REDUCTION IN DIVIDENDS RECEIVED DEDUCTION FOR DIVIDENDS FROM CORPORATIONS NOT 20-PERCENT OWNED.

SEC. 10221. REDUCTION IN DIVIDENDS RECEIVED DEDUCTION FOR DIVIDENDS FROM CORPORATIONS NOT 20-PERCENT OWNED. (a) General Rule.— The following provisions are each amended by striking out “80 percent” and inserting in lieu thereof “70 percent”: (1) Section 243(a)(1) (relating to dividends received by corporations). (2) Subsections (a)(3) and (b)(2) of section 244 (relating to dividends received on certain preferred stock). (b) Retention of 80-Percent Dividends Received Deduction for Dividends From 20-Percent Owned Corporations.— Section 243 is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection: “(c) Retention of 80-Percent Dividends Received Deduction for Dividends From 20-Percent Owned Corporations.— “(1) In general.— In the case of any dividend received from a 20-percent owned corporation— “(A) subsection (a)(1) of this section, and “(B) subsections (a)(3) and (b)(2) of section 244, shall be applied by substituting ‘80 percent’ for ‘70 percent’. “(2) 20-percent owned corporation.— For purposes of this section, the term ‘20-percent owned corporation’ means any corporation if 20 percent or more of the stock of such corpora-101 STAT. 1330–409tion (by vote and value) is owned by the taxpayer. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account.” (c) Modifications to Taxable Year Limitations.— (1) Subsection (b) of section 246 (relating to limitation on aggregate amount of deductions) is amended— (A) by striking out “80 percent” in paragraph (1) and inserting in lieu thereof “the percentage determined under paragraph (3)”, and (B) by adding at the end thereof the following new paragraph: “(3) Special rules.— The provisions of paragraph (1) shall be applied— “(A) first separately with respect to dividends from 20-percent owned corporations (as defined in section 243(c)(2)) and the percentage determined under this paragraph shall be 80 percent, and “(B) then separately with respect to dividends not from 20-percent owned corporations and the percentage determined under this paragraph shall be 70 percent and the taxable income shall be reduced by the aggregate amount of dividends from 20-percent owned corporations (as so defined).” (2) Subparagraph (B) of section 805(a)(4) is amended by striking out “shall be 80 percent of the life insurance company taxable income” and inserting in lieu thereof “shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3))”. (d) Conforming Amendments.— (1) Subparagraph (B) of section 245(c)(1) is amended by striking out “85 percent” and inserting in lieu thereof “70 percent (80 percent in the case of dividends from a 20-percent owned corporation as defined in section 243(c)(2))”. (2) Paragraph (1) of section 246A(a) is amended by striking out “80 percent” and inserting in lieu thereof “70 percent (80 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2))”. (3) Subparagraph (A) of section 854(b)(1) is amended by inserting before the period at the end thereof the following: “and such dividend shall be treated as received from a corporation which is not a 20-percent owned corporation”. (4) Paragraph (2) of section 861(a) is amended— (A) by striking out “100/85th” and inserting in lieu thereof “100/70th”, and (B) by adding at the end thereof the following new sentence: “In the case of any dividend from a 20-percent owned corporation (as defined in section 243(c)(2)), subparagraph (B) shall be applied by substituting ‘100/80th’ for ‘100/70th’.” (e) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to dividends received or accrued after December 31, 1987, in taxable years ending after such date. 101 STAT. 1330–410 (2) Amendments relating to limitations.— The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1987.