--- kind: "section" citation: "26 U.S.C. § 565" title: "26" title_heading: "Internal Revenue Code" number: "565" heading: "Consent dividends" release: "119-102" url: "https://uscodex.org/usc/26/565" units: - "Subtitle A — Income Taxes" - "Chapter 1 — Normal Taxes and Surtaxes" - "Subchapter G — Corporations Used to Avoid Income Tax on Shareholders" - "Part IV — Deduction for Dividends Paid" --- # §565. Consent dividends - (a) **General rule—** If any [person](/usc/26/7701.md?p=a-1) owns consent [stock](/usc/26/7701.md?p=a-7) (as defined in [subsection (f)(1)](#f-1)) in a [corporation](/usc/26/7701.md?p=a-3) on the last day of the [taxable year](/usc/26/441.md?p=b) of such [corporation](/usc/26/7701.md?p=a-3), and such [person](/usc/26/7701.md?p=a-1) agrees, in a consent filed with the [return](/usc/26/6103.md?p=b-1) of such [corporation](/usc/26/7701.md?p=a-3) in accordance with regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), to treat as a [dividend](/usc/26/316.md?p=b-2-A) the amount specified in such consent, the amount so specified shall, except as provided in [subsection (b)](#b), constitute a consent [dividend](/usc/26/316.md?p=b-2-A) for purposes of [section 561](/usc/26/561.md) (relating to the deduction for [dividends](/usc/26/316.md?p=b-2-A) paid). - (b) **Limitations—** A consent [dividend](/usc/26/316.md?p=b-2-A) shall not include— - (1) an amount specified in a consent which, if distributed in money, would constitute, or be part of, a distribution which would be disqualified for purposes of the [dividends](/usc/26/316.md?p=b-2-A) paid deduction under [section 562(c)](/usc/26/562.md?p=c) (relating to preferential [dividends](/usc/26/316.md?p=b-2-A)), or - (2) an amount specified in a consent which would not constitute a [dividend](/usc/26/316.md?p=b-2-A) (as defined in [section 316](/usc/26/316.md)) if the total amounts specified in consents filed by the [corporation](/usc/26/7701.md?p=a-3) had been distributed in money to [shareholders](/usc/26/543.md?p=a-4) on the last day of the [taxable year](/usc/26/441.md?p=b) of such [corporation](/usc/26/7701.md?p=a-3). - (c) **Effect of consent—** The amount of a consent [dividend](/usc/26/316.md?p=b-2-A) shall be considered, for purposes of this title— - (1) as distributed in money by the [corporation](/usc/26/7701.md?p=a-3) to the [shareholder](/usc/26/543.md?p=a-4) on the last day of the [taxable year](/usc/26/441.md?p=b) of the [corporation](/usc/26/7701.md?p=a-3), and - (2) as contributed to the capital of the [corporation](/usc/26/7701.md?p=a-3) by the [shareholder](/usc/26/543.md?p=a-4) on such day. - (d) **Consent dividends and other distributions—** If a distribution by a [corporation](/usc/26/7701.md?p=a-3) consists in part of consent [dividends](/usc/26/316.md?p=b-2-A) and in part of money or other [property](/usc/26/614.md?p=a), the entire amount specified in the consents and the amount of such money or other [property](/usc/26/614.md?p=a) shall be considered together for purposes of applying this title. - (e) **Nonresident aliens and foreign corporations—** In the case of a consent [dividend](/usc/26/316.md?p=b-2-A) which, if paid in money would be subject to the provisions of [section 1441](/usc/26/1441.md) (relating to withholding of tax on nonresident aliens) or [section 1442](/usc/26/1442.md) (relating to withholding of tax on [foreign](/usc/26/7701.md?p=a-5) [corporations](/usc/26/7701.md?p=a-3)), this section shall not apply unless the consent is accompanied by money, or such other medium of payment as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations authorize, in an amount equal to the amount that would be required to be deducted and withheld under sections [1441](/usc/26/1441.md) or [1442](/usc/26/1442.md) if the consent [dividend](/usc/26/316.md?p=b-2-A) had been, on the last day of the [taxable year](/usc/26/441.md?p=b) of the [corporation](/usc/26/7701.md?p=a-3), paid to the [shareholder](/usc/26/543.md?p=a-4) in money as a [dividend](/usc/26/316.md?p=b-2-A). The amount accompanying the consent shall be credited against the tax imposed by this subtitle on the [shareholder](/usc/26/543.md?p=a-4). - (f) **Definitions—** - (1) **Consent stock—** Consent [stock](/usc/26/7701.md?p=a-7), for purposes of this section, means the class or classes of [stock](/usc/26/7701.md?p=a-7) entitled, after the payment of preferred [dividends](/usc/26/316.md?p=b-2-A), to a share in the distribution (other than in complete or partial liquidation) within the [taxable year](/usc/26/441.md?p=b) of all the remaining earnings and profits, which share constitutes the same proportion of such distribution regardless of the amount of such distribution. - (2) **Preferred dividends—** Preferred [dividends](/usc/26/316.md?p=b-2-A), for purposes of this section, means a distribution (other than in complete or partial liquidation), limited in amount, which must be made on any class of [stock](/usc/26/7701.md?p=a-7) before a further distribution (other than in complete or partial liquidation) of earnings and profits may be made within the [taxable year](/usc/26/441.md?p=b). ## Source credit (Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) ## Notes ### Editorial Notes ### Amendments 1976—Subsecs. (a), (e). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.