---
kind: "range"
citation: "26 C.F.R. §§ 1.854-1–1.854-3"
title: "26"
from: "1.854-1"
to: "1.854-3"
count: 3
url: "https://uscodex.org/cfr/26/1.854-1..1.854-3"
---

# §1.854-1. Limitations applicable to dividends received from regulated investment company.

- (a) **In general.** [Section 854](/cfr/26/854.md) provides special limitations applicable to dividends received from a regulated investment company for purposes of the exclusion under [section 116](/cfr/26/116.md) for dividends received by individuals, the deduction under [section 243](/cfr/26/243.md) for dividends received by corporations, and, in the case of dividends received by individuals before January 1, 1965, the credit under [section 34](/cfr/26/34.md).
- (b) **Capital gain dividend.** Under the provisions of [section 854(a)](/cfr/26/854.md?p=a) a capital gain dividend as defined in [section 852(b)(3)](/cfr/26/852.md?p=b-3) and [paragraph (c)](/cfr/26/1.852-4.md?p=c) of § 1.852-4 shall not be considered a dividend for purposes of the exclusion under [section 116](/cfr/26/116.md), the deduction under [section 243](/cfr/26/243.md), and, in the case of taxable years ending before January 1, 1965, the credit under [section 34](/cfr/26/34.md).
- (c) **Rule for dividends other than capital gain dividends.**
  - (1) [Section 854(b)(1)](/cfr/26/854.md?p=b-1) limits the amount that may be treated as a dividend (other than a capital gain dividend) by the shareholder of a regulated investment company, for the purposes of the credit, exclusion, and deduction specified in [paragraph (b)](#b) of this section, where the investment company receives substantial amounts of income (such as interest, etc.) from sources other than dividends from domestic corporations, which dividends qualify for the exclusion under [section 116](/cfr/26/116.md).
  - (2) Where the “aggregate dividends received” (as defined in [section 854(b)(3)(B)](/cfr/26/854.md?p=b-3-B) and [paragraph (b)](/cfr/26/1.854-3.md?p=b) of § 1.854-3) during the taxable year by a regulated investment company (which meets the requirements of [section 852(a)](/cfr/26/852.md?p=a) and [paragraph (a)](/cfr/26/1.852-1.md?p=a) of § 1.852-1 for the taxable year during which it paid such dividend) are less than 75 percent of its gross income for such taxable year (as defined in [section 854(b)(3)(A)](/cfr/26/854.md?p=b-3-A) and [paragraph (a)](/cfr/26/1.854-3.md?p=a) of § 1.854-3), only that portion of the dividend paid by the regulated investment company which bears the same ratio to the amount of such dividend paid as the aggregate dividends received by the regulated investment company, during the taxable year, bears to its gross income for such taxable year (computed without regard to gains from the sale or other disposition of stocks or securities) may be treated as a dividend for purposes of such credit, exclusion, and deduction.
  - (3) [Subparagraph (2)](#c-2) of this paragraph may be illustrated by the following example:
- (d) **Dividends received from a regulated investment company during taxable years of shareholders ending after July 31, 1954, and subject to the Internal Revenue Code of 1939.** For the application of [section 854](/cfr/26/854.md) to taxable years of shareholders of a regulated investment company ending after July 31, 1954, and subject to the Internal Revenue Code of 1939, see [§ 1.34-5](/cfr/26/1.34-5.md) and [§ 1.116-2](/cfr/26/1.116-2.md).

# §1.854-2. Notice to shareholders.

- (a) **General rule.** [Section 854(b)(2)](/cfr/26/854.md?p=b-2) provides that the amount that a shareholder may treat as a dividend for purposes of the exclusion under [section 116](/cfr/26/116.md) for dividends received by individuals, the deduction under [section 243](/cfr/26/243.md) for dividends received by corporation, and, in the case of dividends received by individuals before January 1, 1965, the credit under [section 34](/cfr/26/34.md), shall not exceed the amount so designated by the company in a written notice to its shareholders mailed not later than 45 days (30 days for a taxable year ending before Feb. 26, 1964) after the close of the company's taxable year. If, however, the amount so designated by the company in the notice exceeds the amount which may be treated by the shareholder as a dividend for such purposes, the shareholder is limited to the amount as correctly ascertained under [section 854(b)(1)](/cfr/26/854.md?p=b-1) and [paragraph (c)](/cfr/26/1.854-1.md?p=c) of § 1.854-1.
- (b) **Shareholder of record custodian of certain unit investment trusts.** In any case where a notice is mailed pursuant to [paragraph (a)](#a) of this section by a regulated investment company with respect to a taxable year of the regulated investment company ending after December 8, 1970 to a shareholder of record who is a nominee acting as a custodian of a unit investment trust described in [section 851(f)(1)](/cfr/26/851.md?p=f-1) and [paragraph (d)](/cfr/26/1.851-7.md?p=d) of § 1.851-7, the nominee shall furnish each holder of an interest in such trust with a written notice mailed on or before the 55th day following the close of the regulated investment company's taxable year. The notice shall designate the holder's proportionate share of the amounts that may be treated as a dividend for purposes of the exclusion under [section 116](/cfr/26/116.md) for dividends received by individuals and the deduction under [section 243](/cfr/26/243.md) for dividends received by corporations shown on the notice received by the nominee pursuant to [paragraph (a)](#a) of this section. This notice shall include the name and address of the nominee identified as such. This paragraph shall not apply if the regulated investment company agrees with the nominee to satisfy the notice requirements of [paragraph (a)](#a) of this section with respect to each holder of an interest in the unit investment trust whose shares are being held by the nominee as custodian and not later than 45 days following the close of the company's taxable year, files with the Internal Revenue Service office where such company's return is to be filed for the taxable year, a statement that the holders of the unit investment trust with whom the agreement was made have been directly notified by the regulated investment company. Such statement shall include the name, sponsor, and custodian of each unit investment trust whose holders have been directly notified. The nominee's requirements under this paragraph shall be deemed met if the regulated investment company transmits a copy of such statement to the nominee within such 45-day period; provided however, if the regulated investment company fails or is unable to satisfy the requirements of this paragraph with respect to the holders of interest in the unit investment trust, it shall so notify the Internal Revenue Service within 45 days following the close of its taxable year. The custodian shall, upon notice by the Internal Revenue Service that the regulated investment company has failed to comply with the agreement, satisfy the requirements of this paragraph within 30 days of such notice.

# §1.854-3. Definitions.

- (a) For the purpose of computing the limitation prescribed by [section 854(b)(1)(B)](/cfr/26/854.md?p=b-1-B) and [paragraph (c)](/cfr/26/1.854-1.md?p=c) of § 1.854-1, the term “gross income” does not include gain from the sale or other disposition of stock or securities. However, capital gains arising from the sale or other disposition of capital assets, other than stock or securities, shall not be excluded from gross income for this purpose.
- (b) The term “aggregate dividends received” includes only dividends received from domestic corporations other than dividends described in [section 116(b)](/cfr/26/116.md?p=b) (relating to dividends not eligible for exclusion from gross income). Accordingly, dividends received from foreign corporations will not be included in the computation of “aggregate dividends received”. In determining the amount of any dividend for purposes of this section, the rules provided in [section 116(c)](/cfr/26/116.md?p=c) (relating to certain distributions) shall apply.