---
kind: "section"
citation: "26 U.S.C. § 245A"
title: "26"
title_heading: "Internal Revenue Code"
number: "245A"
heading: "Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/245A"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter B — Computation of Taxable Income"
  - "Part VIII — Special Deductions for Corporations"
---

# §245A. Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

- (a) **In general—** In the case of any [dividend](/usc/26/316.md?p=a) received from a specified 10-percent owned foreign corporation by a domestic corporation which is a [United States](/usc/26/993.md?p=g) shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such [dividend](/usc/26/316.md?p=a).
- (b) **Specified 10-percent owned foreign corporation—** For purposes of this section—
  - (1) **In general—** The term “specified 10-percent owned foreign corporation” means any foreign corporation with respect to which any domestic corporation is a [United States](/usc/26/993.md?p=g) shareholder with respect to such corporation.
  - (2) **Exclusion of passive foreign investment companies—** Such term shall not include any corporation which is a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) (as defined in [section 1297](/usc/26/1297.md)) with respect to the shareholder and which is not a controlled foreign corporation.
- (c) **Foreign-source portion—** For purposes of this section—
  - (1) **In general—** The foreign-source portion of any [dividend](/usc/26/316.md?p=a) from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such [dividend](/usc/26/316.md?p=a) as—
    - (A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to
    - (B) the total undistributed earnings of such foreign corporation.
  - (2) **Undistributed earnings—** The term “undistributed earnings” means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections [964(a)](/usc/26/964.md?p=a) and [986](/usc/26/986.md))—
    - (A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the [dividend](/usc/26/316.md?p=a) is distributed, and
    - (B) without diminution by reason of [dividends](/usc/26/316.md?p=a) distributed during such taxable year.
  - (3) **Undistributed foreign earnings—** The term “undistributed foreign earnings” means the portion of the undistributed earnings which is attributable to neither—
    - (A) income described in [subparagraph (A)](/usc/26/245.md?p=a-5-A) of section 245(a)(5), nor
    - (B) [dividends](/usc/26/316.md?p=a) described in subparagraph (B) of such section (determined without regard to [section 245(a)(12)](/usc/26/245.md?p=a-12)).
- (d) **Disallowance of foreign tax credit, etc.**
  - (1) **In general—** No credit shall be allowed under [section 901](/usc/26/901.md) for any taxes paid or accrued (or treated as paid or accrued) with respect to any [dividend](/usc/26/316.md?p=a) for which a deduction is allowed under this section.
  - (2) **Denial of deduction—** No deduction shall be allowed under this chapter for any tax for which credit is not allowable under [section 901](/usc/26/901.md) by reason of [paragraph (1)](#d-1) (determined by treating the [taxpayer](/usc/26/1313.md?p=b) as having elected the benefits of subpart A of part III of subchapter N).
- (e) **Special rules for hybrid dividends—**
  - (1) **In general—** [Subsection (a)](#a) shall not apply to any [dividend](/usc/26/316.md?p=a) received by a [United States](/usc/26/993.md?p=g) shareholder from a controlled foreign corporation if the [dividend](/usc/26/316.md?p=a) is a hybrid [dividend](/usc/26/316.md?p=a).
  - (2) **Hybrid dividends of tiered corporations—** If a controlled foreign corporation with respect to which a domestic corporation is a [United States](/usc/26/993.md?p=g) shareholder receives a hybrid [dividend](/usc/26/316.md?p=a) from any other controlled foreign corporation with respect to which such domestic corporation is also a [United States](/usc/26/993.md?p=g) shareholder, then, notwithstanding any other provision of this title—
    - (A) the hybrid [dividend](/usc/26/316.md?p=a) shall be treated for purposes of [section 951(a)(1)(A)](/usc/26/951.md?p=a-1-A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the [dividend](/usc/26/316.md?p=a) was received, and
    - (B) the [United States](/usc/26/993.md?p=g) shareholder shall include in gross income an amount equal to the shareholder’s pro rata share (determined in the same manner as under [section 951(a)(2)](/usc/26/951.md?p=a-2)) of the subpart F income described in [subparagraph (A)](#e-2-A).
  - (3) **Denial of foreign tax credit, etc.** The rules of [subsection (d)](#d) shall apply to any hybrid [dividend](/usc/26/316.md?p=a) received by, or any amount included under [paragraph (2)](#e-2) in the gross income of, a [United States](/usc/26/993.md?p=g) shareholder.
  - (4) **Hybrid dividend—** The term “hybrid [dividend](/usc/26/316.md?p=a)” means an amount received from a controlled foreign corporation—
    - (A) for which a deduction would be allowed under [subsection (a)](#a) but for this subsection, and
    - (B) for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the [United States](/usc/26/993.md?p=g).
- (f) **Special rule for purging distributions of passive foreign investment companies—** Any amount which is treated as a [dividend](/usc/26/316.md?p=a) under [section 1291(d)(2)(B)](/usc/26/1291.md?p=d-2-B) shall not be treated as a [dividend](/usc/26/316.md?p=a) for purposes of this section.
- (g) **Regulations—** The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of [United States](/usc/26/993.md?p=g) shareholders owning [stock](/usc/26/1504.md?p=a-4) of a specified 10 percent[^1] owned foreign corporation through a [partnership](/usc/26/761.md?p=a).

## Footnotes

[^1]: So in original. Probably should be “10-percent”.

## Source credit

(Added Pub. L. 115–97, title I, § 14101(a), Dec. 22, 2017, 131 Stat. 2189.)

## Notes

### Statutory Notes and Related Subsidiaries

### Effective Date

Pub. L. 115–97, title I, § 14101(f), Dec. 22, 2017, 131 Stat. 2192, provided that: “The amendments made by this section [enacting this section and amending sections 246, 904, 951, 957, and 1059 of this title] shall apply to distributions made after (and, in the case of the amendments made by subsection (d) [amending section 904 of this title], deductions with respect to taxable years ending after) December 31, 2017.”