Page:United States Statutes at Large Volume 117.djvu/781

 117 STAT. 762 26 USC 163.

Applicability.

VerDate 11-MAY-2000

13:45 Aug 26, 2004

PUBLIC LAW 108–27—MAY 28, 2003

(b) EXCLUSION OF DIVIDENDS FROM INVESTMENT INCOME.— Subparagraph (B) of section 163(d)(4) (defining net investment income) is amended by adding at the end the following flush sentence: ‘‘Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.’’. (c) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES.— (1) Subsection (a) of section 854 (relating to dividends received from regulated investment companies) is amended by inserting ‘‘section 1(h)(11) (relating to maximum rate of tax on dividends) and’’ after ‘‘For purposes of’’. (2) Paragraph (1) of section 854(b) (relating to other dividends) is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph: ‘‘(B) MAXIMUM RATE UNDER SECTION 1(h).— ‘‘(i) IN GENERAL.—If the aggregate dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the maximum rate under section 1(h)(11), rules similar to the rules of subparagraph (A) shall apply. ‘‘(ii) GROSS INCOME.—For purposes of clause (i), in the case of 1 or more sales or other dispositions of stock or securities, the term ‘gross income’ includes only the excess of— ‘‘(I) the net short-term capital gain from such sales or dispositions, over ‘‘(II) the net long-term capital loss from such sales or dispositions. ‘‘(iii) DIVIDENDS FROM REAL ESTATE INVESTMENT TRUSTS.—For purposes of clause (i)— ‘‘(I) paragraph (3)(B)(ii) shall not apply, and ‘‘(II) in the case of a distribution from a trust described in such paragraph, the amount of such distribution which is a dividend shall be subject to the limitations under section 857(c). ‘‘(iv) DIVIDENDS FROM QUALIFIED FOREIGN CORPORATIONS.—For purposes of clause (i), dividends received from qualified foreign corporations (as defined in section 1(h)(11)) shall also be taken into account in computing aggregate dividends received.’’. (3) Subparagraph (C) of section 854(b)(1), as redesignated by paragraph (2), is amended by striking ‘‘subparagraph (A)’’ and inserting ‘‘subparagraph (A) or (B)’’. (4) Paragraph (2) of section 854(b) is amended by inserting ‘‘the maximum rate under section 1(h)(11) and’’ after ‘‘for purposes of’’. (5) Subsection (b) of section 854 is amended by adding at the end the following new paragraph: ‘‘(5) COORDINATION WITH SECTION 1(h)(11).—For purposes of paragraph (1)(B), an amount shall be treated as a dividend only if the amount is qualified dividend income (within the meaning of section 1(h)(11)(B)).’’.

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