27, 1996; T.D. 8823, 64 FR 36099, July 2, 1999; T.D. 10018, 89 FR 106868, Dec. 30, 2024]