272
INTERNAL REVENUE CODE OF
1954
(ii) the deduction for dividends paid (as defined in section 561) determined with reference to capital gains dividends only. (B) TREATMENT
OF
CAPITAL
GAIN
DIVIDENDS
BY
SHARE-
HOLDERS.—A capital gain dividend shall be treated by the shareholders as a gain from the sale or exchange of a capital asset held for more than 6 months. (C) DEFINITION OF CAPITAL GAIN DIVIDEND.—A capital gain dividend means any dividend, or part thereof, which is designated by the company as a capital gain dividend in a written notice mailed to its shareholders not later than 30 days after the close of its taxable year. If the aggregate amount so designated with respect to a taxable year of the company (including capital gains dividends paid after the close of the taxable year described in section 855) is greater than the excess of the net long-term capital gain over tTie net short-term capital loss of the taxable year, the portion of each distribution which shall be a capital gain dividend shall be only that proportion of the amount so designated which such excess of the net long-term capital gain over the net short-term capital loss bears to the aggregate amount so designated. (c) EARNINGS AND P R OF I T S. — The earnings and profits of a regulated investment company for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. SEC. 853. FOREIGN TAX CREDIT ALLOWED TO SHAREHOLDERS. (a) GENERAL RULE. — A regulated investment company—
(1) more than 50 percent of the value (as defined in section 851 (c)(4)) of whose total assets at the close of the taxable year consists of stock or securities in foreign corporations, and (2) which meets the requirements of section 852(a) for the taxable year, may, for such taxable year, elect the application of this section with respect to income, war profits, and excess profits taxes described in section 901(b)(1), which are paid by the investment company during such taxable year to foreign countries and possessions of the United States. (b) E F F E C T OF ELECTION.—If the election provided in subsection (a) is effective for a taxable year— (1) the regulated investment company— (A) shall not, with respect to such taxable year, be allowed a deduction under section 164(a) or a credit under section 901 for taxes to which subsection (a) is applicable, and (B) shall be allowed as an addition to the dividends paid deduction for such taxable year the amount of such taxes; (2) each shareholder of such investment company shall— (A) include in gross income and treat as paid by him his proportionate share of such taxes, and (B) treat as gross income from sources within the respective foreign countries and possessions of the United States, for purposes of applying subpart A of part III of subchapter N, the sum of his proportionate share of such taxes and the portion of any dividend paid by such investment company which repre§852(b)(3)(A)(ii)
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