Internal Revenue Service
Revenue Ruling
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smRev. Rul. 66-70
1966-1 C.B. 5
Sec. 116
IRS Headnote
The Internal Revenue Service explains the computation of the dividend exclusion and the dividends received credit allowable on returns filed by individuals for the calendar year 1964 which include dividends deemed received by them as beneficiaries of estates and trusts which file fiduciary returns on a fiscal year basis, and time of receipt of dividends for purposes of the dividends received credit for 1965 and the dividend exclusion for 1965 and subsequent taxable years in respect of such dividends.
Full Text
Rev. Rul. 66-70
Advice has been requested concerning the computation of the dividend exclusion and the dividends received credit allowable on returns filed by individuals for the calendar year 1964 which include dividends deemed received by them as beneficiaries of estates and trusts which file fiduciary returns on a fiscal year basis.
Section 116(a) of the Internal Revenue Code of 1954 as amended by section 201(c) of the Revenue Act of 1964, Public Law 88-272, C.B. 1964-1 (Part 2), 6, increased the maximum dividend exclusion to $100 with respect to qualifying dividends received by an individual in taxable years beginning after December 31, 1963. If the dividends received in a taxable year exceed $100, the exclusion applies to the dividends first received in that year.
Under section 34(a)(1) of the Code, as amended by section 201(a)(1) of the Revenue Act of 1964, a 4-percent credit is allowable with respect to dividends received before January 1, 1964, and a 2-percent credit is allowable with respect to dividends received during the calendar year 1964, to the extent that they are included in the individual's income. The credit is determined with reference to the date on which the dividends are received regardless of the taxable year of the individual receiving them.
Section 642(a)(3) of the Code (which despite its repeal by section 201(d)(6)(A) of the Revenue Act of 1964 remains effective under section 201(e) of that Act with respect to dividends received prior to January 1, 1965, in taxable years ending before that date) provides that for purposes of determining the time of receipt of dividends under section 34 and section 116 of the Code, the amount of dividends properly allocable to a beneficiary under section 652 or 662 of the Code shall be deemed to have been received by the beneficiary ratably on the same dates that the dividends were received by the estate or trust. A similar provision, for purposes of section 116(a) of the Code only, is contained in section 116(c)(3) of the Code, as amended by section 201(d)(6)(C) of the Act, effective with respect to dividends received after December 31, 1964, in taxable years ending after such date.
If an individual as a beneficiary of an estate or trust is deemed to have received from the estate or trust dividends, part of which were deemed received in 1963 and part in 1964, the dividend exclusion allowable in 1964 for dividends deemed received in 1963 is limited to $50 (or the amount of dividends deemed to have been received in 1963 if less than $50), plus the dividends deemed to have been received in 1964. However, the total amount of dividends excluded, including both those deemed received in 1963 and deemed received in 1964, shall in no case exceed $100, the maximum exclusion for dividends received in 1964.
The computation of the dividend exclusion allowable for 1964 may be illustrated by the following examples. In each case the individual received no dividends except those deemed received from the trust.
1. A simple trust reporting income on the basis of a fiscal year ending March 31 received quarterly dividends of $25 on June 1, September 1, and December 1, 1963, and March 1, 1964. All of these dividends are allocable to an individual filing returns on a calendar year basis and are reported in his income tax return for 1964. Since he is deemed to have received these dividends when the trust received them, he is allowed a dividend exclusion of $75 for 1964.
2. The facts are the same as in the first example, except that the amount of the quarterly dividends received by the trust was $100. The individual is allowed a dividend exclusion of $100. Of this amount, $50 (the limitation for 1963) is excludable from those deemed received in 1963 and $50 from those deemed received in 1964.
3. An individual is sole beenficiary of a simple trust which is a participant in a common trust fund. The common trust fund's taxable year ends on April 30; the taxable year of the trust ends on September 30; and the beneficiary of the trust computes his income on the basis of a calendar year. Charges are made to the common trust fund for the amount distributable to each participant four times a year, on the last day of July, October, January, and April. The trust is required to distribute its income to the beneficiary during its taxable year. The trust's proportionate share of the amount of dividends received by the common trust fund during its fiscal year ended April 30, 1964, was $240, one-half of which was received in 1963 and the balance in 1964. The individual beneficiary is deemed to have received $120 in dividends during 1963 and $120 in 1964, when they were received by the common trust, and is allowed a dividend exclusion of $100.
The individual is allowed a dividends received credit of 4 percent for those dividends deemed to have been received by him in 1963 and 2 percent for those deemed to have been received by him in 1964, to the extent that they are included in his income. Accordingly, the dividends received credit allowable in the examples given above is:
1. $1 (4 percent of $25).
2. $11 (4 percent of $250 plus 2 percent of $50).
3. $4.20 (4 percent of $70 plus 2 percent of $70).
However, because of the limitation imposed by section 34(b)(2) of the Code, as amended by section 201(a)(2) of the Revenue Act of 1964, the credit for the calendar year 1964 may not exceed 2 percent of the individual's taxable income for that year, or the tax for the year reduced by any allowable foreign tax credit, whichever is the lesser.
In view of the repeal of section 34 of the Code by section 201(b) of the Revenue Act of 1964, effective with respect to dividends received after December 31, 1964, no dividends received credit is allowable to individuals in respect of dividends received after December 31, 1964. However, that portion of this Revenue Ruling dealing with the dividends received credit is applicable to dividends deemed to have been received in 1964 to the extent that a beneficiary is required to include such dividends in his gross income for 1965. That portion of this Revenue Ruling dealing with the dividends received exclusion, which remains effective with respect to taxable years beginning after December 31, 1963, is equally applicable, for purposes of determining the time of receipt of dividends, to dividends deemed received from an estate or trust in 1965 and subsequent taxable years.