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The remainder, ,000 (1,000, the amount of the distribution, less 6,000, the amount allocable to capital account) is properly chargeable to the earnings and profits accumulated since February 28, 1913, and is deductible as dividends paid.

The M Corporation, a calendar year taxpayer, is completely liquidated on November 1, 1955, pursuant to a plan of liquidation adopted April 1, 1955. 58]§ 985 - Functional currency§ 987 - Branch transactions§ 988 - Treatment of certain foreign currency transactions§ 989 - Other definitions and special rules§ 1017 - Discharge of indebtedness§ 1032 - Exchange of stock for property§ 1059 - Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends§ 1060 - Special allocation rules for certain asset acquisitions§ 1092 - Straddles§ 1202 - Partial exclusion for gain from certain small business stock§ 1221 - Capital asset defined§ 1244 - Losses on small business stock§ 1248 - Gain from certain sales or exchanges of stock in certain foreign corporations§ 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties§ 1275 - Other definitions and special rules§ 1286 - Tax treatment of stripped bonds§ 1291 - Interest on tax deferral§ 1293 - Current taxation of income from qualified electing funds§ 1294 - Election to extend time for payment of tax on undistributed earnings§ 1295 - Qualified electing fund§ 1296 - Election of mark to market for marketable stock§ 1297 - Passive foreign investment company§ 1298 - Special rules§ 1301 - Averaging of farm income§ 1361 - S corporation defined§ 1368 - Distributions§ 1374 - Tax imposed on certain built-in gains§ 1377 - Definitions and special rule§ 1378 - Taxable year of S corporation§ 1397D - Qualified zone property defined§ 1397E - Repealed.

The remainder of the distribution in liquidation is, ordinarily, properly chargeable to the earnings and profits accumulated after February 28, 1913.

Thus, if there is a deficit in earnings and profits on the first day of a taxable year, and the earnings and profits for such taxable year do not exceed such deficit, no dividends paid deduction would be allowed for such taxable year with respect to a distribution in liquidation; if the earnings and profits for such taxable year exceed the deficit in earnings and profits which existed on the first day of such taxable year, then a dividends paid deduction would be allowed to the extent of such excess.

On January 1, 1955, the M Corporation has a deficit in earnings and profits of 0,000.

During the period January 1, 1955, to the date of liquidation, November 1, 1955, it has earnings and profits of ,000.

In the case of amounts distributed in complete liquidation of a personal holding company (as defined in section 542) within 24 months after the adoption of a plan of liquidation, section 562(b)(2) makes a further exception to the general rule that a deduction for dividends paid is permitted only with respect to dividends described in section 316.

In the case of amounts distributed in liquidation by any corporation during a taxable year of such corporation beginning before January 1, 1964, or by a corporation other than a personal holding company (as defined in section 542) or a foreign personal holding company (as defined in section 552) during a taxable year of such a corporation beginning after December 31, 1963, section 562(b) makes an exception to the general rule that a deduction for dividends paid is permitted only with respect to dividends described in section 316.

In order to qualify under that exception, the distribution must be one either in complete or partial liquidation of a corporation pursuant to sections 331, 332, or 333.

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for purposes of determining dividends eligible for the dividends paid deduction, refers only to a dividend described in section 316 (relating to definition of dividends for purposes of corporate distributions).

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The M Corporation is entitled to a dividends paid deduction in the amount of $10,000 as a result of its distribution in complete liquidation on November 1, 1955. 2221]§ 904 - Limitation on credit§ 907 - Special rules in case of foreign oil and gas income§ 911 - Citizens or residents of the United States living abroad§ 924§ 925§ 927§ 934 - Limitation on reduction in income tax liability incurred to the Virgin Islands§ 936 - Puerto Rico and possession tax credit§ 937 - Residence and source rules involving possessions§ 954 - Foreign base company income§ 956 - Investment of earnings in United States property§ 957 - Controlled foreign corporations; United States persons§ 960 - Deemed paid credit for subpart F inclusions§ 963 - Repealed.

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